It’s a global economic freak show. Add up the numbers.
Take a trip to Argentina. With inflation running at over 100 percent and its peso down 23 percent against the U.S. dollar, Argentina’s central banksters raised its key interest rate yesterday by six percentage points to 97 percent.
Go over to Italy and visit one of the most highly-indebted countries in the world. With a debt to GDP ratio of 144 percent, yesterday the Bank of Italy reported that the country’s public debt spiked above $3 trillion.
It’s happy inflation days in Israel. Yesterday its Central Bureau of Statistics reported that the nation’s Consumer Price Index rose nearly twice as high as the forecast, up 0.8 percent in April.
Over in China, the economic news perspective has been that following nearly three years of fighting the COVID War the nation’s economy is strongly bouncing back.
Economists polled by Reuters had forecast that China’s industrial production would spike 10.9 percent in April.
Wrong. Today China announced that its industrial production for April rose just 5.6 year-on-year. And while higher than the 3.9 percent increase in March, when compared to a year earlier when manufacturing was locked down, the increase is minimal, thus signaling that the socio-economic damage of the COVID War is long and deep.
Further illustrating the contraction, China’s purchasing managers’ index fell to 49.5 in April (numbers below 50 signal contraction). This is the first contraction in three months.
Buying fewer products from overseas, as we had noted in last week’s Trends Journal, Chinese imports fell 7.9 percent in April compared to April 2022 when China was locked down fighting the COVID War.
Indeed, with over 20 percent of 16 and 24-year-olds unemployed, more people have less money to spend.
What is being felt on Main Street has also hit equities in China. As noted by CNBC, Chinese stocks have pared most of the gains seen this year. The Shenzhen Component was down 4.67 percent quarter-to-date and up only 1.48 percent year-to-date, notching a 9.5 percent drop from its peak in early February.
In America, once the Land of Opportunity, the “news” making the business news is that consumer debt of the plantation workers of Slavelandia hit a new high in the first quarter of this year, spiking past $17 trillion.
On the credit card front, total debt hit nearly $1 trillion at the start of 2023, according to the Federal Reserve Bank of New York. As a result of inflation and a rise in the cost of living, they note that “This is the first time in 20 years we are not seeing a decrease” since credit card balances start to fall at the start of the year as people start paying down their debt that the racked up during the holiday shopping season.
TransUnion reported today that credit card balances (of the plantation workers of Slavelandia) spiked some 20 percent from a year ago, with the average balance up to $5,733 during that time. They noted that “As inflation rose to near 40-year-high levels, many consumers have used credit to help manage their budgets, leading to record- or near-record high balances.”
And it is showing in the bottom line as retail sales, which account for some 70 percent of America’s GDP, slumped in April when accounting for inflation. The U.S. Commerce Department reported today that retail sales rose just 0.4 percent… far below the Dow Jones estimate of a 0.8 percent increase. On an annual basis they increased just 1.6 percent which is way below the 4.9 percent Consumer Price Index.
While the retail sales numbers are weak and illustrate how the plantation workers of Slavelandia are struggling, The Street cheered the lousy results since, as CNBC reported, “it was the first positive reading since January and followed a 0.7 percent decline in March.”
TREND FORECAST: This is not rocket science. Cheap money, like the countless trillions of money backed by nothing and printed on nothing that governments plowed into economies and the central banksters record low interest rates when they launched the COVID War back in January 2020 in celebration of the Chinese Lunar New Year, The Year of the Rat, artificially propped up GDP’s and equities.
Simply, the higher interest rates rise, the deeper economies and equities will fall. And as we have noted, on the economic side, it takes several months before the high interest rates impact consumers and economic growth… and that time is now.
On the equity side, since the game is rigged by the “Bigs,” while consumers on Main Street are feeling economic pain, it does not always hit Wall Street. As we have noted since last November, the S&P 500 has spiked over 16 percent following 40 U.S. midterm elections. And since then, a few of the “Big” tech with a combined market value of nearly $5 trillion, have pushed the S&P up nearly 8 percent this year.
The guess on The Street, according to Bankrate is that The Street does not “…see the Fed lifting rates anymore from here. Officials are seen standing pat on rates at the June and July meetings, according to CME Group’s FedWatch tool. An even bigger curveball from what Fed officials are expecting, traders also see 75 basis points worth of cuts by the end of the year, the tool also shows.”
