Chief economist update: Santa Claus is coming to town

"I see trees of green, red roses too
I see them bloom for me and you
And I think to myself what a wonderful world."

- Louis Armstong

It could only be because I got up on the right side of the bed this morning and/or the sun is shining after several cold, wet, windy or cloudy days.

But the rise and rise of the US equity market - the S&P 500 index, the DJIA, and the Nasdaq composite index all closed at new record highs last week - forward-looking as it is, portends  good tidings ahead.

To be sure, US equity indices have been rising despite global economic concerns centred on the ill-effects of the trade war and underscored by fears of a looming US recession predicted by the inverted yield curve.

The only explanation being that bad news is good news. The worse the global economic backdrop gets, the more central banks are expected to implement increased policy stimulus measures.

Central banks have indeed raised policy stimulation - in words (BOJ, BOE) and in deed (Fed, ECB, PBOC and RBA) - and the recent positive turn of events - US-China trade deal, the UK could finally Brexit with polls predicting UK PM Boris Johnson could win a 96-seat majority at the 12 December polls - had eased uncertainty.

But as evident in recent history, the Sino-Yankee trade deal is only as good as Trump's changing mood and the UK polls have been oh so wrong since 2015 when the Conservatives won majority (when the polls forecast a hung parliament; in 2016 when Brexit won (contrary to the polls showing Remain will win) and in 2017 (when Theresa May's party lost majority instead of the poll predicted landslide victory).

But I digress. Financial Standard has always been looking at fundamentals and ... they've improved.

The US yield curve is no longer inverted. This suggests that the Fed may have caught up with the curve with its three rate interest rate cuts over the past few months plus its "technical adjustment" (don't call it QE).

In addition, the slump in global manufacturing activity appears to have bottomed and just as it led the services sector down it heralds a turnaround from the trend decline in the services sector.

The improvement in the manufacturing sector can be observed in the world's biggest economies, except for Japan (which continues to decline).

But as Markit Economics/Jibun Bank acknowledged in its Japan PMI report, "the sales tax rise and harsh weather conditions affected demand, as new order growth eased to a 17-month low in October."

But Japan's outlook has also improved, "new client wins supported a mild expansion in new business, extending the current upturn in new work which commenced in August 2016" and "inflows of new orders from overseas markets also rose".

To this I'll add the recent depreciation of the yen resulting from less safe-haven purchases due to improved market and economic conditions.

"A very Merry Christmas
And a happy new year
Let's hope it's a good one
Without any fear."
- John Lennon

Link to something amg9jvm8