In this briefing:
- Preserving Animal Spirits Becomes the Endgame for Fed Policy
- Apple Shipments to China Fall as Local Phone Makers Eat Up Market Share
Fed Chair Powell’s forthcoming Congressional Testimony on monetary policy later this month assumes greater importance compared to recent years due to the recent dovish tilt in policy posture following communication errors in 2018.
Financial market volatility may have adversely affected animal spirits in the real economy, an outcome which the Federal Open Market Committee (FOMC) seeks to avoid, but members will still be open to accusations that they capitulated to pressure from financial markets.
Accepted proxies for corporate animal spirits in the real economy indicate moderation over the past 12 months even before Q4’s market turbulence, but current levels are still far from disastrous and hitherto do not suggest a total cessation in risk- taking activity.
Supply-side responses in the labour market over the 12-months, notably a rise in the participation rate for prime aged workers, have reduced the downward pressure on the unemployment rate, thereby enabling the Fed to embrace its patient policy approach.
The FOMC will retain their dovish tilt towards policy conduct until March, but, thereafter, the tone of incoming economic data, notably inflation, will ultimately determine the direction of the next change in the federal funds rate and its timing.
- The Chinese smartphone market, which commands approximately 30.0% of the global smartphone market, experienced declining sales in 4Q2018. The Chinese smartphone market fell by 9.7% YoY in 4QFY2018 .
- Meanwhile, the global smartphone market fell by 4.9% YoY in the same quarter as a result of conditions in China, longer replacement cycles and a lack of technological innovations in the industry.
- Apple continued to suffer with iPhone shipments to China falling by 20.3% YoY during the last quarter.
- 5G compatible phones are likely to turn around industry performance, however, the introduction of such devices will most likely occur in the latter half of 2019. Apple, in question is rumoured to release their 5G compatible iPhone in 2020, later than close competitor Samsung.
- Slow market conditions are likely to prevail until the next generation of communication technology becomes commercialised. Until such a time, companies such as Apple, and parts suppliers to smartphone vendors may continue to struggle with slowing performance similar to that of present. However, over the long term, companies stand to benefit once 5G is released in spite of the short term outlook not being too favourable.