Treasury yields are tumbling. A slowdown in China and the spread of the Covid-19 delta variant are driving the view that developed economy Central Banks will act less quickly to tighten monetary policy. This in turn is driving equities up to new highs.
Exposure to Asia is a risk. China may be slowing, but the US is not. To what extent this affects US stocks is less clear cut. Headwinds to global growth need to be balanced against a strong domestic economy in the US that is benefiting from high business investment, rising wages, and strong consumption shifting towards services.
There are more tailwinds for the US consumer that extend beyond record household net wealth and savings, and rising wages. Lending standards are being eased and consumers are tapping home equity.
Data from the Federal Reserve show that loan officers significantly eased standards for mortgages and consumer credit in the first quarter of Q1. Consumer credit jumped as a result, rising by an annualised 10.0% m/m in May, the biggest single month increase since March 2016.
Households have the room to leverage. The US household debt service ratio tumbled from 9.36% in Q4 2020 to a record low of 8.23% in Q1. Both mortgage and consumer credit debt service ratios hit all-time lows.
