SocGen's Albert Edwards points out that the turbulence in equity markets may not yet be done in his September 3, 2024 Global Strategy Weekly report:
1. Japan is often a forerunner of major market moves:
"We have always exhorted our readers to watch Japan closely as it has consistently been a forerunner of major market moves"
2. The early August market turbulence may not be over, despite equity indices rebounding:
"As we move into September and parents of school age children return to their desks for a well-earned rest, equity investors looking at their screens will be forgiven for thinking that very little has happened. The early-August meltdown is now a distant memory with equity indices having quickly rebounded back to all-time highs. But that insouciance stands in stark contrast to foreign exchange and government bond markets which have not strayed very far from their 5 August, crisis extremes."
3. US tech earnings optimism is falling, which could undermine the US bull market:
"US tech earnings optimism is now falling away sharply,... undermining the main engine of the US bull market"
4. Japan may be moving back into the macroeconomic mainstream:
"Recent optimism that Japan may now, at long last, be exiting deflation has led the BoJ to take tentative steps to normalise interest rates just at the time when the Fed (and other central banks) are poised to lower rates."
5. Japanese wage growth has surpassed US wage growth:
"Japan's underlying wage growth is back above the US' for the first time since the early 1990s"
6. The yen carry trade unwinding could have significant market impacts:
"We witnessed in 2008 the impact of a disorderly yen carry trade unwind on the asset classes that had previously 'benefited' from it."
7. US and Japanese labor markets are softening, potentially indicating recession:
"August's US non-farm payrolls may sooth or rekindle recessionary concerns, but other data corroborates the recessionary story being told by rapidly rising U3 unemployment data"
8. Japanese authorities might have been premature in raising rates:
"This makes me wonder if the Japanese authorities might have been a tad premature in raising rates, especially as underlying CPI seems to be falling back to only 1%."
Citations:
[1] Albert-Edwards-We-present-one-chart-that-suggests-the-early-August-turbulence-might-not-yet-be-over.pdf
Copyright © Société Générale, AdvisorAnalyst
