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The economics textbook says that higher interest rates should slow capex spending.
But capex spending is currently much less sensitive to interest rates because of massive investments in AI.
Despite the Fed funds rate being at the highest level in decades, capex spending by the Magnificent Seven is at record-high levels, see chart below.
This is another reason why the monetary policy transmission mechanism is much weaker than usual. Fed hikes are having a much smaller negative impact than normal on business investment decisions because of the strong appetite among firms to invest in AI.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Our chart book, available here, monitors a broad spectrum of indicators for signs of weakness in demand for US Treasuries. Fed cuts will begin to test the appetite for Treasuries among yield-sensitive buyers such as households, pension funds, and insurance companies.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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The depreciation of the Norwegian krone has been driven by the Fed raising interest rates faster than Norges Bank and by weak oil prices, see charts below and our chart book available here.
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The five states with the highest average annual lottery spending per person are Rhode Island, Massachusetts, Maryland, West Virginia, and Delaware, see chart below.
Source: North American Association of State & Provincial Lotteries (NASPL), US Census Bureau, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The JOLTS data shows that layoffs are currently at record-low levels, see the first chart.
The Challenger, Gray & Christmas survey of job cut announcements shows that job cuts are at record-low levels, see the second chart.
WARN notices are trending down, suggesting that initial jobless claims will decline over the coming months, see the third chart.
The bottom line is that the rise in the unemployment rate is not driven by people getting fired.
Put differently, we are not in a recession, and it is debatable if the labor market is softening.
In short, the economy is doing just fine, and that is good for consumer spending, capex spending, and corporate earnings. There is no need for the Fed to cut interest rates four times this year. In fact, cutting interest rates too aggressively runs the risk of triggering another run-up in inflation.
Our latest chart book with daily and weekly indicators for the US economy is available here.
Source: BLS, Haver Analytics, Apollo Chief Economist 
Source: Challenger, Gray & Christmas, Haver Analytics, Apollo Chief Economist 
Note: The Worker Adjustment and Retraining Notification (WARN) Act helps ensure 60 to 90 days advance notice in cases of qualified plant closings and mass layoffs. WARN factor is the Cleveland Fed estimate for WARN notices (https://www.clevelandfed.org/publications/working-paper/wp-2003r-advance-layoff-notices-and-aggregate-job-loss). Source: Department of Labor, Haver Analytics, Federal Reserve Bank of Cleveland, Apollo Chief Economist See important disclaimers at the bottom of the page.
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During the pandemic, many new businesses were created, see the first chart below. But the new businesses created were different. They were created by individuals rather than corporations, and they were smaller and less likely to hire a lot of people, see the second and third chart.
The bottom line is that business dynamics changed during Covid, with more one-person businesses opening since 2020. This is likely why the BLS overestimated employment in the birth/death model, which looks back five years and adjusts the total employment numbers for how many new businesses have opened and how many people work at these new businesses.
In other words, new businesses created are smaller and have fewer workers. The sector distribution seems to be fairly even and a lot of these businesses happen to be in Florida, see the fourth and fifth chart.
The implication for markets is that employment growth going forward will be lower because of an increase in the share of new businesses with fewer workers.
For more, see our chart book available here on these changing business dynamics.
Source: Census Bureau, Haver Analytics, Apollo Chief Economist 
Source: Census Bureau, Haver Analytics, Apollo Chief Economist 
Note: High-propensity businesses are those that have a higher likelihood of becoming businesses with employees and payroll capabilities, and include those that: Define themselves as a corporate entity, indicate a plan to hire employees, have a date for providing first wages and planned wages, have been given a NAICS industry code that aligns with accommodation and food services, construction, manufacturing, retail, professional, scientific or technical services, educational services and healthcare.
Source: Census Bureau, Haver Analytics, Apollo Chief Economist
Source: Census Bureau, Haver Analytics, Apollo Chief Economist 
Source: Census Bureau, Apollo Chief Economist. Note: Data for 2022. See important disclaimers at the bottom of the page.
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The share of Italian government bonds held by non-residents has increased over the past year, see chart below.
Source: Bank of Italy, Apollo Chief Economist. Note: Monetary Financial Institutions include banks, money market funds and ECB. See important disclaimers at the bottom of the page.
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During the pandemic, households increased spending on goods because they were shopping online, and services spending was lowered because they couldn’t go to restaurants and travel.
The chart below shows that consumers have significantly increased spending on services over the past two years, and the current share at 68% is now close to pre-pandemic levels.
The bottom line is that we are getting to the end of the catch-up effect for companies in the consumer services industry.
Source: BEA, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Population growth in China has now turned negative. This is important because a growing labor force used to be a strong driver of growth in China. Combined with falling home prices and ongoing trade wars with Europe and the US, the headwinds to growth in China are intensifying. One implication for markets is continued downward pressure on commodity prices.
Source: CNBS, Haver Analytics, Apollo Chief Economist. Note: Natural population growth shown. Natural population growth = (birth rate – death rate) * total population. See important disclaimers at the bottom of the page.
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Small business optimism is at the same level as when the Fed started raising interest rates in March 2022, see chart below. This is not a recession. If anything, this suggests the economy is reaccelerating.
Source: NFIB, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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