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Foreigners have steadily increased their holdings of US equities and currently own 18% of the US stock market, see chart below.
This is the mirror image of a trade deficit. Foreigners selling goods to the US receive dollars in return, which are then used to purchase US assets, including US equities.
If the trade deficit is eliminated, there will be fewer dollars for foreigners to recycle into the S&P 500.
Sources: Federal Reserve, Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The chart below shows a timeline of US tariffs since early February.
Sources: Bloomberg (BECO Models Trade), Apollo Chief Economist See important disclaimers at the bottom of the page.
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Europeans work far fewer hours per week than Americans, see chart below.
Note: Data as of 2024. Sources: OECD (Organisation for Economic Co-operation & Development), Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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US economic growth is currently facing headwinds from higher oil prices, increased tariffs, the resumption of student loan payments, and higher long-term interest rates associated with the fiscal situation.
When we quantify these four drags on growth, we conclude that they are insufficient to push the economy into a recession.
In other words, these shocks are milder than those of Covid-19 and the Lehman crisis, see chart below.
However, we are closely monitoring these four risks to assess whether they become significant enough to put GDP growth into negative territory later this year—for example, if oil prices, tariffs, or long rates increase further.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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According to the Fed’s model of the US economy, a sustained $10 increase in oil prices is expected to increase inflation by 0.4% and lower GDP by 0.4%, see table below.
Tariffs also increase inflation and lower GDP growth.
Restrictions on immigration also increase wage inflation and lower employment growth.
In short, higher oil prices exacerbate the ongoing stagflation shock stemming from tariffs and immigration restrictions.
Stagflation is a problem for the FOMC when they meet next week. Higher inflation says the Fed should be hiking. Lower GDP growth says the Fed should cutting. So will the FOMC next week put more weight on the upward pressure on inflation or more weight on the coming slowdown in growth?
Sources: Apollo Chief Economist, Federal Reserve Bulletin See important disclaimers at the bottom of the page.
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Foreigners have record-high exposure to long-dated US government bonds. Specifically, foreigners have increased their share of holdings of US Treasuries with a maturity greater than 10 years, see chart below.
As a result, foreign portfolios of US Treasuries are more vulnerable to the ongoing rise in long-term interest rates.
Why have foreigners over the past decade increased their exposure to US duration? Because of the prolonged period of low and negative interest rates in Europe and Japan. Global investors like high nominal yields.
Sources: US Treasury, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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In the United States, the securitization market is 50% of GDP. In Europe, securitization markets are only 7% of GDP, see chart below.
Expanding the securitization market in Europe would unlock significant GDP growth in Europe.
Sources: SIFMA, AFME, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Our latest outlook for China is available here.
The consensus predicts a decline in China’s growth from its current rate of around 5% to 4% next year.
The forces pulling growth down are the ongoing trade war with the US, the deflating housing bubble, and demographic headwinds as the lagged effects of the one-child policy continue to shrink the working-age population.
Sources: Bloomberg, Macrobond, Apollo Chief Economist 
Sources: Bloomberg, Apollo Chief Economist (Data as of June 2024) 
Sources: China General Administration of Customs (GAC), Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Our outlook for the US banking sector is available here.
Banking sector balance sheets are generally in good shape, and credit growth is positive, driven by lending by large banks.
Delinquency rates are peaking on credit cards and auto loans, but restarting student loan payments is a headwind to credit quality and credit growth.
The trade war and Moody’s downgrade have not yet had any impact on the banking sector or credit growth.
Permanently higher interest rates are putting downward pressure on CRE prices for office, multifamily apartments, and healthcare facilities. This remains a problem for banking sector balance sheets.
Sources: Federal Reserve, Macrobond, Apollo Chief Economist 
Sources: Federal Reserve Bank of New York, Macrobond, Apollo Chief Economist 
Sources: Federal Reserve Bank of New York, Macrobond, Apollo Chief Economist 
Sources: Federal Reserve, Macrobond, Apollo Chief Economist 
Sources: Bloomberg, Macrobond, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Measures of M&A activity are approaching the lowest levels in decades, driven by the double whammy of high uncertainty for business planning and interest rates staying higher for longer.
The weak M&A environment will continue.
Why? Because unsustainable fiscal policy is putting upward pressure on long-end rates, while inflation is putting upward pressure on front-end rates, driven by tariffs, reduced immigration, and housing affordability boosting rental inflation.
The bottom line is that fixed income will continue to pay higher all-in yields to asset owners of credit.
Note: Data uses completed M&A deals from MA<GO> screen on Bloomberg. Sources: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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