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.

Macroeconomics

<ul>
<li>The post-pandemic return of inflation and higher interest rates has had negative implications for US housing affordability. Rising mortgage rates since March have further dented the prospects for improved affordability.</li>
<li>Housing affordability has deteriorated to its lowest level since the 1980s. Apart from lower interest rates, better affordability will require future household income gains persistently outstripping home price appreciation.</li>
<li>Full federal government guarantees on Fannie Mae and Freddie Mac mortgage-backed securities would enhance housing affordability. Mortgage buydowns by homebuilders should be eliminated because they artificially boost market-clearing prices . </li>
</ul>


The post-pandemic return of inflation and higher interest rates has had negative implications for US housing affordability. Rising mortgage rates since March have further dented the prospects for improved affordability.
Housing affordability has deteriorated to its lowest level since the 1980s. Apart from lower interest rates, better affordability will require future household income gains persistently outstripping home price appreciation.
Full federal government guarantees on Fannie Mae and Freddie Mac mortgage-backed securities would enhance housing affordability. Mortgage buydowns by homebuilders should be eliminated because they artificially boost market-clearing prices . 


US Housing: The Lingering Curse of Poor Affordability Intensifies

Cross Asset Strategy

<ul>
<li>The thesis that strong private investment demand related to artificial intelligence is exerting upward pressure on US Treasury yields is gaining credence.  Higher investment normally produces higher real interest rates</li>
<li>Strong investment demand will always place upward pressure on real interest rates irrespective of the financing mechanism. There is scant evidence suggesting that large AI investment have boosted Treasury yields.</li>
<li>Short-Term interest rate expectations have boosted long-term US interest rates following a hawkish pivot by the Fed under new leadership. Chairman Warsh has shifted the Fed's focus to financial conditions.</li>
</ul>


The thesis that strong private investment demand related to artificial intelligence is exerting upward pressure on US Treasury yields is gaining credence.  Higher investment normally produces higher real interest rates
Strong investment demand will always place upward pressure on real interest rates irrespective of the financing mechanism. There is scant evidence suggesting that large AI investment have boosted Treasury yields.
Short-Term interest rate expectations have boosted long-term US interest rates following a hawkish pivot by the Fed under new leadership. Chairman Warsh has shifted the Fed's focus to financial conditions.


Higher US Treasury Yields: Not All About Strong Capital Spending by AI Hyperscalers

<ul>
<li>The world economy no longer enjoys the benefits of low inflation. US equity investors are embracing the eventual return of low inflation due to the rollout of artificial intelligence.</li>
<li>Geopolitics has contributed to a pivot away from globalisation with inflationary implications via supply chain recalibration. Deteriorating fiscal positions, partly due to higher defence commitments, are also producing inflationary pressures. </li>
<li>The media has concentrated on the Fed's role in contributing to higher US interest rates, but the strong economy has also played a role due to rising corporate credit demand.</li>
</ul>


The world economy no longer enjoys the benefits of low inflation. US equity investors are embracing the eventual return of low inflation due to the rollout of artificial intelligence.
Geopolitics has contributed to a pivot away from globalisation with inflationary implications via supply chain recalibration. Deteriorating fiscal positions, partly due to higher defence commitments, are also producing inflationary pressures. 
The media has concentrated on the Fed's role in contributing to higher US interest rates, but the strong economy has also played a role due to rising corporate credit demand.


Investors Back AI to Produce Disinflation, but Geopolitics Increasingly Determine Pipeline Pressures

<ul>
<li>The Fed raised its policy rate expected. Chairman Warsh is seeking to speed up inflation's decline towards 2%. Interest rate futures are discounting more hawkish policy compared to FOMC members.</li>
<li>The Fed's policy rate will remain higher for longer. Higher productivity growth from artificial intelligence raises the neutral policy rate due to high prospective returns on future capital spending outlays.</li>
<li>Concerns about US equities have risen due to higher Treasury yields after many years of suppression by the Fed but a repeat of the 2022 equity market correction is unlikely.  </li>
</ul>


The Fed raised its policy rate expected. Chairman Warsh is seeking to speed up inflation's decline towards 2%. Interest rate futures are discounting more hawkish policy compared to FOMC members.
The Fed's policy rate will remain higher for longer. Higher productivity growth from artificial intelligence raises the neutral policy rate due to high prospective returns on future capital spending outlays.
Concerns about US equities have risen due to higher Treasury yields after many years of suppression by the Fed but a repeat of the 2022 equity market correction is unlikely.  


Hawkish Fed Raises Concerns Over US Equities, but a Repeat of 2022 Correction Is Unlikely

<ul>
<li>Inflation shocks have become more frequent.  Central banks will show greater commitment to their chosen inflation targets, and forward guidance will no longer determine the future path of policy rates.</li>
<li>More proactive measures by central banks to keep inflationary expectations well-anchored implies more volatile short-term interest rates compared to their long-term counterparts in an environment of higher and volatile inflation.</li>
<li>US Treasury bond investors will probably demand a higher term premium until they are comfortable with the Fed's policy reaction function under new leadership without forward guidance.</li>
</ul>


Inflation shocks have become more frequent.  Central banks will show greater commitment to their chosen inflation targets, and forward guidance will no longer determine the future path of policy rates.
More proactive measures by central banks to keep inflationary expectations well-anchored implies more volatile short-term interest rates compared to their long-term counterparts in an environment of higher and volatile inflation.
US Treasury bond investors will probably demand a higher term premium until they are comfortable with the Fed's policy reaction function under new leadership without forward guidance.


New Era of Higher Inflation Volatility Forces Central Bank Policy Conduct Reset

Said DeSaque is a  professional economist with over 35 years of experience covering the global economy, with significant expertise in the US, China, Japan and emerging markets. He worked with US investment banks for over 25 years  covering institutional investors in Europe, Middle East, Far East and Australia. Covers financial markets on a multi asset basis. Said has been an independent economist covering the global economy and financial markets for over 10 years since founding DeSaque Macro Research in London.