Already available! The weekly World Economic Digest (Wednesday) on 26.08.2023 presents the most significant economic events and their impact on the world economy. In this issue, we will look at the latest updates in world trade, the development of financial markets, changes in the political situation and their possible impact on international firms and investors.
According to Swift data, in July 2023, in one month, the share of the euro in settlements outside the eurozone collapsed from 36.7% to 13.6%.❗️
Can this be assessed as a real drop in the share of the euro – probably not. Apparently, finally, they made a slightly more adequate assessment, because it is obvious that outside the perimeter of the eurozone, the use of the euro is significantly lower than the dollar, before the July report they were almost identical currencies. In fact, such a revision is possible only if a decent part of the settlements in euros between the eurozone countries went through a conditional London hub, and now through some Frankfurt.
The share of yuan in Swift has grown to 2.23%, but even here, most likely, the data does not adequately reflect reality due to the fact that most of the payments in yuan go through Chinese infrastructure and CIPS, and Swift sees mainly netting between banks.
But in general, this says a lot about the quality of Swift estimates by calculations.
#USD #EUR #CNY #fx
The Turkish Central Bank nevertheless escalated and immediately moved the rate by 750 bps to 25%
The Turkish Central Bank nevertheless escalated and immediately moved the rate by 750 bps to 25%, after a rather sluggish start to the tightening cycle, which greatly disappointed the markets. This is still well below the inflation rate of 47.8% YoY, but it still helps the lira to hold on at the moment.
While, obviously, this is not enough, in order to return inflation to 5%, we will have to go through a long thorny path, while there are great doubts that a collision with problems in the economy and the financial system (and they will be on this path) will not turn everything 180.
#Turkey #rates #inflation #Crisis #TRY #banks
GERMAN BUSINESS CLIMATE INDEX: AGAIN WORSE THAN FORECASTS
The IFO business climate index, calculated on the basis of a survey of German companies, fell in August to 85.7% vs 87.4 earlier (forecast: 86.7). The assessment of the current situation has worsened – 89.0 vs 91.4 (90.0 was expected). Business expectations for the month: decrease to 82.6 points vs 83.6 a month earlier (expectations: 83.8).
All three indices are going down, and the head of the IFO, Clemens Fuest, was extremely concise: “… the German economy has not yet emerged from the crisis…”
• German economy, there is no positive • Flash PMI for Germany – MFG below 40 points, services are also falling • deterioration of ZEW indices
GERMAN ECONOMY: THE THIRD QUARTERLY MINUS WAS AVOIDED
According to preliminary data from the Federal Statistical Office, Germany’s GDP in 2Q23 was 0.0% QoQ vs -0.1% QoQ in 1Q2023 (forecast: 0.0% QoQ). Annual rates continue to be in the negative range: -0.2% kg vs -0.2% y quarter earlier (forecast: -0.2% y).
Both household consumption improved (0.0% sqq vs -0.3% sqq) and government spending (0.1% sqq vs -1.9% sqq). Gross capital accumulation (2.1% QoQ vs -1.7% QoQ). At the same time, exports collapsed (this is reflected in the very low German PMI index): -1.1% QoQ vs 0.4% QoQ.
CENTRAL BANK OF KAZAKHSTAN: THE CYCLE IS TURNING DOWN, THE REGULATOR HAS INDICATED THE LIKELIHOOD OF A FURTHER RATE CUT
The National Bank of Kazakhstan has decided to reduce the key rate by -25 bp to the level of 16.5% per annum, given that annual inflation in July continued to decline amounted to 14.0% yy vs 14.6% yy and 15.9% yy two months earlier.
The regulator notes that “… the pro-inflationary pressure from the external environment continues to gradually weaken. Prices on the world food markets, as well as logistics costs are decreasing.
At the same time, pro-inflationary pressure remains within the economy from the expanding fiscal stimulus, stable domestic demand, high and unstable inflation expectations, as well as rising production costs.
As a result, the cumulative balance of risks due to some easing of pressure from external factors remains in a weakly disinflationary zone.
With a further slowdown in actual inflation and its stable part, the policy of a smooth and prudent reduction in the base rate will continue…”
NBC; lowered, but cautiously
The People’s Bank of China has not yet decided on a more active reduction in rates and has reduced the annual LPR rate by 10 bps to 3.45%, and has not changed the five-year LPR rate at all, leaving it at 4.2%.
Although, obviously, there is a need for further rate cuts, but against the background of the strengthening of the dollar in foreign markets and the multidirectional movement of rates, the NBK holds the easing, risking sliding further into the Japanese scenario, since inflation is close to zero against the background of weak domestic demand. Although, of course, there is still a fiscal incentive….
#CNY #China #betting #NBK #fx
China is actively switching to the yuan
China systematically continues to transfer its foreign economic activity to the yuan. Payments from China have exceeded payments in dollars for several months, the total outgoing payments in yuan for 6 months amounted to $1.52 trillion, while in dollars they dropped to $1.36 trillion. The share of the dollar in payments received in 6 months fell below the yuan for the first time, respectively, $1.47 trillion versus $1.49 trillion.
At the same time, China’s dollar balance is positive (+$111 billion in six months), and negative in yuan (-$30 billion in six months). The outflow of yuan to foreign markets is relatively small, but it is gradually growing, which indicates a gradual increase in yuan liquidity outside the Chinese economy. The volumes, of course, are ridiculous for China so far, but given the rather small volumes of the offshore market, they are already quite noticeable.
"A flock of aimless flies": Chinese hedge fund accuses foreign investors of ruining stocks
China’s largest macro hedge fund blamed global capital for the country’s stock falling to its lowest level since November. ⛔️ Foreign funds are the main drivers of the recent sell-off in Chinese stocks, said Li Bei, founder of the Shanghai Investment Management Center Banxia. Foreign investors have caused market volatility, and “together they are a bunch of aimless flies,” she said in an article posted on the social media platform WeChat. According to Li, initiatives to recharge slum reconstruction and eliminate the risks associated with financing local governments are more effective for stimulating the economy than lowering rates. Based on recent policy moves by the central bank and the retreat of foreign funds, this is probably “another good point to buy,” she said in the article.
China steps up fight against yuan Bears to stop Sell-off spiral
📍 China is strengthening its protection of the yuan, increasing the cost of financing in the offshore market to reduce short positions, and is setting a new record with a stronger-than-expected benchmark rate for the currency. Analysts say that these steps are aimed at slowing the pace of depreciation of the yuan, and not to provoke a sustained rally. Analysts from JPMorgan Chase & Co., Nomura Holdings Inc. and UBS Wealth Management predict further weakness of the currency this year. The offshore yuan reversed earlier gains and weakened on Tuesday, returning to its 2023 low set last week. The People’s Bank of China set the daily fixing of the currency at 7.1992 per dollar on Tuesday, compared with the average estimate of 7.3103 in the Bloomberg survey. This was the largest gap since the polls began in 2018.
Cities owe billions of dollars to Chinese real estate companies - report
According to local media reports, local authorities in some Chinese cities owe developers from 1 to 2 billion yuan ($137 million) in unpaid bills. The outstanding debt to real estate firms includes tax benefits and promised reimbursement of commissions for the sale of land, the Economic Observer magazine reported late on Monday, citing unnamed executives of developers. According to the report, various districts and counties in cities, including Zhengzhou in central Henan Province, have recently asked private real estate firms to provide detailed information about the debt owed to them by the government.
