Yet when looking at the economy and financial market headlines last week, one could sense that the post-pandemic normal may be nearer than we could possibly have thought. This is not necessarily due to the pandemic being out of the picture. It is more about the economic fallout becoming ever more negligible, as contingency measures are easing and economic actors are becoming more used to the regime. In fact, the US employment report shows that the supply response is underway: labour supply is soaring. We acknowledge that there are statistical issues around the latest data release due to changes in measurement. Yet the increase in US labour participation is impressive and shows that the solid wage growth numbers are luring workers back to work. The most distinct jump was in the age bracket of people above 55 years old. Even baby boomers are seemingly flocking back to the job market.

While the job reports dominated the economic headlines, the real move was in fever curves: the volatility gauges, which show investors’ mood by spiking during panics in stock markets, went in the other direction last week, falling sizeably. While this is not an all-clear signal per se, it is something that shows some stabilisation in markets. The other big change on stock markets was rate expectations in Europe. Investors have been endlessly waiting for a positive rate on long-term safe-haven bonds. Finally, it has arrived (see the number of the week). This is a big boost for European banks that derive a lot of their earnings’ power from the yield levels in Europe.

Conclusion for investors

For investors looking for aggressive calls on normalising yields in Europe: buy into the ‘worst of the worst’ in European banks. ‘Worst’ applies to the stock performance in recent years, not the companies per se.

Number of the week