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EQUITY MARKETS GAINED AGAIN IN JULY
Despite momentum slowing in recent weeks, and slipping on the month’s last trading day, stock markets booked another positive month in July.
The Dow Jones Industrial Average rose 1.3 percent, the NASDAQ gained 1.2 percent, and the S&P added 2.3 percent last month.
The Stoxx Europe 600 index also retreated on Friday but grew by 2 percent in July.
Prices sagged at week’s end as Amazon’s earnings and outlook disappointed expectations and worries surrounding inflation nibbled at investors’ optimism, continuing to trouble the gamblers. It’s more of the same game: They are worried that the central Banksters will stop the flow of cheap money by raising interest rates to slow down inflation.
Asian stocks sank in the rising tide, with Hong Kong’s Hang Seng index shedding 9.9 percent in July, its biggest one-month slide since October 2018. China continued to put pressure on tech and private education companies allegedly in an effort to boost competition and improve data security. On the education front, the Chinese government has taken measures to stop for-profit companies from tutoring students they discriminate against—those who cannot afford the classes. They also prohibit foreign companies from investing in the on-line tutoring firms.
In fact, the clampdown trend on these companies was apparent in March when China’s leader Xi Jinping declared that “Parents hope their children … have a happy childhood, [but] they are afraid they will lose at the starting line in a competition over scores.”
Today, following the Chinese state media saying that online gaming was a type of “opium” for teens, shares of Chinese gaming stocks listed in Hong Kong plummeted. The Hang Seng Tech index slumped 1.47 percent, while stocks in Asia-Pacific were mixed.
TRENDPOST: Ironically, it appears China is taking active measures to ensure competitiveness while the U.S. has done the opposite by dismantling antitrust regulations and handing more and more control over prices and products to fewer and fewer companies.
COVID War 2.0 Damage
We said it would happen, and now it’s happening: COVID War 2.0 signaled the end of the Biden Bounce and the global economic recovery.
“Pandemic Takes Tool on Asia’s Economic Recovery” screamed the front page headline of today’s Wall Street Journal.
As the fear of the Delta variant spreads, the new lockdown orders and restrictions “restrain manufacturing in some countries and the exports that have powered the recovery of China show signs of slowing.”
In July, China’s purchasing managers’ index fell to its lowest level in over a year while its manufacturing PMI tracking new export orders fell to 47.7 last month.
TREND FORECAST: From exports to imports, as goes China’s economy, so goes the world’s. And today, with its government locking down the city of Ruli bordering Myanmar because just two more cases were confirmed, bringing the total to 23 out of a population of 270,000, it indicates yet more stringent Chinese government measures to fight COVID War 2.0.
Thus, the more businesses that are shut down, the more manufacturing and bottlenecks that are created, the higher inflation will rise and the lower economic growth will fall.
On the U.S. Front
Consumer spending rose 1 percent in June over May, the U.S. Commerce Department reported.
Treasury yields notched their worst one-month fall since March 2020 after beginning July at 1.48 percent and ending it at 1.239.
Yields fall when prices rise; July’s drop indicates greater investor interest in the security treasury instruments offer.
On the equity market front, after being mixed yesterday with the Dow down nearly 100 points, the S&P 500 slipping 0.2 percent and the Nasdaq edging up just 0.1 percent, it was a slightly up day today.
After being down 100 points earlier in the day, the Dow Jones Industrial Average rebounded, closing up 278 points on the belief of a strong economic rebound… which we don’t see coming.
Hitting a new all-time high, the S&P 500 rose 0.8 percent and the tech-heavy Nasdaq was up 0.6 percent
TREND FORECAST: As we have detailed in this Trends Journal article, “COVID RULES: YOU MUST OBEY,” government mask wearing and vaccine passport mandates alone have dramatically increased the Delta variant fear levels of the general public. Thus, the more afraid they are, the less they will go out, spend money, begin commuting to work, etc., which in turn will negatively impact economic growth.
Indeed, as evidenced by the Gallup poll, with the media and politicians selling COVID Fear and Hysteria 24/7, 45 percent of Americans say the coronavirus situation is getting worse. This compares to a record 89 percent in June who said the situation was getting better while only 3 percent said it was getting worse.
And while the poll shows that there is not yet a great concern, the Delta variant has translated to increased avoidance behavior, as more mandates are imposed and more fear is spread, the avoidance trend will escalate, thus taking a toll on the economy.
Unlike the first round of the COVID War that was launched in January 2020, locked down consumers won’t be spending as freely as they did back then. Today, the Federal Reserve reported that household debt spiked to nearly $15 trillion in the second quarter… the biggest jump since 2007, right before the Panic of ’08.
GOLD/SILVER: Both precious metals are stuck in their month’s long trading range. Now, with fear spreading of the Delta variant and the negative impact it will have on economic growth, we forecast the Federal Reserve will do all it can to keep interest rates low, which will in turn increase inflation… which is bullish for gold and silver.
In addition, as economies sink lower, governments will pump more money into the system to continue to artificially inflate it. Thus, the more cheap money printed, the lower the value of the currency and the higher safe-haven assets rise.
OIL: As we had forecast, the greater the fear of the Delta variant, the harder economies will be hit. Today oil prices fell as variant fears escalated and the long line of government mandates on travel and other COVID War restrictions got longer.
And while Brent Crude is up more than 40 percent this year, considering that OPEC+ will pump out some 400,000 barrels a day each month starting now—and add about 2 percent to the world’s supply by the end of the year—there will be much more supply than demand, which will put downward pressure on oil prices.
What will bring them up? If tensions escalate between Israel and Iran into military conflict, that will drive prices much higher. (See, “ISRAELI-LINKED TANKER ATTACKED BY DRONE: IRAN BLAMED”).
BITCOIN: Bitcoin continues to trade in the high $30,000 per coin range after sinking below $30K two weeks ago. We maintain our forecast for Bitcoin to dive deeply if it goes below $25,500 per coin and spark sharply if it breaks above $50K per coin.
We also maintain our forecast that bitcoin and other crypto currencies will rise if there is little government control to regulate them. Thus, the more regulation, the lower the value of the coins.
Today, Gary Gensler, Chairman of the Securities and Exchange Commission, told Congress he wants additional powers to oversee the cryptocurrency market.
He said:
“Certain rules related to crypto assets are well-settled. The test to determine whether a crypto asset is a security is clear. There are some gaps in this space, though: We need additional Congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector.”
Noting that the SEC already holds substantial power over digital assets, and being there are crypto coins that trade as assets, they should fall under the oversight of his agency.