Shifting Sands at Home
As Fed heads prep their speeches for Jackson Hole later this week and market watchers prepare for Fed-y pontificating on “Challenges for Monetary Policy”, we’ve been struck by the number of recent articles indicative of potential shifts in the status quo. While the Citi Surprise Index continues to improve, implying the metaphorical apple cart is still upright, there are some wobbles. Just yesterday, the Business Roundtable, “a group of chief executive officers from major U.S. corporations” announced that they had a new definition of “the purpose of a corporation”, as covered in this article from CNBC. While the CEO’s did affirm their commitment to “generating long-term value for shareholders”, they also explicitly mention “compensating them [, employees,] fairly” as well as “embracing sustainable practices”. While cynicism is likely in order (or a wink to the folks in PR), it appears that companies are facing tightening scrutiny on their activities beyond just the bottom line. Big Tech is facing pressure for its business activities as both the DoJ and state attorney generals are working on antitrust investigations. So too is Big Pharma feeling the pinch as cities, counties and other entities fight back in response to the opioid epidemic, as exemplified by a recent article in the Wall Street Journal. While the plural of anecdotes isn’t data, if investors, consumers and employees’ demands of corporations have teeth, it could not only hit profitability but could also portend further changes in political and economic winds.
Moving Pieces Abroad
In addition to the shifting sands at home, the international economic and political picture continues to be frothy. Bank of Finland Governor Olli Rehn provided a good summary of the current lay of the economic land in a recent speech at the Dallas Fed. In “Global Economic Outlook: A European Perspective”, Rehn cites trade tensions, Brexit, and a structural slowdown in China as reasons for “subdued global growth”. However, he remained optimistic that “recent gloom in international trade and manufacturing does not necessarily mean a serious slump in the euro area economy as whole”, hoping a strong labour market and accelerating wages could help compensate for the “decline in external demand”. Those watching the evolving European economic landscape will take additional solace seeing that traditionally-tight-fisted Germany is considering fiscal stimulus plans.
In addition to the looming threat of Brexit, global politics remains a source of turmoil. Italy is once again an epicenter of destabilization as Italian PM Giuseppe Conte announced his resignation. Argentina had an election surprise that rippled through markets. And China faces ongoing protests in Hong Kong. Though these international moves could be signaling a change in tune, the music is, at least for now, still playing, and the markets are “still dancing”.