Pessimists in China's real estate market are missing out on underlying demand, says an economist with experience in making correct forecasts
Investors are too pessimistic about China’s real estate market, where demand for housing is still supported by high sales among state-backed developers and rising rents, according to an experienced analyst who correctly predicted the resumption of trade last year. 🔸 Sales of government-backed developers have deviated from the general downturn in the industry this year, and housing rents are also rising, Hong Hao, chief economist at Grow Investment Group, said on Monday. For example, sales of Poly Developments and Holdings Group jumped 109% year-on-year in the first seven months, and Yuexiu Property registered a 68% increase over that period, he said. “Their strong sales hint at continued demand for housing, which is not affected by general market conditions and prevailing pessimism,” Hong said. “Rents are rising, which suggests that people are delaying buying decisions and renting instead. If that’s the case, then housing demand is probably lingering rather than disappearing.”
U.S. Commerce Secretary to visit China next week for talks
U.S. Commerce Secretary Gina Raimondo will travel to China next week for meetings with senior Chinese government officials and U.S. business leaders, the Ministry said on Tuesday. 🇨🇳🇺🇸 Last month, Raimondo promised to continue the visit, despite reports that her department’s email was hacked by the Chinese. Raimondo “looks forward to constructive discussions” during a visit to Beijing and Shanghai from August 27 to 30, the ministry said in a statement. 🇨🇳🇺🇸 The talks will address issues related to commercial relations between the United States and China, problems faced by American business, and areas of potential cooperation.
According to Bloomberg, 40 companies included in the Hang Seng index have now published interim results and reported a decrease in profit by an average of 3.7% compared with an increase in annual profit by 5.5% last year.
“The recent weakness of the yuan, together with poor performance in real estate and stocks, as well as record high youth unemployment, have led to a decline in consumer spending. Consumers are feeling financial uncertainty, which has further undermined consumer confidence and increased the risk of deflation,” PwC analysts say.
U.S. Commerce Chief Gina Raimondo will visit China for three days in search of a “constructive discussion.” This trip increases the likelihood of a meeting between Xi Jinping and Joe Biden this year.
The US has lifted restrictions on 27 Chinese companies and organizations, which is a sign that Washington is extending an olive branch ahead of Trade Minister Gina Raimondo. Among others, restrictions were lifted from the chemical company and manufacturer of materials for lithium batteries Guangdong Guanghua Sci-Tech and sensor manufacturer NanJing GOVA Technology.
British Foreign Secretary James Cleverley is going to visit China at the end of August. Cleverley’s visit is rather a preliminary contact between the two sides after the pandemic and an attempt to resume relations.
Hong Kong and Macau will impose import controls on some food products from Japan in response to the country’s plan to start dumping purified radioactive water from the Fukushima nuclear power plant into the sea.
China promises to take action against Japan’s “selfish” plan to clean up nuclear waste.
🇨🇳🇪🇬🇮🇶🇸🇦🇸🇾🇾🇪 The Speaker of the Arab Parliament, Adel bin Abdulrahman al-Asumi, will visit China.
🇭🇰🇺🇸 Are American companies leaving Hong Kong? The chief U.S. envoy to Hong Kong, Gregory May, says firms are staying put, but some are expressing concerns about the national security law and Internet censorship.
🇺🇸🇨🇳 Washington will impose visa restrictions on some officials in China behind public boarding schools for their involvement in forcing Tibetan children to assimilate. According to UN experts, this policy has led to the fact that 1 million children have been separated from their families.
Experts disagreed when the 30-day period for Country Garden bonds ends on September 5 or 6 due to the fact that this period began on Sunday, when payments could only be made from Monday, the company does not comment on this point in any way.
Ant Group uses Alipay+ to improve the technological image of Hangzhou before the Asian Games. The company is expanding support for several Asian e-wallets through the Alipay+ service to facilitate a trip to your hometown.
⬇️ CK Asset, Sino Land and Henderson Land together plan to sell a total of 293 apartments this weekend with big discounts.
Shares of Anta Sports Products jumped by 7.3% after the report for the first half of the year, which exceeded forecasts. According to Jefferies, Anta management noted the stabilization of the demand situation and remained optimistic about the upcoming political support.
US removes control over some Chinese firms ahead of Raimondo trip
The United States has lifted restrictions on 27 Chinese companies and organizations, which is a sign that Washington is clearly extending an olive branch ahead of Trade Minister Gina Raimondo’s planned trip to Beijing this month. The U.S. Department of Commerce on Monday excluded Chinese businesses such as chemical firm and lithium battery materials manufacturer Guangdong Guanghua Sci-Tech Co. and sensor manufacturer NanJing GOVA Technology Co., from its “untested list”, which limits the company’s ability to buy American technology. 🇨🇳🇺🇸 According to a government statement, the companies were removed from the list after they successfully completed end-use checks, which allowed the Commerce Department’s Bureau of Industry and Security to confirm their “legitimacy and reliability.”
China's gloomy economic outlook has led to a decline in consumer spending, according to PwC
Chinese consumers are adjusting their buying habits, taking into account the less than optimistic economic prospects of the country. The crisis in China’s real estate sector and high youth unemployment are among the problems putting pressure on consumer spending, according to a report published on Tuesday. “Although the degree of financial concern of Chinese consumers is less acute than that of global counterparts, consumers refrain from secondary spending,” said Michael Cheng, PwC’s leader in consumer markets in the Asia-Pacific region.
Forget about world domination, India won't catch up with China soon
Last year, when Prime Minister Narendra Modi celebrated the 75th anniversary of India’s independence from British rule, he called on the nation to “rule the world.” Earlier this week, once again at the Red Fort, he mentioned “Amrit Kaal” — a crucial era when the gates of opportunity open.
His mantra of “reform, fulfill, transform” suggests big dreams. Perhaps he dreamed of those halcyon days before 1870, when India and China were considered the two largest and most powerful economies in the world.
But the dream does not make a plan. And in the nine years since Modi came to power, his plans to bring India to first place in the ranking of the most powerful economies in the world have remained plans.
Graham Ellison of Harvard University reminded us in a recent foreign policy report that about a decade ago, the late Singapore leader Lee Kwan Yew said that India would never catch up with China and would always remain the “country of the future.” Li said, “Don’t talk about India and China in the same breath,” throwing down the gauntlet to those who see India biting China’s heels and cheering India on in the hope of thwarting China’s ascent.”
To be fair to Modi, his government’s economic performance is worthy of respect after decades of stagnation and disappointment. India’s gross domestic product has grown by an average of about 6 percent every year since 2014, reaching a record high of 9.1 percent last year, which is impressive in light of the turmoil caused by the Covid-19 pandemic and recession in many parts of the world.
But a wide range of structural reforms is needed if India is to break out of the shackles of its economic past. These include the power of caste, bureaucratic friction, impenetrable tax rules, the still chronic protection of local business magnates, and import tariffs that are among the highest in the world.
Any country that has risen from such a low level should recognize that it will take many decades to achieve what the late Li called parity with China, and that there is nothing shameful about it. Last month, Goldman Sachs predicted that by 2075, China will become the world’s largest economy (57 trillion US dollars), and India (52.5 trillion US dollars) will overtake the United States (51.5 trillion US dollars).
Adani Group's quarterly profit rose sharply due to increased liquidity
Adani Group reported record profits for the quarter ended in June thanks to its infrastructure and renewable energy business, bolstering the finances of Gautam Adani’s business empire as it seeks to build investor confidence and resume fundraising months after a devastating attack by the shortseller.
The electricity conglomerate reported that quarterly profit for June before interest, taxes, depreciation and amortization jumped 42% compared to the same period a year ago to 235 billion rupees ($2.8 billion), which is the highest the group has seen in a single quarter and almost the same, how much profit he made for the entire 2019 fiscal year.
The high performance achieved by the infrastructure and utility business of its flagship company Adani Enterprises Ltd., as well as its clean energy and cement production units, “ensure a high level of stability, as well as predictability and transparency of revenues for several decades,” the company said in a statement.
