Nothing is ever as simple as it seems

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Start of 2024 stock and bond markets are not sure what to do, at present hanging onto the belief that a “soft landing” is still intact which provides a supporting base whilst nervous that some current reports may suggest otherwise. The latest US trade deficit came in smaller than expected in November as imports and exports declined. As a result of the decline of 11 billion dollars imports and exports to and from America are roughly where they were a year ago, possibly an indication of an underlying weakness in the US economy. Shipping ports as one can see from the chart have recently been disrupted, as pointed out by Absolute Strategy research. Freight rates have started to rise, also supply chains could be disrupted. China is now selling more electric vehicles than Tesla. Late last year the European Commission, announced a planned anti-subsidy investigation into Chinese electric vehicle (EV) imports into the EU, which could threaten a trade war between China and Europe. Credit defaults have been rising. The point of this is not to paint a bleak outlook but to point out that the economic picture may not be as smooth as it appears.

Tomorrow we get the latest US inflation report in the form of the CPI data from the, and that is what the world currently seems fixated upon. Inflation rates are expected to remain unchanged month over month. If the inflation rate continues to indicate it’s on a downward trend then around the globe this will allow central banks to ease monetary policy and all will eventually be well, seems to be the attitude of markets.

Ahead of Q4 earnings season, according to FactSet, Q4 earnings estimates have been revised sharply lower. That does leave the bar easier to jump but also does not suggest a thriving economy. They are also backward-looking, what is always more important is the quality of the outlook statements. The dull start to the year has washed out some of the bullishness that we started the year with which will also help. There is plenty of cash sitting in short-dated maturing bonds which investors may now have more confidence taking greater risk with. The signs are that the consumer should still hold up in the US. I guess what I am saying is the path to economic growth may not be as simple and as smooth as it seems.