Data for charts are sourced from FRED, OECD, Eurostat, IMF, BIS, Market Watch, Yahoo/Google Finance, Investing.com, COT, Bloomberg or Quandl unless otherwise stated.
Financial market pundits are a bit like dogs chasing cars; they wouldn’t know what to do if they caught one. And so it is that after trying to figure out whether the economy and markets would achieve a soft landing in the wake of the post-Covid tightening cycle, no one quite knows what to think now that the soft landing appears to have arrived.
Let’s list the key requirements for a soft landing.
Read MoreThe following chart is one of hundreds that I use in my day-job as Chief Eurozone Economist at Pantheon Macroeconomics. It plots a normalised Z-score index of surveyed new manufacturing orders in Germany alongside year-over-year growth in factory orders, ex-major orders. It’s worthwhile spelling out the meaning of this chart in the world of economic research and forecasting. The factory orders numbers are so-called hard data, which in this case means that they’re official numbers of real activity reported by the statistical office. The PM new orders index, by contrast, is my home-cooked index of so-called soft data. Specifically, these are survey data, compiled by the likes of the EU Commission, IFO, S&P, and national statistical offices. We’re only interested in these numbers to the extent that they tell us something about the official/hard new orders data, which in turn could help us pin down trends in industrial production, exports, GDP growth, employment and so on. From simply eye-balling the chart, the two series look coincident, but note that the surveys are released ahead of the official data, so that we always have survey numbers that are one-to-two months ahead of the official data. In other words, when it comes time to forecast new orders for the month of December, we will already have survey data for that month. This should, in theory, help us to better forecast the official real new orders data.
Read MoreIn other news, I appeared this week on the Macro Sunday podcast run by Andreas Steno, who recently set up his own research firm, Stenoresearch.com. Go check it out, and the podcast too.
Read MoreEveryone has a plan until they get kicked in the nuts by a new virus variant, apparently. The speed with which markets deteriorated on Friday on the news that the B.1.1.529 variant—first detected in South Africa and Botswana, but now confirmed in both Europe and Asia—was telling. So is the swiftness with which many countries already are digging deep in the pre-vaccination toolbox of travel restrictions and, inevitably, domestic restrictions of some form. Indeed, even before the new variant, recently renamed ominously to Omicron, arrived on the scene, Europe was inching closer to new restrictions. Austria and Netherlands were in full or semi-lockdown before Friday, and given the direction of numbers in the major economies, it was only a matter of time before more widespread restrictions were introduced. So, here we are; 18 months of rolling lockdowns and travel restrictions, trillion of dollars in public support, and around 70% of the adult population double-jabbed—and shall we say another 10% with immunity from previous infection?—and we’re back to square one. Someone, somewhere, will soon have to start asking questions, but maybe not yet.
Read More