Profitability also supported the company’s liquidity: the cash balance at the end of June increased by 4.2% compared to the end of March and amounted to 421 billion rupees. An improved liquidity position could help boost investor confidence more than six months after the short-listed company Hindenburg Research accused the company of widespread corporate abuse, resulting at one point in its listed companies losing more than $150 billion. Adani denies any wrongdoing.
After the shortseller attack, the embattled conglomerate managed to raise billions from GQG Partners and Qatar Investment Authority, which acquired shares owned by its founders. The company is also negotiating with international banks to refinance loans taken out last year to acquire Ambuja Cements Ltd.
However, investors are waiting for an opinion from the Securities and Exchange Board of India, which oversees Indian markets, which has examined some of the allegations made by Hindenburg. Sebi appealed to the country’s Supreme Court with a request to postpone the investigation until the end of August.
US housing market: volumes are low, prices are high
The US housing market continues to remain, on the one hand, in the mode of a shortage of supply of ready–made housing, on the other – the unavailability of this housing against the background of high rates and prices. Although some revival of market activity is fading amid a new wave of growth in mortgage rates above 7% per annum.
Sales of single-family homes in the US secondary market in July fell to the level of 3.65 million homes per year, slightly above recent lows. On the primary, on the contrary, they increased to 714 thousand per year. At the same time, the offer on the secondary market covers sales only for 3.2 months, which is very small by historical standards (the normal state of the market is 4-6 months), although above the minimums. There is no external shortage on the primary market – the supply covers sales in 7.1 months, but this applies only to housing under construction or where construction has not yet begun, with ready-made new houses there is also a shortage (supply covers demand in 3.1 months).
The average settlement payment on a mortgage in the secondary market at current rates of about $2.2 thousand per month and more than 51% of the average s/p is the maximum since 1984, when there were double–digit mortgage “Volcker rates” of 14-15% per annum.
Against the background of a shortage of ready-made housing and prices do not want to fall, despite the collapse of mortgage applications to a minimum since the 1990s (despite the fact that the population in the United States has grown over three decades) and below the level of the mortgage crisis. If we remove seasonality, then the cost of a house on the secondary market increased by 1% mom, even the annual dynamics came out in a small plus 1.6% yoy. Zillow also records a price increase of 0.9% mom and 1.4% yoy.
The market is shrinking in volume, but it is not getting cheaper. In part, these trends correspond to what happened before the 2008 crisis, but with the shift of risks from private ownership to institutional – here credit risks are now higher. And in this regard, the problems from high rates are still ahead.
#USA #mortgage #real estate #economy #inflation
Less than six months have passed ... how Bloomberg took care of the problem of the US budget deficit and public debt, noting that "The US budget deficit is growing like never before" in the conditions of a generally relatively good state of the economy.
It’s about discussing the budget for next year, and it will be difficult to discuss it. The increase in interest rates leads to the fact that only interest expenses on debt servicing will soon reach $1 trillion and will eventually exceed 4% of GDP with debt.
Moreover, it should be understood that the average debt service rates are generally not so high now – 2.84%, which is comparable to the Fed’s neutral rate (2.5%) with 2% inflation. The peculiarity is that it is extremely difficult to lower the deficit on other items below 2-4% of GDP. This makes the total potential budget deficit for many years decently higher than the US can afford if it wants to stabilize the debt (<4.5% of GDP).
Moreover, even if the Fed can (theoretically) stabilize inflation at 2% and the Fed rate will be in the neutral zone of about 2.5%, the average debt service rates should be higher than the current 2.84% and be around ~3.5%, which implies a non-interest budget deficit close to zero on a long horizon… and this has not happened in America for a couple of decades.
#budget #debt #rates
Speech by J.Powell's trip to Jackson Hole was fairly smooth, however, nothing else was expected.
Although the head of the Fed has come to life – even outwardly noticeably (a couple of months of comfortable inflation reports) in the hope that after the failure in previous years, prices can be reined in. And that ‘s what should strain the markets … The Fed needs to recoup for the failure with inflation and they will perceive any signal that is against it as an “elusive victory”. And in general, this is exactly what the rhetoric pointed to (in addition to the statements on duty and stories about extreme uncertainty):
“We are attentive to signs that the economy may not be cooling as expected.”..
“Evidence of sustained above-trend growth may jeopardize further progress in inflation and become the basis for further tightening of monetary policy.”..
“Evidence that labor market tensions are no longer easing may also require monetary policy responses.”…
In fact, this means that the Fed is pleased with the current trends and, if they persist, they will not change anything, but if they see that these trends are fading, or suddenly begin to change, they will react painfully to this and tighten policy.
This increases the likelihood of another rate hike, because the Fed will be very sensitive to data, and this sensitivity will be one–sided – in the direction of tightening.
US PRELIMINARY PMI INDICES (MARKIT): DOWNWARD TREND IN EVERYTHING
• Composite index: 50.4 vs 52.0 in July. • Manufacturing industry: 47.0 vs 49.0 • Services: 51.0 vs 52.3
Both industry and services are declining in the US in August. In production, a reduction is recorded both in output and in new orders, volumes have also decreased in services. There is also a reduction in exports in production, primarily to Europ
Dubai Residential Real Estate Market Overview (Summer 2023) by Knight Frank
A trader who bought the BAIC 85 NET token from the Bored Ape Yacht Club collection for 777 ETH sold it at a loss of 80% for 153 ETH after just 11 months.
🪙 The lone man again managed to single-handedly mine a block on the Bitcoin network and get 6.25 BTC for it.
The trader liquidated 14 times in 1 day and lost about $430,000.
🗺 Mining 1 BTC in Russia costs $14,900 — that’s how much the cost of the electricity needed for this is.
Vitalik Buterin transferred 600 ETH (~$1 million) to the Coinbase exchange.
Raiffeisenbank has been introducing a 50% commission on incoming transfers in dollars from other banks since September.
The Indian Army will use the blockchain platform from Beyond Imagination Technologies (BIT) for communications.
Bitget crypto exchange will introduce mandatory customer verification from September 1.
Results of the day, August 22
🪙 Coinbase increases investments in Circle, the USDC issuer.
🪙 USDT in Brazil can be cashed in 24,000 cryptocurrencies across the country.
An unknown Bitcoin address has accumulated 118,300 BTC ($3 billion) in a month and a half — analysts claim that this is the new address of the Gemini exchange.
🇰🇷 The authorities of the South Korean city of Cheongju demanded that 7 crypto exchanges provide information about the assets of 8520 users who have not paid taxes — they plan to confiscate the crypt.
🪙 Twitter is spreading information that Binance is allegedly selling BTC to support the price of BNB.
Oman has launched a mining center worth $350 million – this is the second such facility in a year that was opened in the free economic zone of Salalah.
🎶 CoinGecko has compiled a rating of popular cryptocurrencies in TikTok — in the report, analysts cite 15 hashtags related to cryptocurrencies, which together have gained 115 billion views.
🇨🇳 In China, an ex-official was given a life sentence for supporting mining.
Results of the day, August 23
Thai citizens aged 16 and older will receive $300 in digital assets from the Prime Minister of the country.
Last year, the revenue of the largest mining companies in Russia amounted to 11.5 billion rubles.
🪙 Binance “removed” Rosbank (BEAC) and Tinkoff from the list of payment systems on the p2p platform, replacing their names with “Green Local Card” and “Yellow Local Card”.
The former head of the Open Sea products department was sentenced to three months in prison and a fine of $50,000.
🪙 Elon Musk is trying to remember Dogecoin again.
🕵️♂️ The co-founder of Blockchain Capital has filed a lawsuit against an anonymous hacker who stole $6.3 million from him in various digital assets by swapping a SIM card.
