Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Cross Asset Strategy

Given the looming end of lockdown measures, the valuation of leadership companies in the S&amp;P500 should come under scrutiny, irrespective of the behaviour of US Treasury yields. Valuation upgrades for companies that were unable to operate normally last year due to the pandemic could be in the offing as conditions return to normal due to vaccine rollouts.
The inability of the Fed since 2008 to escape the clutches of a near-zero policy rate has depressed both short-term interest rate volatility and real yields. The estimate of the neutral real federal funds rate held by Federal Open Market Committee (FOMC) members has fallen to just +0.5% from +2.25% in 2012, significantly below the current +1.9% estimate for potential GDP growth.
In recent years, both bond investors and FOMC members have played an almighty game of chicken about the appropriate neutral policy rate, whereby the former has embraced a far more pessimistic view of the secular growth outlook. The Fed has been forced to counter a number of deflationary shocks since 2000 by aggressively reducing real yields against a backdrop of lower estimated potential real GDP growth.
Weaker US potential GDP growth has reduced real yields due to lower demand for capital, while the shift in employment towards services has reinforced the reduction due to lower total factor productivity compared to either manufacturing or information technology. Lower demand for capital and weaker productivity have been underpinned by ageing demographics. Meanwhile, demand for safe-haven and liquid assets has significantly increased since the financial crisis due to tighter regulation, risk-aversion and quantitative easing, all of which have conspired to lower real yields. 
In contrast to equities, US bond investors have historically been reluctant to embrace "new era" theories supporting faster potential GDP growth, but deflationary shocks since 2000 have produced a positive correlation between bond yields and equities for the majority of the 21st Century. The arrival of rising real yields is not necessarily bearish for equities if market returns become predominantly driven by earnings growth as opposed to P/E multiple expansion as more companies benefit from a return to normal conditions following the pandemic.

Given the looming end of lockdown measures, the valuation of leadership companies in the S&amp;P500 should come under scrutiny, irrespective of the behaviour of US Treasury yields. Valuation upgrades for companies that were unable to operate normally last year due to the pandemic could be in the offing as conditions return to normal due to vaccine rollouts.
The inability of the Fed since 2008 to escape the clutches of a near-zero policy rate has depressed both short-term interest rate volatility and real yields. The estimate of the neutral real federal funds rate held by Federal Open Market Committee (FOMC) members has fallen to just +0.5% from +2.25% in 2012, significantly below the current +1.9% estimate for potential GDP growth.
In recent years, both bond investors and FOMC members have played an almighty game of chicken about the appropriate neutral policy rate, whereby the former has embraced a far more pessimistic view of the secular growth outlook. The Fed has been forced to counter a number of deflationary shocks since 2000 by aggressively reducing real yields against a backdrop of lower estimated potential real GDP growth.
Weaker US potential GDP growth has reduced real yields due to lower demand for capital, while the shift in employment towards services has reinforced the reduction due to lower total factor productivity compared to either manufacturing or information technology. Lower demand for capital and weaker productivity have been underpinned by ageing demographics. Meanwhile, demand for safe-haven and liquid assets has significantly increased since the financial crisis due to tighter regulation, risk-aversion and quantitative easing, all of which have conspired to lower real yields. 
In contrast to equities, US bond investors have historically been reluctant to embrace "new era" theories supporting faster potential GDP growth, but deflationary shocks since 2000 have produced a positive correlation between bond yields and equities for the majority of the 21st Century. The arrival of rising real yields is not necessarily bearish for equities if market returns become predominantly driven by earnings growth as opposed to P/E multiple expansion as more companies benefit from a return to normal conditions following the pandemic.

Rising Real Yields Need Not Unravel US Equities as End to COVID-19 Restrictions Loom

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

The S&amp;P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM) have all rallied to logical resistance; if they are able to break above and stay above their respective resistance levels it would signal the end of the current consolidation phase. In today’s report we highlight attractive Groups and stocks within Materials and Financials:

The S&amp;P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM) have all rallied to logical resistance; if they are able to break above and stay above their respective resistance levels it would signal the end of the current consolidation phase. In today’s report we highlight attractive Groups and stocks within Materials and Financials:

U.S. Equity Strategy: Testing Key Resistance; Downgrading Health Care

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

As yields have moved higher over the past few weeks in a somewhat quick manner, this note attempts to clarify the position of interest rate curves, the need for credit and lending, wealth accumulation, and the management of monetary policy in the US.It concludes with a long term bullish stance in financials and banks and especially housing.

As yields have moved higher over the past few weeks in a somewhat quick manner, this note attempts to clarify the position of interest rate curves, the need for credit and lending, wealth accumulation, and the management of monetary policy in the US.It concludes with a long term bullish stance in financials and banks and especially housing.

