Global economies on course for a ‘softish’ landing: UBS
A continued inflation slowdown is the main economic story for 2024
GENEVA: The last month of 2023 was marked by equity and bond rallies. The economic outlook did not really change, but the language of Federal Reserve Chair Powell did. Because Powell’s past policy errors comprehensively trashed forward guidance, investors can choose which guidance they wish to follow. Other Fed members trying to dilute the reaction to Powell have been ignored, according to UBS Insights.
A continued inflation slowdown is the main economic story for 2024. Enhancing real wage growth helps create a softish economic landing. However, central banks can claim only a small part of the credit for bringing inflation down. Transitory durable goods inflation ended automatically. Energy inflation was more a supply issue. Profit-led inflation is fading in the face of consumer rebellion. Higher rates slow inflation by slowing credit and raising unemployment. These effects have been very muted so far. The Red Sea will be a focus for investors, with more attacks on shipping in recent days. Reducing European demand for Asia’s durable goods lessens the economic impact of having to divert sailings.
The data calendar is quiet—there is background noise courtesy of business sentiment polls. The UK BRC December shop price index showed slowing food price inflation as profit-led inflation retreats; this may not fully translate into official price data.
According to UBS Insights, Korean export data for early December strengthened. Exports to the US grew quickly (exports to Europe slowed), hinting at restructuring supply chains within Asia. This implies less economic impact from the attacks in the Red Sea, with fewer sailings from Asia to Europe. The Wall Street Journal reported the Biden administration is considering taxing US consumers of Chinese electric vehicles (adding to the Trump administration’s extensive consumer taxes).
US third quarter GDP revisions are due. Markets pay little attention to such updates, but revisions matter. Real time data is increasingly unreliable, and econometric models rarely consider changing data quality.
Europe agreed on new fiscal rules, updating the Stability and Growth Pact. The 60 percent debt-toGDP target remains—although if government now plays a larger role in economies, a higher debt ratio is natural. The most impressive thing about the negotiations is the way the finance ministers pretend the rules will not be broken. This marks the final morning audio comment of 2023. Normal service resumed on Tuesday. I would like to take this opportunity to wish you all as prosperous a 2024 as circumstances will allow. And to everyone who has tuned in from time to time over the course of the past year, thank you for listening. UK consumer price disinflation was more than expected. This is a global trend. As consumers rebel against profit-led inflation, retailers scramble to shore up customer loyalty by means of price discounts. UK inflation is probably still overstating reality, as price discounts under supermarkets’ two-tier pricing structures are not currently captured in the data.
German producer prices fell more than expected, with disinflation or deflation across the main sectors. UK producer prices fell less than consensus expectations, but as the consensus was built from only seven forecasts it was probably not very consensual.
US conference board consumer confidence data is due. This is not very economically useful. Consumers say one thing and do another (consumption is slowing, there is resilience). Sentiment is influenced by political partisanship and the media cycle, causing people to answer questions the way they feel they are expected to answer them. This does mean that sentiment has a political use.
The US state of Colorado’s Supreme Court has ruled former US President Trump ineligible to stand for election for president (in that state) under the constitutional prohibition against supporters of an insurrection running for office. Investors are not yet focusing on the 2024 election so this is more entertainment than market relevant at this stage, UBS Insights said.