🇰🇵 North Korea may try to sell BTC for $40 million.
The CEO of YouTube noted the rapid development of artificial intelligence — the company will continue to invest in new technologies, and will also create a Music AI Incubator platform for research and testing generative AI.
Results of the day, August 24
The main crypt of the CIS was killed.
Paolo Ardoino showed one of the energy production facilities that is used for BTC mining by Tether.
Pantera hedge fund predicts $35,000 for 1 BTC before halving (April 2024) and $148,000 by 2025.
📚 Arthur Hayes has published a new essay entitled “Kite or Board”, the main theses.
FTX scam exchange is planning a sale of its crypto assets worth more than $3 billion – the new FTX management plans to hire Mike Novogratz to implement the plan and maximize the profit from the sale.
Nodal Power has raised $13 million for mining in landfills — in the process of burning methane in the generator, the company reduces carbon dioxide emissions, ensuring efficient use of resources.
In Israel, drones collect apples — the AI chooses only ripe fruits and makes sure that the apple is not wormy.
The Israeli police are preparing to charge businessman and ex-owner of the Beitar Jerusalem football club Moshe Hogeg for fraud with digital assets worth $290 million.
Results of the day, August 25
The PEPE hype meme token has collapsed by 25% over the past day – more than 16 trillion tokens have been sent from PEPE’s multi—signature wallet to Binance, OXK and Bybit addresses.
Visa and Mastercard refuse to cooperate with Binance.
Oman invests $1.1 billion in the Bitcoin mining sector – the country’s government sees the first cryptocurrency as “digital oil”.
A hacker stole $55,000 in a crypt from the US Drug Enforcement Agency (DEA).
💸 Coinbase has added plans for listing a PayPal stablecoin (PYUSD) to the roadmap.
The user said that he bought Dogecoin for $ 250,000, spending all his savings — in May 2021, his portfolio was worth $ 3 million, now the value of his coins is only $ 50,000.
Jerome Powell, head of the US Federal Reserve, spoke at the economic symposium in Jackson Hole, the main theses.
Tether, the issuer of USDT, has updated the report on its reserves — the company’s total assets amount to $86.1 billion, liabilities — $82.8 billion. Tether’s excess reserve is $3.29 billion.
CALENDAR OF EVENTS FOR THE WEEK FROM AUGUST 21 TO 25
CALENDAR OF EVENTS FOR THE WEEK FROM AUGUST 28 TO SEPTEMBER 1
Monday 28.08 • 🇬🇧 UK, no bidding
Tuesday 29.08 • 🇩🇪 Germany, GfK Consumer Climate, Aug (est. -24.2) • 🇺🇸 USA, open jobs Jolts, Jul (est. 9.793 million) • 🇺🇸 USA, Case&Shiller index (est. -1.4% yy) • 🇺🇸 USA, consumer index. confidence, Aug (est. 113.4)
Wednesday 30.08 • 🇨🇳 China, PMI • 🇩🇪 Germany, CPI, Aug (est. 0.2% mm, 6.0% yy) • 🇷🇺 Russia, weekly inflation MMI Forecast: 0.04% • 🇷🇺 Russia, Rosstat, social economy statistics for July • 🇺🇸 USA, GDP 2Q23 (est. 2.4% QQ) • 🇺🇸 USA, unfinished. builds-in, Jul (est. -0.1% mm)
Thursday 31.08 • 🇹🇷 Turkey, GDP, 2Q23 • 🇫🇷 France, GDP 2Q23 (est. 0.5% QQ, 0.9% yy) • 🇪🇺 EU, CPI, Aug, prev (est. -0.1% mm, 5.1% yy) • 🇺🇸 USA, Initial Jobless Claims (est. 235K) • 🇺🇸 USA, PCE, Jul (est. 0.2% mm, 3.3% yy) • 🇺🇸 USA, Core PCE, Jul (est. 0.2% mm, 4.2% yy)
Friday 01.09 • 🌏 MfG World PMI Day • 🇧🇷 Brazil, GDP, 2Q23 (est. 0.3% QQ, 2.7% yy) • 🇺🇸 USA, Non-Farm payrolls (est. 168K) * • USA, Private payrolls (est. 143K) * 🇺🇸 USA, unemployment (est. 3.5%) • 🇺🇸 USA, labor remuneration (est. 0.3% mm, 4.4% yy) • 🇨🇦 Canada, GDP, 2Q23
Already available! The weekly World Economic Digest (Wednesday) on 20.08.2023 presents the most significant economic events and their impact on the world economy. In this issue, we will look at the latest updates in world trade, the development of financial markets, changes in the political situation and their possible impact on international firms and investors.
UK CPI: THE BASELINE INDICATOR RAISES CERTAIN CONCERNS
The growth of consumer prices in the UK in July was 6.8% kg vs 7.9% yoy and 8.7% yoy two months earlier (forecast: 6.8%). Monthly rates: -0.4% mm vs 0.1% mm and 0.7% mm in June-May (forecast: -0.5%). The annual indicator is moving away from the maximum marks that were reached in October last year (11.1% yy)
The biggest contribution to the monthly CPI change was made by the reduction in electricity and gas prices. But prices for transport and hotel services are rising.
At the same time, that the annual pace of the base CPI remained in place: 6.9% yy vs 6.9% yy and 7.1% yy earlier (forecast: 6.8% yy), and monthly – increased: 0.3% mm vs 0.2% mm and 0.9% mm (0.2% mm was expected)
The situation with prices in the UK is still the most problematic among the most developed Western countries. VoE has not yet announced any plans to mitigate its PREP
EUROZONE ECONOMY: SMALL SIGNS OF IMPROVEMENT, GOOD GROWTH IN FRANCE
According to a preliminary estimate by Eurostat, Eurozone GDP growth in 2Q2023 was 0.3% QoQ vs 0.0% QoQ and -0.1% QoQ two quarters earlier. Recall that during the third assessment, the pace of the first quarter was revised up (from -0.1% QoQ to 0.0% QoQ), i.e. there is no recession on the continent. Annual dynamics decreased: 0.6% kg vs 1.1% y.
In the context of countries where the growth rates have become higher, Lithuania (2.8% QoQ vs -2.1% QoQ) turned out to be quite unexpectedly, the rates of steel were higher in Ireland (3.3% QoQ vs -2.8% QoQ) and Slovenia (1.4% QoQ vs 0.7% QoQ). The situation is worse in Italy (-0.3% sqq vs 0.6% sqq) and Austria (-0.4% sqq vs 0.1% sqq)
Leading economies of the region: Germany (0.0% sqq vs -0.1% sqq, recession is over), France (0.5% sqq vs 0.1% sqq).
British inflation has slowed down on tariffs... but it remained high
Consumer prices in the UK fell by 0.4% mom in July, annual inflation slowed to 6.8% YoY, but the Bank of England is unlikely to be happy here, because inflation remains the highest among the largest developed economies, and the slowdown in inflation is again more modest than expected. The slowdown in inflation is based on a planned reduction in gas tariffs (-25.7% mom and 1.4% YoY) and electricity (-8.6% mom and 6.7% yoy), i.e. the effect of rising energy prices has almost gone out of inflation, and inflation has remained high.
Although the impact of food price growth remains partially here (0.2% mom and 14.8% YoY), but commodity prices fell by 1.7% mom and are growing by 6.1% YoY.
But prices for services continue to grow actively by 1% mom, annual growth accelerated to a record 7.4% YoY. As a result, core inflation remained at the June level of 6.9% YoY, which is only slightly higher than the May record of 7.1% YoY. Medicine (8.9% YoY) and restaurants/hotels (9.6% YoY) rose the most cheerfully. In general, core inflation remains extremely high, and the Bank of England’s current rates remain in a deeply negative zone.
