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>Fed Chairman Powell offered markets a modestly dovish overview of the policy outlook after this week's FOMC meeting, notably the more aggressive tapering of quantitative tightening.</li>
<li>US corporate profit results for Q1 have been respectable compared to the previous decade, but revenue performance has been below par. Operating margins are holding up well.  </li>
<li>Analysts remain buoyant about the profit outlook for 2024 and next year, despite the Fed's higher for longer approach, thereby suggesting that equity returns will be largely earnings-driven.</li>
</ul>


Fed Chairman Powell offered markets a modestly dovish overview of the policy outlook after this week's FOMC meeting, notably the more aggressive tapering of quantitative tightening.
US corporate profit results for Q1 have been respectable compared to the previous decade, but revenue performance has been below par. Operating margins are holding up well.  
Analysts remain buoyant about the profit outlook for 2024 and next year, despite the Fed's higher for longer approach, thereby suggesting that equity returns will be largely earnings-driven.


Dovish Fed Policy Statement and Respectable Corporate Profits: Both Supportive for US Equities

Cross Asset Strategy

<ul>
<li>Failure to remove policy accommodation after household balance sheets had been repaired after the global financial crisis simply prolonged the secular stagnation thesis that had been embraced by bond investors.</li>
<li>The current estimate of the real neutral federal funds rate is too low relative to potential GDP growth, presenting an opportunity for bond investors to jettison their secular stagnation thesis.</li>
<li>A structurally higher neutral Fed policy rate will impact short-term funding markets, while equity investors will need to place greater focus on long-term corporate profit growth for their returns. </li>
</ul>


Failure to remove policy accommodation after household balance sheets had been repaired after the global financial crisis simply prolonged the secular stagnation thesis that had been embraced by bond investors.
The current estimate of the real neutral federal funds rate is too low relative to potential GDP growth, presenting an opportunity for bond investors to jettison their secular stagnation thesis.
A structurally higher neutral Fed policy rate will impact short-term funding markets, while equity investors will need to place greater focus on long-term corporate profit growth for their returns. 


Future Fed Policy Conduct: Time to Eradicate the Secular Stagnation Thesis

<ul>
<li>Investors have become more hawkish about the outlook for Fed policy compared to Federal Open Market Committee (FOMC) members for the first time since the infamous taper tantrum in 2013</li>
<li>Engineering a policy pivot away from higher for longer rhetoric towards policy rate cuts will provide a communication challenge if sticky service sector inflation persists.</li>
<li>Profligate fiscal policy complicates the Fed's prospective conduct. The required measures for sustainable fiscal policy are off-limits, raising the possibility of higher inflation to stabilise the debt-to-GDP ratio.    </li>
</ul>


Investors have become more hawkish about the outlook for Fed policy compared to Federal Open Market Committee (FOMC) members for the first time since the infamous taper tantrum in 2013
Engineering a policy pivot away from higher for longer rhetoric towards policy rate cuts will provide a communication challenge if sticky service sector inflation persists.
Profligate fiscal policy complicates the Fed's prospective conduct. The required measures for sustainable fiscal policy are off-limits, raising the possibility of higher inflation to stabilise the debt-to-GDP ratio.    


Fed Still Intent on Lowering Policy Rate Despite Inflation Uncertainties

<ul>
<li>Stronger-Than-Expected data forced financial markets to pare expectations of Fed policy easing in 2024. Increased labour supply reduced wage inflation, allowing the Fed to contemplate policy rate reductions this year.</li>
<li>Immigration can impart short-term economic benefits and assist Fed policy by acting as a safety valve against wage inflation and keeping inflationary expectations well-anchored.  </li>
<li>Reductions in legal immigration that curb labour supply will lower the marginal productivity of capital as well as the rate of return on equities, particularly if budget deficits remain elevated. </li>
</ul>


Stronger-Than-Expected data forced financial markets to pare expectations of Fed policy easing in 2024. Increased labour supply reduced wage inflation, allowing the Fed to contemplate policy rate reductions this year.
Immigration can impart short-term economic benefits and assist Fed policy by acting as a safety valve against wage inflation and keeping inflationary expectations well-anchored.  
Reductions in legal immigration that curb labour supply will lower the marginal productivity of capital as well as the rate of return on equities, particularly if budget deficits remain elevated. 


Implications of Immigration on Future Fed Policy Conduct and US Equity Returns

<ul>
<li>The weak yen could be a legacy of aggressive quantitative easing (QE), whereby the BoJ became the largest holder of government bonds, forcing traditional buyers overseas.</li>
<li>Overseas cash hoarding by Japanese affiliates is being cited as another reason for yen weakness. Superior growth opportunities outside of Japan are a reason for the lack of cash repatriation. </li>
<li>Japan's exporters currently face formidable competition with China, making a strong yen an unattractive option during a period of higher cost pressures, notably for labour.</li>
</ul>


The weak yen could be a legacy of aggressive quantitative easing (QE), whereby the BoJ became the largest holder of government bonds, forcing traditional buyers overseas.
Overseas cash hoarding by Japanese affiliates is being cited as another reason for yen weakness. Superior growth opportunities outside of Japan are a reason for the lack of cash repatriation. 
Japan's exporters currently face formidable competition with China, making a strong yen an unattractive option during a period of higher cost pressures, notably for labour.


Yen Weakness Not Solely Due to Bank of Japan as Corporates Play a Critical Role

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.