When the markets are difficult and volatile, there is a tendency to discuss more. The discussion leads to deepening and study and we are all better informed on average. On the other hand, when the markets are soporific and tendentially positive, the collective discussion becomes impoverished and little by little everyone tends to repeat the dominant narrative (if everyone says it, it will be true). Thus ends that we look less and less at the real data.
Now let's play a game. Take a blank sheet of paper and mark a point to the left in the middle of the sheet. Let's make that dot represent the level of eurozone growth in 2015. Now, by heart and nose, mark another point (higher or lower or equal, your choice) that represents the growth of 2016, then another one for 2017 and finally the last one for 2018. It doesn't matter precise amount, the trajectory counts. Now do the same thing with the American GDP, putting a cross for each of the years between 2015 and 2018.
The dominant narrative (and the trajectory drawn from a small sample we tested) is that theEurope has been accelerating since 2014, is booming today and that this boom, with one more Macron and one less Le Pen, even risks bringing us up growth rates higher than America's, as indeed we began to see in the first quarter of this year.
However, the numbers tell us that European growth was 2015 in 1.9, 2016 in 1.7, this year it will be 1.6 and next year it will be 1.4 (source Goldman Sachs). Respectable growth, for the times that run, but constantly decelerating due to the weakening of the thrust deriving from the devaluation of the euro. American growth, according to the Monetary Fund, was 1.6 last year, will be 2.3 this year and 2.5 in 2018. The gap between Europe and America would appear to be widening, not narrowing.
If we compare it with reality, the current European narrative therefore wears pink lenses, the one on America dark lenses, at least when it comes to the country system. The storytelling on the bags instead wears pink lenses all over. Mind you, trailing reported earnings of publicly traded companies will be 24 percent higher this year in the eurozone (source Deutsche Bank) and 11 percent higher in America (bottom-up consensus). However, US National Accounts data tells us that corporate profits in the first quarter were 2.5 percent lower than they were a year ago, while cash flow fell 2.3 percent. Of course, the 500 companies that are part of the Standard and Poor's index are a subset of the surveyed universe, are more exposed to exports and still make many buy-backs, but it is always good to have all the data in mind and not just the that please.
Another phrase we often hear repeated in this once again bullish bond climate is that thewage inflation does not exist, that people are very happy to have a job as long as it is and that the last thing on their minds is to go and ask the boss for a raise. In America, however, we begin to see something different. Torsten slok, an economist who painstakingly compiles all the statistics on wages and compiles them into an index, says that after stagnating at around 1.5 percent between 2011 and 2014, wage inflation has taken the path of continuous upwards and it is today at 3 per cent, a level now very close to the historical average for 1983-2017. Everything suggests that this level will be reached and perhaps even surpassed this year, given the continuous progress on the employment front.
It is also quite impressive to see a growing number of countries approaching full employment and to hear another cliché repeated more and more often, that artificial intelligence and robots are sending us all home. We will believe it when the first bus driver replaced by software is presented to us and when we send our children on a school trip on that bus. For ten years, planes have been perfectly capable of taking off, flying and landing on their own, but we only get on them if the pilot is there too (and the co-pilot on long flights) because you never know. The rhetoric on automation was already circulating in the XNUMXs (and even earlier with the Fordism of the XNUMXs) and today it is fueled by brilliant entrepreneurs who give us a glimpse of science fiction to make us dream and in the meantime inflate the prices of their shares. In reality, all this innovation does not even increase the return on capital and productivity by a millimeter, at least that measured in dollars or euros. If with a robot I produce twice as many pieces every hour but then sell the pieces at half price, the economic productivity does not increase.
And in fact throughout the world, economic productivity has stagnated between zero and one since 2010. Without an increase in productivity, wage inflation at 3 per cent is starting to cause concern in central banks and can only lead them to a more fundamental attitude. restrictive. In this regard we finally have the figures of Qe negative which will be practiced by the Fed in the coming years. It will start at 12 billion a month and then increase every quarter. Since the tapering of the ECB will presumably take all of 2018 and since the Bank of Japan and the Bank of England will continue to do Qe (Japan forever and the Boe when needed) the net global Qe will be zero at the end of 2018 and will be slightly negative from 2019 onwards after you. It is impossible to make precise calculations because Japanese Qe has become variable, but the direction of the trend is still clear.
Rising wage inflation and falling Qe mean headwinds for equities. For now, these are moderate winds and nothing yet suggests that one day they will turn into hurricanes. Rising earnings are an excellent boost for stocks this year. As early as next year, however, the general condition will slowly begin to deteriorate. Unless the cavalry of the American tax reform.