But the Feds are singing a different tune. Yesterday, Atlanta Federal Reserve President Raphael Bostic told CNBC that he sees more rate hikes coming rather than cuts by year’s end. From the Fed side, they won’t start cutting interest rates until next year, and when they do, they’ll slash them just 75 basis points.
As we have long forecast, the Feds keep cutting interest rates in the run-up to the Presidential Reality Show® and they will do it again … whether at year’s end or the beginning of 2024 is a guess, but rate cuts will come.
However, should they pause between now and then; America will be hit by Dragflation: economic growth will decline and inflation will remain far above their 2 percent range. Yet, Cleveland Fed President Loretta Mester is still selling the line that considering the “long-run costs” of inflation the Federal Reserve is committed to bringing inflation down to its 2 percent target… a purely fictitious number that they invented in 2012.
As for equities, minus a wild card, such as ramped up wars, spiking oil prices, the S&P will stay on-trend.
LAST WEEK: DOW, S&P SLIP ON BANK CRISIS, INFLATION WORRIES
The Dow Jones Industrial Average and Standard & Poor’s 500 index both turned in losing performances last week, pushed lower by ongoing concerns about the health of the U.S. banking industry and the possibility its troubles could spark a recession, The Wall Street Journal reported.
The debt ceiling stalemate between Republicans in Congress and president Joe Biden also put a cloud over stocks.
Markets also reacted badly to the University of Michigan’s monthly consumer survey, showing consumers are at their gloomiest in six months.
The poll of 500 households registered a confidence level of 57.7 in the country’s economic outlook, down from 63.5 in April and well below analysts’ prediction of 63.0.
Households surveyed now expect inflation to average 3.2 percent over the next five years, their highest forecast in six months.
If consumers expect inflation to run higher longer, they are more likely to spend more in the short term and push for higher pay, turning their inflation expectation into a self-fulfilling prophecy, the WSJ noted.
The Dow was down 1.2 percent over the five-day trading span. The S&P lost 0.3 percent. The NASDAQ managed a 0.4-percent gain.
PacWest Bancorp, which reportedly has been seeking a buyer, watched its share price shrink by another 23 percent on 11 May when it reported that deposits are continuing to leave.
Its woes drove regional bank stock prices lower as a group.
TRENDPOST: With fear of a worsening banking crisis and concern that the Federal Reserve may raise interest rates when they meet in mid-June, plus banks tightening up on their lending… the risk to gamble in the markets is trending higher than the expectations for profitable returns.
The yield on the benchmark 10-year treasury note rose to 3.463 percent Friday from 3.397 percent Thursday.
Comex gold slid 1.6 percent through the week to trade at $2,015.60 at 5 p.m. U.S. EDT on 12 May.
Brent crude oil was unable to regain ground against its 11-month losing streak. Brent for July delivery was off 2.1 percent to $74.17 at 5 p.m. U.S. EDT on 12 May.
West Texas Intermediate, the standard for U.S. domestic oil, rode the week down 2.4 percent to $70.04.
Overseas, the London FTSE 100 exchange was up 0.6 percent. The pan-European Stoxx 600 was flat for the week.
Japan’s Nikkei 225 gained 1.0 percent. The South Korean KOSPI gave up 1.7 percent as the country’s export-dependent economy continued to suffer.
The Hang Seng index in Hong Kong shrank 2.5 percent. The Chinese mainland’s CSI Composite retreated 2.2 percent and the SSE Composite was smaller by 2.0 percent.
YESTERDAY: WALL STREET UP SLIGHTLY AS FEARS LOOM OVER INFLATION AND DEBT CEILING
The Dow Jones Industrial Average was up 47.98 points yesterday, or 0.14 percent, to 33,348.60 and the benchmark S&P 500 was up 0.3 percent to 4,136.28. The tech-heavy Nasdaq Composite was also up 0.66 percent to 12,365.21.
The big topics on The Street were the decline in manufacturing activity in New York and the debt ceiling.
The May 2023 Empire State Manufacturing Survey found that business activity in New York fell 43 points to -31.8, which is a level not seen since the Great Recession.
Raphael Bostic, the Atlanta Federal Reserve Bank president, said yesterday that he thinks the Fed should hold interest rates at their current rate of 5 to 5.25 percent, a 15-year high. The official inflation reading in the U.S. is 4.2 percent.
