The numbers tell the story. The global economy is slowing down.
The growing risk of recession, denied by media pundits and “financial experts” just a few months ago, are now, according to business and consumer polls, a mainstream reality.
The “Greatest Depression” that I forecast will not occur on a given day at a given hour. Instead, it’s a process of decline marked by increasingly devolving economic, social, and geopolitical data and events: from recession to meltdown to the “Greatest Depression.”
In overnight news, the eurozone manufacturing purchasing managers index (PMI) fell to its lowest level in seven years, at 45.6 in September from 47.0 in August.
IHS Markit data showed Germany, the European economic power house, experienced its sharpest manufacturing decline since the Panic of ’08.
Highlighting the global slowdown, Germany, the world’s fourth largest economy, is expected to have fallen into recession in the third quarter.
To counter the slowdown, Mario Draghi, the European Central Bank president, told governments it was “more urgent than before” to increase fiscal spending.
Facing the reality that the new round of quantitative easing and pushing interest rates lower into negative territory will not be enough to juice stock markets and Europe’s sagging economy. Draghi said, “The extraordinary monetary stimulus may have to last a long time if there is no support from fiscal policy.”
Despite Draghi’s call for increasing monetary methadone injections, incoming International Monetary Fund chief Kristalina Georgieva is warning that more cheap money and government spending may not have what it takes to stop the ongoing global slowdown. She said, “It’s harder than it was a decade ago to mobilize a swift collective response to the threats the world faces today… our preparedness could soon be tested.”
Number Crunch
In the U.S., marking its second consecutive month of contraction, September’s ISM manufacturing PMI plunged to 47.8 percent… the worst U.S. reading since the Great Recession. Fanning recession fears, any figure below 50 percent signals contraction.
The new export orders index tanked to 41 percent, clocking in at the lowest level since 2009.
“Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth,” Timothy Fiore, ISM chair, said in a statement.
The ISM data showed that the employment gauge for the sector dropped to the lowest since January 2016, driven down by a lack of demand.
New orders, backlog, and raw materials inventories exports and imports also contracted across the board last month, ISM data showed.
“There is no end in sight to this slowdown, the recession risk is real,” Torsten Slok, chief economist at Deutsche Bank, said following the report.
On 1 October ISM news, the Dow erased earlier gains, falling some 300 points as we go to press.
TREND FORECAST: Earlier today, gold prices had hit a seven-week low as the FOREX-Dollar index hit a two-year high.
You know the story: the stronger the dollar, the weaker gold. Gold is dollar based. When the dollar value increases relative to other currencies around the world, it cost more to buy gold in other currencies.
Following the release of data showing weak U.S. manufacturing, President Trump blamed high interest rates and a strong dollar for the weakness in manufacturing.
He tweeted: “As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected. Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!”
Thus, with pressure from the President for the Fed to lower rates, we maintain our forecast that they will lower interest rates to zero (possibly negative, depending on the speed of U.S. economic decline) prior to Election Day 2020.
We maintain our forecast that gold will spike above $2,000 per ounce prior to Election Day.