Bassanese Bites: Extended Pause – July 31 2023
Global markets
The ‘melt-up’ in US stocks continued last week, with the S&P 500 adding another 1.0%. There were various reasons for investors to remain upbeat: the Fed hiked rates but displayed a more neutral outlook, the Q2 US earnings reporting season remained encouraging (thanks to Meta and Alphabet), while US wage and price inflation surprised on the downside even as GDP growth surprised on the upside.
In short, what once seemed a far-fetched fairy tale story of a US soft landing or “immaculate disinflation” appears to be becoming all the more plausible by the day. Even the Fed is no longer officially forecasting a recession.
Of course, one sticking point remains – uncomfortably high US wage growth against the backdrop of a still tight US labour market. But service sector inflation is nonetheless easing. And with the degree of excess labour demand easing (in part due to increasing labour supply) and declining inflation, there’s a chance wage inflation could continue to decline back to pre-COVID levels without much loss in current employment.
Can we dare to dream?