Bostic told Bloomberg that there’s evidence that interest rate hikes are working to cool the economy, but, if pressed between lowering interest rates and increasing them, he would choose the latter.
“Right now, if you had to tip the scales if the next move was going to be an increase or a cut, it’s pretty heavily weighted to the increase for me, at the current moment,” he said. (See our ECONOMIC OVERVIEW in this issue.)
The benchmark 10-year Treasury yield increased to 3.50 percent. The dollar rose to 136.09 Japanese yen from 135.70 yen, according to the Associated Press.
Elsewhere, London’s FTSE was up 23.08, or 0.30 percent, to 7,777.70 and the benchmark STOXX600 was up 1.18, or 0.25 percent, to 466.67.
In Asia, Japan’s Nikkei was up 238.04, or 0.81 percent to 29,626.34 and South Korea’s Kospi was up 3.93, or 0.16 percent, to 2,479.35. Hong Kong’s Hang Seng was up 349.89, or 1.75 percent, to 19,971.13. China’s Shanghai Composite was up 38.37, or 1.17 percent, to 3,310.74 and the Shenzhen Component was up 172.98, or 1.57 percent, to 11,178.62.
TRENDPOST: There is a clear disconnect between Wall Street and Main Street and Americans are suffering.
The New York Federal Reserve reported yesterday that consumer debt in the U.S., for the first time, surpassed $17 trillion after an increase of nearly $150 billion, or 0.9 percent during the January-to-March period, CNBC reported.
Delinquency is also up. The report showed 4.57 percent of credit cards transitioned to what is called serious delinquency last quarter, up from 3.04 percent in Q1 of 2022.
OIL: Brent crude increased $1.06, or 1.4 percent to $75.23 a barrel and West Texas Intermediate was up $1.07 a barrel, or 1.5 percent, to $71.11 a barrel.
TRENDPOST: Global supplies of oil and gas will remain tight. Prices are more likely to stay aloft with OPEC continuing to manipulate supply.
GOLD: The precious metal was up $2.90 to $2,022.70 an ounce.
Matt Simpson, a senior market analyst at City Index, told Reuters that the debt ceiling debate in Washington has put gold prices in a holding pattern. Some analysts say the yellow metal could jump $100 as the U.S. approaches the debt ceiling.
Christopher Louney, an analyst from RBC Capital Markets, wrote in a note that even if a debt deal is reached, “we wouldn’t disregard potential growing financial angst as the deadline approaches. In such a scenario, gold looks like one of the few likely candidates that would bear the burden of resulting market flows.”
TRENDPOST: The Trends Journal remains bullish on gold because of persistent inflation and geopolitical risks.
BITCOIN: The world’s most popular crypto managed to eke past the $27,000-a-coin mark after a choppy few days when it fell below $26,000 on Friday.
Decrypt reported that investors last week withdrew over $54 million from large digital asset funds for the fourth consecutive week and the report noted that Bitcoin was down about 10 percent over the past 30 days.
TRENDPOST: It is worth noting that Edward Moya, senior market analyst at Oanda, wrote in a note to clients that the upcoming debt-ceiling debate will help determine if a lot of investors look at the crypto “can behave more of a safe-haven despite all the regulatory uncertainty.”
“Bitcoin seems poised to stay in a range, but if risk aversion triggers a de-risking moment, we could see selling pressure extend below last week’s low,” Moya wrote, according to Yahoo! Finance.
We agree with his forecast. Bitcoin and the crypto world has lost much of its jive and is not the hot topic in the business media or among its core proponents.
TODAY DOW SINKS AS TRADERS CONSIDER NEXT MOVE BY FED, DEBT CEILING FALLOUT
The Dow Jones Industrial Average fell 336.46 today or 1.01 percent, to 33,012.14 and the S&P 500 declined 26.38, or 0.64 percent, to 4,109.90. The Nasdaq Composite was off 22.16, or 0.18 percent, to 12,343.05.
One of the key drivers on Wall Street was Home Depot projecting that it will suffer its first decline in annual revenue since 2009.
Traders also digested lower-than-expected retail sales in the U.S., despite an increase of 0.4 percent in April. Economists projected an increase of 0.8 percent.
