The output numbers due this week will show the slowest US growth rate in 18 months. Over the past year, the US economy turned in a steady 4%–6% quarter over quarter growth. Why is the economy slowing down and what are the consequences?
- Main Street is in focus, as output numbers confirm: the slowdown due to supply constraints has troughed. Beyond the real world, investors keep exploring the virtual space.
- US rates rise again.
- The digital disruption space will thrive in the new virtual metaverse.
The output numbers due this week will show the slowest US growth rate in 18 months. Over the past year, the US economy turned in a steady 4%–6% q/q growth. For the concluded quarter, consensus expects a mere 2.8%, and it could be even less. Some of the real-time models are calling for only 0.5% given the most recent signs of a slowdown. At the same time, bond yields have started to rise and are trading north of 1.6% again. So incoming data is down, while the best forecasting gauge for growth and inflation (the bond market) points to reacceleration. Our take on this is that the slowing of the economy is mainly due to supply disruptions, and the bond market is most likely telling us that the worst is over.
This has a serious impact on investments: rising US Treasury yields are a sign of a rising risk appetite, as investors are ready to leave the benchmark of safe-haven investments in the world for more uncertain prospects. In particular, we think the focus will move to Main Street, i.e. more broadbased and increasingly regional investments. Our technical analysis team highlights the buying thrust in regional US banks that benefit the most from this, including higher longdated rates. Moreover, our real estate analyst sees upside in US shopping malls, as the situation normalises and the upcoming holiday season lures shoppers.
Speaking of which, the retail consumer will have a digital focus, of course. Yet corporates and investors are already one step further. The so-called metaverse is the potential next big thing. This concept of a new virtual world is more immersive (i.e. more ‘real’) than the internet as we know it and may even substitute it one day. Given where we already stand today in terms of media consumption (see number of the week), this may translate into many of us spending most of our time as their avatars. Before we get there, though, much digital disruption is needed, which will benefit the pioneers in digital content (video games), artificial intelligence, cloud computing, and digital commerce.
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