The markets, of course, are trying to play a little in favor of the pound and the Central Bank’s tougher policy on the rate, government bond yields are growing again, debt servicing is becoming more expensive, yields are near highs, and it will be increasingly difficult for the Bank of England not to notice this. #UK #inflation #economy #rates #BOE
The real estate sector accounts for 30% of the Chinese economy.
Currently, there are 50 million vacant apartments in China, which indicates unfavorable prospects in the country’s construction industry. The media are increasingly publishing negative headlines about the economic situation in China and its prospects. #china #gdp #real estate #economy
Thrifty Chinese …
While everyone is waiting for a decision on the rate of the Bank of Russia, China has published the main economic reports for July:
Industrial production slowed down to 3.7% YoY against 4.4% in June, indicating a deterioration in the dynamics in the manufacturing sector, which is associated with both weakening external demand and weak domestic demand. Adjusted for seasonality, there was simply no production growth in July (0% mom).
Retail sales increased in nominal value by only 2.5% YoY, in real terms, the growth is comparable. Directly in July, retail sales decreased -0.1% mom adjusted for seasonality, a big role was played, of course, by a drop in sales of building materials, but this was offset by an increase in catering costs. #China #economy #manufacturing #retail #rates
Chinese banks have faced difficulties due to economic fluctuations and growing problems in the real estate market
📌 Chinese banks, which reported earnings next week, are struggling with a number of operational challenges as the economy and real estate market falter. China Construction Bank Corp., Bank of Communications Co. and China Merchants Bank Co. may face a heavier reserve burden in the second half of 2023 and early 2024 after developer Country Garden Holdings Co. couldn’t pay the dollar bonds on time. Global investors, including BlackRock Inc. and Allianz SE, have also recently invested in bonds. Banks also faced scrutiny after the shadow bank Zhongrong International Trust Co. missed payments on dozens of products and planned to restructure debt. The liquidity problems highlight how problems in the real estate sector and a weak economy are affecting the financial sector. According to Bloomberg Intelligence analyst Francis Chan, the impact of local government financial instruments and the deflationary economy exacerbate the pressure.
Chinese Investors rush into municipal bonds, hopes for government support outweigh debt Problems ▪️ China’s promise of a “comprehensive” package to solve local debt problems has caused a stir regarding bonds issued by local government financial institutions (LGFV), as investors feel an implicit state guarantee for these provincial firms. The yield on LGFV bonds, which account for half of China’s corporate bond market, has fallen to its lowest level this year, even despite the deepening debt crisis in the real estate sector, to which most of them are exposed. However, investor confidence in LGFV bonds worth about $1.9 trillion returned after the July meeting of the Politburo of China, at which senior politicians announced their intention to develop a comprehensive scheme to eliminate local debt risks.
Chinese Asset Manager Signals Debt Review, Stoking Contagion Fears
A major Chinese asset manager has told its investors that it needs to restructure its debt, raising fears that a chain of defaults could spread to the financial sector and cause a destabilizing shock to the country’s weakened economy. Zhongzhi Enterprise Group, which raises money from companies and the general public and reportedly manages assets of 1 trillion yuan ($137 billion), spoke about the restructuring at a meeting with investors on Wednesday, as shown by a video viewed by Reuters. Concerned retail investors are bombarding listed companies with questions about their exposure to Zhongrong, a subsidiary of Zhongzhi, after the trust company’s missed payments raised fears of a wider spread.
Goldman: India is becoming popular among foreigners again
According to Goldman Sachs Group Inc., shares of Indian companies with medium capitalization are gaining popularity among foreign investors again after a five-year decline.
“We are seeing a sharp change in the share of foreigners in the ownership of Indian mid—cap companies,” strategists, including Amorita Goel and Sunil Cole, wrote in a note on Wednesday, referring to their analysis of stock ownership data for the second quarter.
They added that the share of foreign investors with average capitalization increased by 175 basis points to 16% of their market capitalization this year, compared with a drop of 250 basis points over the past five years.
The return of the world’s money to smaller and riskier Indian stocks shows their confidence in the Indian stock market, despite concerns about the valuation premium. Small stocks attract foreign buyers, even though they remain more expensive than large ones.
🔺 The S&P BSE MidCap index is up more than 20% this year, surpassing the 7.4% gain in India’s benchmark stock index. According to data compiled by Bloomberg, it trades 24 times on a profit-based valuation, versus 19 times on the Sensex index.
According to data compiled by Bloomberg, the Indian stock market has received about $15.5 billion in net foreign exchange inflows this year, which is almost $1.5 billion less than last year’s record outflow. This support helped Sensex to rise by 14% compared to the March low amid minor changes in the indicator of emerging market stocks due to the sell-off of risky assets in China.
* According to Goldman strategists, international investors preferred Indian stocks focused on the domestic market more than local investors, while their share increased most in the consumer and cyclical sectors.
BofA GLOBAL FUND MANAGERS SURVEY: OPTIMISM HAS GROWN SIGNIFICANTLY, ESPECIALLY IN STOCKS
The result of the August survey of managers (Global FMS):
• Least bearish FMS since February 2022 • Global economic growth expectations: 4/10 say a recession is “unlikely” (it was 1/10 in November 2022) • Forecasts for the start of Fed rate cuts are now the highest since November 2008. • Three quarters of respondents expect a soft landing of the American economy • The CASH level has significantly decreased: from 5.3% to 4.8%, this is a 21-month low • The lowest Underweight in stocks since April 2022, • The largest Overweight in Tech stocks since December 2021
USA: SOME RECOVERY IN INDUSTRY, AND MORE OBVIOUS - IN CONSUMER DEMAND
Industrial production index in July: 1.0% mm vs -0.8% mm and -0.5% mm. Annual dynamics: -0.23% yy vs -0.78% yy . We were waiting for 0.3% mm and -0.1% yy.
Extraction: 2.0% vs 2.8% yy in June, processing: -0.7% yy vs -0.3% yy, utilities: -0.9% yy vs -6.2% yy . For some subcategories in processing , the dynamics are as follows – consumer goods: 0.2% yy vs -0.7% yy earlier, equipment: – 0.2% yy in these two months, building materials: -2.7% yy vs -1.1% yy
Retail sales (non-inflation adjusted) in the States showed an improvement in dynamics in July: 0.7% mm vs 0.3% mm, annual rates: 3.17% yy vs 1.6% yy. The figures came out noticeably better than expected in 0.4% mm and 1.5% yy. The base indicator was also higher: 1.0% mm vs 0.4% mm with a forecast of 0.1% mm.
By breakdown, the growth is shown by purchases in online stores (1.9% yy), sports and hobbies (1.5% yy), catering (1.4% yy), and clothing (1% yy), while cars (-0.3% yy), furniture stores (-1.8% yy), electronics decreased (-1.3% yy).
LEADING INDICATORS OF LEI: THE FALL CONTINUES
The US Leading Indicators Index (LEI) calculated by the Conference Board decreased from June 106.2 to 105.8 points in July, this is -0.4% mm and -9.1% yy vs -0.7% mm and -9.4% yy a month earlier. This is the sixteenth consecutive month of falling LEI.
