US Macro Updates (March)

EXTRACT:

The GDP is recovering but slower than the growth of inflation rate, causing the potential risk of stagflation if the US isn’t able to revive the GDP or/and control the inflation rate. The trade balance in the US has worsened, the expectation of even stronger dollar and rising input prices could worsen the situation. Even though the outlook of the US companies are great, but there isn’t much growth expected as the exports remain weak, orders ex defines orders and aircrafts did not really go up and the job creation growth is slow. Overall, the consumers in the US are optimistic but they avoid big spending on houses and cars, possibly a wait-and-see attitude due to rising rates and political uncertainty. More importantly, the yield curve has increased potential for an inverting yield curve, the gold also has the same conclusion as the yield curve, which wants us to be cautious but crash is not something that would happen quite yet, as shown in the widening spread between Fed Fund Rate and 10-year yield.

To talk a little about President Trump, it is all depending on Trump if he could have practical policies that would increase the private investment and government spending without adding too much burden on its already alarming debt level. It is hence becoming understandable as Trump seeks to cut many budgets that he thinks are ‘unnecessary’ at the moment in order to have room to boost the spending that is important for current US economy state. However, in order to attract more private investment, it remains a challenge for Trump to ensure a more stable political state and also a move to shut down his unpopular immigration policies could be wise (at least economically, I'm not going to debate about it here) that would push many talents away from the US. While tax cut is a very favourable policy, but it has becoming clear that many of his policies might not be actually put into practice. On the other hand, policies that could lower the imports and increase the exports would be great, but I doubt that the exports could be improved anytime soon as the USD is set to increase as the interest rate rises. As the recent market’s rally is largely due to Trump and interest rates, I’d not be surprised if there’s correction when it is proved that the difficulties of putting those policies into practice have increased. However, the potential of interest rates hike would be very likely to happen, judging from the inflation rate— except if the price of oil is decreasing continuously again.

To conclude, the US market is still in healthy state, approaching full recovery, and the rumoured big crash isn’t expected to happen anytime soon yet-- at least in the coming 3 months, although there are signs that should make us wary.

Moves to watch out closely:

1. yield curve

2. gold price

3. oil price

4. Trump’s policies

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#Macros