Bonds, Curves, The Fed & Asset Markets: An Overview of Current Trends

Macroeconomics

US real GDP could surpass its previous cyclical peak in Q1, thereby casting serious doubts about the necessity for additional fiscal stimulus as proposed by the Biden Administration. Bond investors are concerned about the inflationary implications of further fiscal and monetary easing from the perspective of excessive aggregate demand, but little analysis has hitherto been performed about the supply-side implications.
As COVID-19 vaccine rollouts eliminate the need for lockdowns, supply-demand imbalances will emerge as companies wait to ensure no risks of relapse before bringing mothballed capacity back on stream. Delivery delays have risen over the past year due to labour-safety measures and transportation constraints, but these should improve with vaccine rollouts, thereby reducing supply shortfalls.
The timing of the proposed $1.9 trillion fiscal stimulus would not have been approved by John Maynard Keynes, the original proponent of running budget deficits to support demand. The stimulus is massively front-end loaded for political purposes and does nothing to enhance the supply-side of the US economy.
Increasing the federal minimum wage to $15 per hour by 2025 will raise the cost of low-pay workers and could encourage firms to invest in labour-saving technology. Higher minimum wages will boost demand in the short-term due to the higher marginal propensity to consume of low-pay workers, but the potential substitution of labour for capital by firms will eventually provide an offset.
In contrast to the previous recovery, there has been a strong and rapid rebound in the level of job openings in the economy as those sectors that were initially badly impacted by COVID-19 recover. Meanwhile, opponents of continued extended unemployment insurance argue that high levels of unfilled job openings are consistent with unemployed workers having little financial incentive to look for work, thereby justifying a reduction in benefits. The civilian labour force participation rate has fallen over the past year, and the risks of significant wage inflation will increase if the Fed allows the economy to let rip and there is no offsetting increase in labour supply.

US real GDP could surpass its previous cyclical peak in Q1, thereby casting serious doubts about the necessity for additional fiscal stimulus as proposed by the Biden Administration. Bond investors are concerned about the inflationary implications of further fiscal and monetary easing from the perspective of excessive aggregate demand, but little analysis has hitherto been performed about the supply-side implications.
As COVID-19 vaccine rollouts eliminate the need for lockdowns, supply-demand imbalances will emerge as companies wait to ensure no risks of relapse before bringing mothballed capacity back on stream. Delivery delays have risen over the past year due to labour-safety measures and transportation constraints, but these should improve with vaccine rollouts, thereby reducing supply shortfalls.
The timing of the proposed $1.9 trillion fiscal stimulus would not have been approved by John Maynard Keynes, the original proponent of running budget deficits to support demand. The stimulus is massively front-end loaded for political purposes and does nothing to enhance the supply-side of the US economy.
Increasing the federal minimum wage to $15 per hour by 2025 will raise the cost of low-pay workers and could encourage firms to invest in labour-saving technology. Higher minimum wages will boost demand in the short-term due to the higher marginal propensity to consume of low-pay workers, but the potential substitution of labour for capital by firms will eventually provide an offset.
In contrast to the previous recovery, there has been a strong and rapid rebound in the level of job openings in the economy as those sectors that were initially badly impacted by COVID-19 recover. Meanwhile, opponents of continued extended unemployment insurance argue that high levels of unfilled job openings are consistent with unemployed workers having little financial incentive to look for work, thereby justifying a reduction in benefits. The civilian labour force participation rate has fallen over the past year, and the risks of significant wage inflation will increase if the Fed allows the economy to let rip and there is no offsetting increase in labour supply.    

Misguided US Stimulus Offers Little Help to Supply-Side to Offset Potential Inflation Risks

The recent rate surge has upset the picture for growth stocks and, consequently, the S&amp;P 500 is going through a consolidation phase. While we cannot say precisely how deep this pullback will be or if the lows are already in, ongoing positive market dynamics tell us the pullback is likely to be contained and therefore should be viewed as a buying opportunity. With that said, a break below 3789 would signal additional downside ahead. In today’s report we highlight attractive Groups and stocks within Energy and Manufacturing (Agricultural Equipment).

The recent rate surge has upset the picture for growth stocks and, consequently, the S&amp;P 500 is going through a consolidation phase. While we cannot say precisely how deep this pullback will be or if the lows are already in, ongoing positive market dynamics tell us the pullback is likely to be contained and therefore should be viewed as a buying opportunity. With that said, a break below 3789 would signal additional downside ahead. In today’s report we highlight attractive Groups and stocks within Energy and Manufacturing (Agricultural Equipment).

U.S. Equity Strategy: Upgrading Financials, Downgrading Technology & Consumer Discretionary

United States

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P 500 INDEX (SPX INDEX)

Rising Real Yields Need Not Unravel US Equities as End to COVID-19 Restrictions Loom

Various factors drove US real yields to low levels over the past decade. Rising real yields reflecting stronger economic growth need not be fatal...

DeSaque Macro Research

U.S. Equity Strategy: Testing Key Resistance; Downgrading Health Care

The S&P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM) have all rallied to logical resistance; a break above their respective resistance levels...

Vermilion Research

Bonds, Curves, The Fed & Asset Markets: An Overview of Current Trends

A broad look at rates, curves, credit and monetary policy following 'sharp' moves in bonds. This big picture overview also looks at developments in...

Shyam Devani

Misguided US Stimulus Offers Little Help to Supply-Side to Offset Potential Inflation Risks

The timing and size of additional US fiscal is misguided. Emphasis is placed on the demand-side of the economy. Little help is offered to aggregate...

DeSaque Macro Research

U.S. Equity Strategy: Upgrading Financials, Downgrading Technology & Consumer Discretionary

The recent rate surge has upset the picture for growth stocks and, consequently, the S&P 500 is going through a consolidation phase.

Vermilion Research