It was hard to avoid the Super Bowl this weekend, one of the most-watched sporting events around the globe, which got another boost this year thanks to the Midas touch of the biggest popstar on the planet, Taylor Swift.
The singer is known for her economic impact: not only do her shows lead to local spikes in inflation, but she is also rumoured to have saved the US economy from recession last year with her Eras tour and by paying her tour staff high bonuses, including her tour truckers with a USD 75,000 bonus each. Her relationship with an American football star has reportedly generated USD 330m in sales for the National Football League this season, especially since female interest for the testosterone-driven sport has soared. Spending which has helped fuel the economy.
US spending to increase
Markets recently pushed back the first expected rate cut by the Fed due to resilient US data, which restrengthened the US dollar. Historically, the USD strengthens if rate cuts react to recessions and eases when rates are cut in non-recessionary times. As a result, the USD should continue to strengthen as the new cycle begins.
The Q4 2024 earnings season in the US is coming to completion, with roughly 80% of the S&P 500 having reported results already. On average, US companies are slightly beating earnings estimates compared to what was expected, mainly driven by strong results from the IT behemoths, also known as the ‘Magnificent 7’.
As a result, we expect corporate and consumer spending to pick up again, especially as a result of lower rates and a new investment cycle with a push to generative artificial intelligence.
Energy: Political noise around US gas exports
Last month, the Biden administration said it will pause approvals for new natural gas export terminals. This decision continues to make headlines, as natural gas and its role in the energy transition has long been subject to political controversy. The United States has become the leading supplier to global markets, and overseas exports should further double towards the end of the decade as various terminals under construction become operational.
This export growth was key in helping Europe compensate for Russia’s shortfall as a result of the war in Ukraine and weather the energy crisis without running into shortages. The future supply growth coming from North America and elsewhere will likely put pressure on energy prices overall given the interlinkages between gas, coal, and electricity markets.
How does the US government’s decision impact the global economy?
- The approval-process suspension changes little for the growth in capacities, since many terminals already have the necessary permits for exports and are under construction.
- The decision is about the environmental impact, especially natural gas leakage. However, leakage can be largely contained by adopting best practices.
- From a European perspective, imports from the US have a smaller footprint than those from Russia or Algeria. As this decision is subject to tightening regulations in both the US and Europe, where emission limits will apply to future imports, this does not make a difference in the future.
- The decision is largely a taste of politics during an election year and does not alter our long-term view.
We still see the energy market shifting into oversupply on the back of growth in clean energy and natural gas, which keeps pressure on the prices.
What does this mean for investors?
As rate cuts continue to move the US economy towards a soft landing and the USD strengthens, along with its firm footing as a natural gas and technology leader, the US consumer will only become more integral to the global economy. What is the key takeaway for investors? Perhaps that psychology and optics plays a bigger economic role than we might think, and we should be careful not to overrationalise it. This means not underestimating the power of US consumers.