Investment Institute
Viewpoint Chief Economist

Still no smoking gun

  • 07 June 2021 (5 min read)

Key points:

  • More signs of supply-side tension on the US labor market, but still no sense of a permanent shift.
  • The ECB will need to choose its words carefully on Thursday. Optimism on the reopening needs to be tempered while the latest pandemic developments in the UK are being assessed.
  • The G7 agreement on global corporate taxation is another blow to the already ailing “Washington consensus”

More signals of supply-side tension in the US have emerged with the release of the labor market data for May. We focus on the strong rebound in the relative pay of low-skilled workers in the hospitality sector which is taking place even though the number of jobs of this type is still more than 15% below the pre-pandemic level. This would suggest that employers are consenting to significant pay rises to lure employees back. There is no clearer indication than last month on which explanation – childcare issues or over-generous unemployment benefits – dominates, and we may never know since those hurdles are likely to fade broadly at the same time. The ongoing reopening of the US is extending to schools, while nearly half of the states have decided to terminate the federal top-up of unemployment benefits ahead of schedule, in general by July (it could have continued until November). In any case, since those factors are both transitory, as such they cannot sway the Fed in one direction or another.

The ECB has communicated profusely ahead of its Governing Council this Thursday, which should insure us against anything revolutionary. Still, they will have to choose their words wisely to qualify the pace at which PEPP is continuing. We continue to think they will abstain from any significant rhetorical shift this time, waiting to see how the reopening of the European economy is shaping up. The Governing Council is probably taking a hard look at the latest pandemic developments in the UK. The rebound in hospitalizations is still very tentative over there, but it is already a reminder of a very simple truth: with aggressive variants, the threshold for collective immunity rises. Although the UK is among the most advanced countries on vaccination, there is still a “reservoir” of more than 4 million people above the age of 50 who have not been fully protected. This still leaves open the possibility to see more pressure building on the healthcare system.

The G7 agreed over the weekend on the “two pillars” of the strategy laid out by the OECD on global corporate taxation. It will still take a lot of work before any decision is implemented. Still, at this stage we can already add this piece of news to our already long obituary of the “Washington consensus”.

    Disclaimer

    This website is published by AXA Investment Managers Asia Limited (“AXA IM HK”), an entity licensed by the Securities and Futures Commission of Hong Kong (“SFC”), for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy, sell or enter into any transactions in respect of any investments, products or services, and should not be considered as solicitation or investment, legal, tax or any other advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities under any applicable law or regulation. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation, investment knowledge or particular needs of any particular person and may be subject to change at any time without notice. Offering may be made only on the basis of the information disclosed in the relevant offering documents. Please consult independent financial or other professional advisers if you are unsure about any information contained herein.

    Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee such opinions, estimates and forecasts made will come to pass. Actual results of operations and achievements may differ materially. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Information herein may be obtained from sources believed to be reliable. AXA IM HK has reasonable belief that such information is accurate, complete and up-to-date. To the maximum extent permitted by law, AXA IM HK, its affiliates, directors, officers or employees take no responsibility for the data provided by third party, including the accuracy of such data. This material does not contain sufficient information to support an investment decision. References to companies (if any) are for illustrative purposes only and should not be viewed as investment recommendations or solicitations.

    All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and that past performance is no guarantee of future returns, investors may not get back the amount originally invested. Investors should not make any investment decision based on this material alone. 

    Some of the services listed on this Website may not be available for offer to retail investors.

    This Website has not been reviewed by the SFC. © 2022 AXA Investment Managers. All rights reserved.