By Elwin de Groot, head of macro strategy at Rabobank
Welcome to the Mismatch Economy! A scan of the latest news stories clearly rams home the message that mismatches (or imbalances) are all but ubiquitous. In fact, they seem to be entirely running the show at the moment. The implications of this are – obviously – huge as, such mismatches not only make it very hard to interpret the data and establish whether something is temporary or permanent, it will almost surely lead to new policy errors (which themselves are likely to create new future imbalances). Even traditional (aggregate) demand versus supply analysis misses the point, especially if such imbalances are of a sectoral or regional nature.
Let’s start with financial markets where all these things come together and we are supposed to be able to read the ‘true and actual’ state of affairs on a minute-by-minute basis. For the most part of this year, equity and credit markets have been telling us that Covid no longer is a big issue. Although we had a bit of a dip in the first half of July (followed by a sharp recovery) and then again another dip in sentiment last week as investors fretted about the spread of the Delta variant, those concerns seem to have been put to rest again (as Bloomberg yesterday said: “investors are buying the dip!”). Yesterday’s news of the full approval of the Pfizer-BioNTech Covid shot by the US FDA gave markets another fillip, raising the prospect of an accelerated push for vaccination as it would give companies and governments the backing to put it up as a requirement for relaxation of social-distancing rules.
And, as always, investors are banking...