TREND FORECAST: As we have noted in our ECONOMIC UPDATE, the higher interest rates rise and the more people that will be put out of work equals the less money consumers will have to spend. Also, continual rising inflation, plus higher consumer debt will drag down spending in the second quarter.
U.S. Treasury Secretary Janet Yellen issued a dire warning today about the debt ceiling.
“Time is running out,” Yellen told the Independent Community Bankers of America. “Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the U.S. economy.”
She warned that a U.S. default would generate an “economic and financial catastrophe” and spark a recession.
She said the White House Council of Economic Advisers simulated how a protracted default would impact the economy and over eight million Americans lose their jobs and the U.S. stock market would lose 45 percent of its value.
Elsewhere, London’s FTSE was down 26.62, or 0.34 percent, to 7,751.08 and the STOXX600 was down 1.97, or 0.42 percent, to 464.70.
In Asia, Japan’s Nikkei was up 216.65, or 0.73 percent, to 29,842.99 and South Korea’s Kospi was up 0.89, or 0.04 percent, to 2,480.24. Hong Kong’s Hang Seng was up 7.12, or 0.04 percent, to 19,978.25. China’s Shanghai Composite was down 19.75, or 0.60 percent, to 3,290.99 and the Shenzhen Component was down 79.37, or 0.71 percent, to 11,099.26.
TRENDPOST: We have been warning that the looming commercial real estate bust is going to create unprecedented strain on the economy and recent data shows the problem is intensifying.
The Wall Street Journal, citing Trepp, a data firm, reported that the delinquency rate of office loans that have been converted into commercial mortgage-backed securities increased to 2.77 percent last month, which marks the highest rate since August 2019.
The paper also noted that firms who own office buildings are willing to sell at a steep discount. Blackstone recently sold the Santa Ana Griffin Towers complex for $82 million – at a 36 percent loss from what the firm paid in 2014.
OIL: Brent Crude was off 67 cents, or 0.89 percent, to $74.56 a barrel. U.S. benchmark West Texas Intermediate was also down 59 cents to $70.50 a barrel.
The main news driving the oil market today was the lackluster economic data from China, the world’s biggest buyer. The country’s Industrial Production was up 5.6 percent last month, which was far short of the 10.9 percent anticipated by economists.
The International Energy Agency said the current market pessimism stands in stark contrast “to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d.”
The IEA said in its most recent report that it expects demand to exceed supply this quarter, which will be the first time since early 2022. China will account for nearly 60 percent of global demand growth, CNBC reported, citing the IEA.
TRENDPOST: As legend has it, Sir Isaac Newton was sitting under an apple tree when he was hit on the head by an apple and the saying, “What goes up, must come down” was born.
In the case of oil, you can also state: “What goes down, must go up.”
The IEA’s forecast on future demand doesn’t include the risks in the Middle East that range from Israel-Iran tensions, and the ongoing, clandestine war in the Strait of Hormuz between the U.S. and Tehran. The region is a tinderbox and conflict could send oil prices soaring.
GOLD: The precious metal was down $28.20, or 1.39 percent, to $1,994.50.
Gold was stung by recent comments from Fed officials that indicated interest rate levels will continue to remain above 5 percent.
The dollar strengthened and the yield on the 10-year Treasury hit a two-week high.
Gold prices generally come down when the dollar is strong because it is more expensive for foreign buyers and high Treasury yields also make the non-yielding asset less attractive.
Gold has been approaching all-time highs as investors have turned to the precious metal as a safe store of value while fears linger over the safety of the U.S. banking system.
The yellow metal’s price has been pushed up over the past six months by a buying spree among central banks.
TREND FORECAST: Despite indications that interest rates are going to remain high, gold continues to be golden and when these rates start to come down, so too will the dollar decline, and the deeper the dollar falls, the higher gold prices will rise.
BITCOIN: The world’s most popular crypto was down $207.40, or 0.76 percent, to $26,963.70 as of 4:19 p.m. ET.
TRENDPOST: Crypto enthusiasts are evidently discount shoppers.
The Coin Telegraph, citing Glassnode, reported that the number of bitcoin wallet addresses with one whole bitcoin has surpassed the one million mark for the first time.
The report said a lot of people jumped at the chance to purchase bitcoin when it crashed from its November 2021 highs. About 190,000 “wholecoiners” were tallied from early February 2022, the report said.