The Conference Board notes that “… the prospects remain very uncertain. Weak new orders, high interest rates, a deterioration in consumers’ perception of the prospects for business conditions and a reduction in working hours in the manufacturing industry contributed to the decline of the leading indicator, which still indicates that economic activity is likely to slow down and turn into a moderate recession in the coming months. Now the Conference Board predicts a short and shallow recession in the period from the 4th quarter of 2023 to the 1st quarter of 2024…”
FED: THE RHETORIC REMAINS QUITE TOUGH, DO NOT COUNT ON A RATE CUT THIS YEAR
The Federal Reserve’s balance sheet has shrunk by $67 billion over the past week. vs +$1 billion a week earlier. Now it is $8.197 trillion. From the highs ($9.015 trillion), the balance decreased by -$818 billion
The rhetoric of the Fed representatives:
Williams, Harker: • the rate may be reduced, but not earlier than 2024 Bowman: • I do not rule out a further increase in the rate Harker: • we have to keep the bid high for a long time Given: • it is very premature to talk about a rate cut Kashkari: • * uncertainty that enough work has been done to reduce inflation
This chart has changed my understanding of the real estate market in the United States, and I think it will cause you a similar reflection.
The share of unoccupied space in the American real estate market has reached its lowest values in the last 60 years. Consequently, there is a housing shortage, in contrast to the surplus before the mortgage crisis of 2008. Experts in the field of real estate in the USA note that the deficit is associated with the active purchase of space by funds and other institutional investors. If this is the case, then it distorts the real demand, since eventually people should live in these premises. The funds, in fact, act as intermediaries, and the question of whether they will be able to sell the acquired areas remains open. Only then will the real demand become clear. Regardless of the real reasons for the high demand in the American real estate market, today the construction sector in the United States remains stable, supporting the demand for materials and labor resources, which, in turn, contributes to inflationary processes.
#usa #real estate #economy #housing
The graph of expectations regarding the prospects of the American economy of CEOs, who expected the worst last year, looks interesting.
When earlier CEO expectations were at lows, the S&P500 index also set a multi-year low. In my opinion, the current situation in the US economy and stock market can be compared with the 70-80 years of the last century. This makes it pointless to compare the cycles of events in the current century, since the influence of inflationary processes can violate any established patterns. However, the revealed pattern has its own value: only in the case of a decrease in inflation, we can expect a strengthening of the US economy and stock market. So far, the data for July signal stable inflationary processes. #forecasts #estimates #usa #ceo #economics #analytics #sp500
USA: consumer consumes
Last week, data on manufacturing and retail in the United States were released, retail sales increased by 0.7% mom, which is quite good, considering that quite volatile car sales even declined in July. In real terms, sales have also grown, although fluctuations have been occurring here for a long time without obvious dynamics, just after a sharp increase in covid, sales have stabilized at historically high levels. Excluding cars, gasoline and food, sales increased by 1.1% mom and 5.9% YoY. In general, the American consumer is quite indifferent to the Fed’s attempts to slow down demand.
Production in the United States in July increased by 1% mom, but the data for the past months revised down, because the annual dynamics remained negative -0.2% yoy. In the manufacturing industry, the situation is worse +0.5% mom, but -0.6% YoY. At the same time, capacity utilization at sufficiently high levels and significantly increase production will not work, which in itself is an inflationary factor.
The Fed’s minutes are not aggressive in general, but the markets have tightened, because “most central bank officials still see significant risks of rising inflation, which may require further tightening of monetary policy.” Against this background, the pressure on risky assets has increased, bonds have gone under a new wave of sales, which is reinforced by large budget deficits (which keep the economy overheated). In reality, this only increases the likelihood of a scenario where problems will first come to the financial sector, which will be increasingly affected by the rate increase that has already occurred, and only then will they reach an economy that is under strong budget support… while.
Government bonds have gone to new highs, mortgage rates in the US have reached records since the early 2000s, it should be interesting in the fall and winter. #USA #economy #retail #manufacturing #rates
⚡️ S&P: on all shoulders... records
The July report on margin positions on the US stock market set new records – the volume of margin positions increased by $29 billion in a month to $710 billion – the maximum since last spring. Although this is still below the records of 2021, when there was more than $900 billion, but the situation is objectively different, because there was only $148 billion of free cache on margin accounts.
As a result, the ratio of the volume of margin debt to free balances on margin accounts flew up to 4.8, i.e. we see a record leverage on the American market by the end of July, with a slowdown in market growth. A large leverage is always the pain of margin calls and corrections during a market reversal.
In June, it also turned out that in addition to the growth of margin positions, foreigners also aggressively bought up American stocks. For the first time in history, inflows into stocks exceeded $120 billion in one month. On the AI-HYIP, both foreigners and Americans were tightly packed into the market… the latter are in debt with a far from low cost margin, given the Fed’s rate hike. To this it is worth adding another background of cashbacks, which will shrink as the profits of companies shrink against the background of rather expensive borrowings. #USA #SP #stocks
Powell and Yellen are miracles of balancing act...
The Fed’s assets decreased by an impressive $62.5 billion this week, of which the portfolio of government bonds decreased by $42.4 billion, but there was no less money in the system. Because the US Treasury this week reduced its “cache” balance on the Fed’s accounts by $47.4 billion to $384.8 billion at once – in fact, Powell withdrew it synchronously, Yellen added not for the first time, which indicates a fairly high level of coordination. At the end of September, the US Treasury wants to have $650 billion of “cash” in the account.
At the same time, Yellen’s office continued to increase debt, and not only spent its cash reserve – since the beginning of the month, market debt has increased by $ 142 billion and everything is still following the trajectory of further growth of the budget deficit in August, although it has not been the whole month yet – we’ll see.
As a result, despite a rather sharp reduction in the Fed’s balance sheet, the banks did not have much less money. But if the Finance Ministry implements its plan, it will need to withdraw more than $250 billion from the system by the end of the quarter, especially in September, when there is usually a budget surplus. There are no fewer dollars in the system yet, but the supply of public debt is growing (both due to loans from the Ministry of Finance and due to a reduction in the Fed’s portfolio), which continues to put pressure on yields – the public debt curve is growing. Yellen has to give a premium on bills relative to the futures curve.
At the same time, the balance sheets of money market funds continue to swell, which have grown to a record $5.57 trillion, i.e. by $0.75 trillion since the beginning of problems in the banking sector. In autumn and winter, the momentum of monetary tightening will increase, and the fiscal momentum (given the growing cost of debt servicing) will have to be reduced. #USA #inflation #economy #Fed #debt #rates #dollar
Comparison of forecasts of the market of “critical” minerals (important for energy transfer) August 2023 from the International Energy Forum (IEF)
🇷🇺 The euro exchange rate on the Moscow Exchange exceeded 111 rubles for the first time since March last year, the dollar is more expensive than 101 rubles.
Today Telegram turns 10 years old — Pavel Durov said that during this time more than 800 million people have registered in the messenger, only thanks to word of mouth.
🕵️♂️ Scammers deceived a Muscovite for more than 23 million rubles in BTC — the guy met with “traders” on Instagram and they promised him to increase his capital through trading on the stock exchange.
👀 Someone accidentally leaked $2 million — the user sent 2 million aUSD to Binance to the USDT address, now he is asking for help.
💰 The payment giant PayPal has announced the launch of a crypto hub “for selected users”.
🇨🇦 The Coinbase crypto exchange is being launched in Canada.
🏡 Huobi founder Li Lin bought a house in Hong Kong for $128,000,000 — this is one of the most expensive mansions in the country.
Elon Musk’s company has received a license to provide payment services in the U.S. state of Georgia.
Justin Sun stated that he is a supporter of the first cryptocurrency and is now spending more than 100,000 BTC.
A bitcoin whale with 1005 BTC ($29.8 million) on its account woke up after 13 years of hibernation.
Results of the day, August 15
The publisher of the GTA series of games, Take-Two company, launches the first crypto game called Sugartown on the Ethereum blockchain.
👁 Big brother is watching you through the keyboard.
A Chinese resident was sentenced to 9 months in prison for buying 13,000 USDT — he will also be required to pay a fine of 5,000 yuan ($690).
