Santa Rally Stages a (Tentative) Revival

Global markets show mixed signals as U.S. growth diverges, consumer stress rises, and Real Estate hints at a recovery.

Key Takeaways

• Growth Gap: We realize that the Atlanta Fed Nowcast model is showing that the U.S. economy has accelerated to a +3.9% annualized pace. Meanwhile, the New York Fed’s rival number is +2.3%, and St. Louis is closer to us, at +0.5%. The information provided by the 48.2 ISM manufacturing number we saw for November is that, historically, it has been more or less consistent with an economy expanding at a little better than a +1.0% annual rate.

• Inflation Puzzle: The supply side of the economy is growing at a +3.0% YoY rate (labor force + productivity), so in what universe does a +1.0% trend in aggregate demand bumping against a +3.0% trend in aggregate supply lead to an inflationary environment?

• Bond Opportunities: We ran screens on sovereign bond markets that meet these four criteria: (i) investment-grade status, (ii) low government debt-to-GDP ratios, (iii) low inflation, and (iv) a decent nominal 10-year yield. Here they are — eight in total: Sweden, Norway, New Zealand, Hong Kong, Korea, Israel, Poland, and Mexico.