There is a wide divergence in the speed of vaccine administration in the G7 countries. The timing of the reopening is dependent on the virus and vaccines but with limited information and no historical precedent, it’s challenging to gauge when the reopening hits the U.S. However, the relative path of current vaccinations is certainly investable as several central banks, including the Bank of Canada and the Federal Reserve, have tied the pace of vaccinations specifically to the path of near-term monetary policy. Slow vaccines imply a later relative recovery and easier monetary policy on a relative basis in the near-term.
Eye on China
Strength from China’s manufacturing economy has rolled over since peaking in November of 2020 and this is growing evidence that China’s cyclical boom is peaking. We have written in the past that China’s credit impulse is rolling over and this has global and cross-asset implications since it tends to lead China’s own business cycle, industrial commodities demand and global PMIs by three to six months. Covid-19 lockdowns have shuttered the services component of most global economies while the manufacturing component has recovered with strength. We believe that the rollover in China PMIs and the pause in the U.S. ISM manufacturing index is signaling a potential end to the manufacturing over services trade.
U.S savings, service and stocks
At 13.7%, the U.S. personal savings rate as a percent of disposable income remains elevated relative to pre-Covid levels. Although the savings rate has dropped from its peak of 33.7% in April of 2019, it still remains higher than any other recessionary period on record. These accumulated savings are fueling the pent-up demand in the economy which has propelled equity market valuations. We believe that these savings will drive stark improvements in the service component of the economy in the second half of 2021.
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