📊 BTC volatility has updated the absolute minimum. The indicator stopped at 15.52%. The previous low of 18.91% was recorded on January 12, 2018.
The Central Bank of the Russian Federation and a group of banks are beginning to test the digital ruble (CBDC).
👀 With Gemini, 10,798 BTC and 39,540 ETH were withdrawn in two transactions in a short period of time — a total of $390 million.
Binance has filed a petition against the SEC in court — the exchange wants the regulator to be banned from interrogating witnesses on issues beyond the scope of the case.
🇪🇺 The first spot Bitcoin ETF with the ticker BCOIN has been launched in the European Union on the Euronext Amsterdam exchange.
Results of the day, August 16
Uzbekistan has allowed two private banks to issue cryptocurrency cards.
💸 Yuri Dud advertises Binance.
🔪 An American crypto investor was found dismembered in Bulgaria — a familiar bartender was involved in the murder.
52 years ago, Richard Nixon abolished the gold standard.
The head of the SEC has shown interest in regulating the artificial intelligence market.
Elon Musk said that Mark Zuckerberg refused to fight with him in the Roman Colosseum. Now he hints that the idea of a duel is a joke.
🪙 Donald Trump owns approximately $5 million in Ethereum, new financial reports show, confirming the source of income — the sale of NFT and royalties.
The author of the bestseller “Rich Dad, Poor Dad” and entrepreneur Robert Kiyosaki predicted a rise in the price of BTC to $ 1 million in the event of a collapse of the global economy.
On August 16, Binance will stop the operation of the platform for exchanging fiat for the Binance Connect cryptocurrency (Bifinity).
💸 Coinbase has received approval to trade cryptocurrency futures in the United States.
Results of the day, August 17
Salvadoran cryptans teach 12-year-olds how to send BTC.
🧬 The Shiba Inu meme project has launched its own L2 blockchain on Ethereum called Shibarium – the network has already broken down, and $2.6 million of user funds are now temporarily blocked.
Polygon Labs has entered into partnership agreements with a major Korean telecom operator SK Telecom.
China will allocate more than $34 billion for the creation and development of a Metaverse in Sichuan Province.
Hackers from the DPRK in 2023 stole over $180 million in cryptocurrencies — in total, since 2015, North Korea has stolen virtual assets worth more than $1.5 billion.
Opinion: if the SEC gives the green light to Bitcoin ETF, the first cryptocurrency will be able to overcome the $150,000 mark and approach $180,000.
🪙 Tether will stop issuing USD₮ on Omni, Kusama and Bitcoin Cash SLP from August 17.
Results of the day, August 18
🐹 Against the background of news about the possible bankruptcy of Evergrande and the sale of Cue Balls by SpaceX, the crypto market has fallen.
🪙 Tonight, one trader was liquidated by $55.92 million on Binance — he had 38,896 ETH in the long.
Roskomnadzor restored access to the OKX exchange for users from Russia.
The British payment provider Checkout terminated the contract with Binance due to problems with compliance with regulatory requirements and AML.
🪙 Dogecoin-whales are actively accumulating coins.
Tether Technical Director Paolo Arduino announced 3 new mass products by the end of the year.
⛔️ Hackers hacked the vending protocol Exactly Protocol in the second-level network of Optimism and brought out more than 7160 TK (~$12 million).
The court rejected Coinbase’s motion to lift sanctions against Tornado Cash.
🪙 15 years ago, on August 18, 2008, the anonymous creator of Bitcoin Satoshi Nakamoto registered the domain bitcoin․org.
CALENDAR OF EVENTS FOR THE WEEK FROM AUGUST 21 TO 25
Monday 21.08 • 🇨🇳 China, Central Bank meeting (est. 3.40%, -15 bp)
Tuesday 22.08 • 🇺🇸 USA, second home sales, July (est. 4.15M)
Wednesday 23.08 • 🇦🇺,🇯🇵,🇪🇺,🇩🇪,🇫🇷,🇬🇧,🇺🇸, Flash PMI (August) • 🇺🇸 USA, new construction, July (est. 701K) * • USA, building permits,July (est. 1.442K) * 🇷🇺 Russia, weekly inflation MMI Forecast: 0.05% • 🇷🇺 Russia, industrial production, July
Thursday 24.08 • 🇹🇷 Turkey, Central Bank meeting • 🇺🇸 * USA, Initial Jobless Claims (asp. 244K) • 🇺🇸 USA, Jackson Hole Symposium 24-26.08 • 🇺🇸 USA, the sale of goods lasts. usage (est. -4.0% mm)
Already available! The weekly World Economic Digest (Wednesday) on 13.08.2023 presents the most significant economic events and their impact on the world economy. In this issue, we will look at the latest updates in world trade, the development of financial markets, changes in the political situation and their possible impact on international firms and investors.
INVESTOR CONFIDENCE INDEX IN EU SENTIX: SOME IMPROVEMENT FROM THE LOCAL BOTTOM
The monthly Eurozone Sentix Investor Confidence index is calculated based on a survey of about 2,800 investors and analysts regarding their expectations regarding stock indices, bond markets, foreign exchange and commodities, as well as additional questions for the next 6 months. August indicators: -18.4% yy vs -22.5% kg -17.0 kg in July-June (waited -23.4).
GERMANY: PRICE PRESSURE STILL PERSISTS
DESTATIS figures on consumer price growth of Europe’s leading economy in July showed the following figures: July inflation was 6.2% yy (forecast 6.2% kg) vs 6.4% yy a month earlier. Monthly dynamics: 0.3% mm. vs 0.3% mm (forecast 0.3% mm).
Harmonized HICP index: 6.5% kg vs 6.8% g (expectations: 6.5% kg), and 0.5% mm vs 0.4% mm (waiting for 0.5% mm)
ECB SPEAKERS ARE INCREASINGLY BEGINNING TO ALLOW A PAUSE AT THE SEPTEMBER MEETING
The European regulator reduced its balance sheet by -€24 billion to €7.165 trillion, against an increase of €4 a week earlier. From the peak values (€8.836 trillion), the balance decreased by €1.671 trillion.
The rhetoric of ECB representatives:
Casimir: • we are not far from the end of the rate hike process, but it is not over yet • if there is a pause in September, it will not mean the end of the cycle
Panatta: • the September decision has not yet been clearly formed
Centeno: • the data indicate that the peak of inflation has already been passed, but it is at unacceptably high levels
THE TURKISH CENTRAL BANK HAS NOT SPENT RESERVES FOR TWO MONTHS TO SUPPORT THE LIRA, WHICH IS IN SORROW
The Turkish lira continues to update the next lows against the dollar, and now it is trading above 27 USD TRY, and it has lost more than a quarter of its value since the beginning of this year.
The regulator, under the leadership of the new head, twice raised the cost of borrowing from 8.5% to 15%, and then to 17.5%, but at the same time, inflation is growing strongly again: 9.49% mm / 47.83% yy in July vs 3.92% mm / 38.21% yy earlier, and these steps are certainly not enough.
However, back in June, the government decided not to spend reserves to maintain the national currency, and the situation in this segment began to improve somewhat.
UK ECONOMY REVIVES IN 2Q23, AND BOTH INDICATORS ARE BETTER THAN EXPECTED
According to preliminary data from the Office of National Statistics, UK GDP in 2Q2023 was 0.2% QoQ vs 0.1% QoQ in 1Q23 (forecast: 0.0% QoQ).
Annual rates increased to 0.4% kg vs 0.2% y quarter earlier (forecast: 0.2% y). Both indicators came out above preliminary estimates.
In terms of output, the services sector grew by 0.1% QoQ due to increased activities in the field of information and communications, tourism and catering, as well as growth in health and social services; the manufacturing sector grew by 0.7% QoQ, while the growth in processing was 1.6% QoQ.
In terms of spending, there was a strong increase in household consumption and government spending, which was partially offset by a drop in international trade flows in the second quarter.
CHINA'S FOREIGN TRADE IN JULY: THE FALL IS INTENSIFYING
China’s foreign trade statistics published today for July showed a further deterioration in indicators:
• * Exports: $281.7 billion (-14.5% kg) vs $285.3 billion (-12.4% yy) in June. Forecast: -12.5% yy
• * Imports: $201.16 billion (-12.4% kg) vs $214.69 billion (-6.8% yy). Forecast: -5.0% yy
• Trade surplus: $80.60 billion vs $70.62 in June
The figures again came out below the forecast. The slowdown in exports is, first of all, an indicator of weakness in global demand, which signals a slowdown in the global economy.
The weakness of imports is an indicator of subdued domestic demand in China. The Celestial Empire is recovering at a decidedly slower pace than the market expected
China: DEFLATION IN BOTH CONSUMER AND PRODUCTION PRICES
According to the National Bureau of Statistics of China, by the end of July, the growth rate of retail prices amounted to -0.3% kg vs 0.0% yoy and 0.2% yoy in June-May (forecast: -0.4%). Monthly indicator: 0.2% mm vs -0.2% mm in June (forecast: -0.1%).
Production prices: -4.4% kg vs -5.4% kg and -4.6% y earlier (forecast: -4.1% y)
The National Bureau notes that one of the key factors contributing to the decrease in CPI was the collapse of pork prices (-26% yy). In general, consumer demand in China continues to be quite restrained due to quite noticeable changes in the behavior of the Chinese, who have now noticeably reduced their purchasing activity.
While the trends remain here – consumer prices have gone into deflation -0.3% YoY, although this is largely due to a decrease in food prices (1.7% yoy) and energy due to the high base of last year. Prices for consumer goods decreased by 1.3% YoY, while prices for services increased by 1.2% YoY. Prices in the housing sector remained virtually unchanged over the year (0.1% YoY), prices were actively growing only in the travel sector (13.1%), fuel prices were sharply decreasing (-13.2%).
But still, core inflation excluding food and energy increased and amounted to 0.8% YoY, in June it was 0.4% yoy.
Producer prices fell by 4.4% YoY in July due to lower prices in the extractive industries. In part, low core consumer inflation is a consequence of a rather weak increase in producer prices for short–term goods (0.8% YoY) and a drop in prices for long-term goods (-1.5% yoy) in conditions of excess production capacity and weak domestic demand. The drop in company profits fully confirms this – overproduction as it is. Given that the excess savings of Chinese households continue to grow, weak demand is not an income problem. So demand will continue to be stimulated by both monetary and fiscal measures.
US INFLATION: THE BASE INDICATOR IS LOWER, AND THIS IS MORE IMPORTANT FOR THE FEDERAL RESERVE
US consumer prices increased in July with the elimination of seasonality by 0.17% mm sa vs 0.18% in June (expected: 0.2% mm sa). The annual figure rose to 3.18% kg vs 2.97% in June (expected: 3.3% yy).
Core inflation (with the elimination of the impact of energy and food prices): 0.16% mm sa vs 0.16% a month earlier (0.2% mm was expected). Annual rate: 4.65% kg vs 4.83% yy (forecast: 4.8% yy).
The annual CPI increased, but at the same time the Core CPI decreased, which is more fundamental for the Federal Reserve.
Compared to June, a smaller increase was recorded in new and used cars, medical services, and electricity. Monthly rates have increased in gasoline and fuel prices, food, transport services, and housing fees.
FED: THE RATE WILL REMAIN HIGH, AND THERE ARE CONCERNS ABOUT ECONOMIC GROWTH
The Federal Reserve’s balance sheet has grown by +$1 billion over the past week. vs -$36 billion. a week earlier. Now it is $8.258 trillion. From the highs ($9.015 trillion), the balance decreased by -$757 billion
The rhetoric of the Fed representatives:
Given: • it is very early to talk about a rate cut, there is still a lot of work ahead Harker: • The bid will be restrictive for a while Barkin: • economic slowdown is a likely scenario • the task of the regulator is not to cause a recession, but to stop inflation, and it is much higher than the goal Bowman: • it is possible that you will have to raise the rate even more Williams: • the “key” may decrease, but not in 2023
Temporary inflation will increasingly figure
We are still in August, and this month we are nervously looking at the markets. But at the same time, this month’s sales are likely to be “frontal” in nature:
• * The key point is the return of the S&P 500 to the 20th dmo
• The 20th border is at 4,531, and the S&P 500 closed at 4,518, so the burden is on the market.
• Even if August is turbulent, we are still constructive towards the markets until the end of the year and we see that the S&P 500 will close >4,825 before the beginning of the year.
More and more Fed officials admit that inflation is cooling
• The core CPI decreased to a rate corresponding to inflation of ~2%. +0.16% x 12 = 1.97%, which is <2%, and this is the second consecutive month of low core CPI.
• The base CPI excluding housing and cars, which amounted to +0.22% for the month. There is still a relationship between goods and services.
• Basic goods decreased by -0.33% for the month.
• Basic services excluding services for the month decreased by +0.22%, which corresponds to 2% inflation. The housing sector remains the main problem.
• Today, the probability of a November Fed rate hike has decreased to 18% compared to 22% yesterday and 31% last week. Thus, the probability of a rate increase has decreased. We still consider July to be the last rate hike in this cycle.
• The PPI index may be relevant because the focus is on new employment contracts and their impact on the PPI index. Deflation in China will still spread to the United States.
While stocks are selling, the July CPI report is encouraging and may be repeated
It follows that the stock sell-off is not directly related to the CPI report. Therefore, several questions arise:
• Has the bond market come to a different conclusion? We don’t think that’s the case, but if investors were prepared for lower rates, then a painful deal is higher rates.
• Maybe the markets are nervous about something else? Perhaps we know that the Bank of Japan has made changes to the regulation of the yield curve, and this may have lingering consequences. Or the markets are nervous because of Friday’s PPI or even weak data on China.
• But, in our opinion, inflation is moving on a lower and more favorable trajectory than many believe, and this will affect stocks more than today’s knee-jerk reaction.
USA: inflation has slowed down
Inflation in the US in July was expected to be 0.2% mom and 3.2% YoY, core inflation is also 0.2% mom, but 4.7% YoY.
The growth of food prices calmed down somewhat (0.2% mom and 4.9% yoy), energy prices increased by 0.1% mom in July, but here a significant drop in prices relative to last year by 12.5% by 0.9 percentage points reduces annual inflation (the effect of the base of last year will be sharply reduced from August and general inflation, annual inflation will rise).
Goods without energy and food continue to maintain deflationary dynamics of -0.3% mom and 0.8% YoY, but this is largely due to the ongoing correction in prices for used cars (-1.3% mom and -5.6% yoy).
Services provided the main contribution to price growth by adding 0.3% mom and 5.7% YoY – annual growth rates remained at June levels. Services excluding energy added 0.4% mom and 6.1% YoY – housing rental continues to play an important role here (0.4% mom and 7.8% yoy), prices continued to rise in transport services (0.3% mom and 9% yoy) and recreational services (0.8% mom and 6.2% yoy). But in medicine -0.4 m/ m and -1.5% yoy, but there is a distortion of the indicators due to the fact that the accounting of health insurance goes with a big lag and reflects the state subsidies last year, and it is reflected only this year.
Monthly inflation has been keeping within the Fed’s target for the past couple of months, but trend indicators and the services sector separately are still far from what the Fed would like to see.
The US budget deficit is still growing
In July, the US budget deficit was twice as high as market expectations and amounted to $221 billion, it was higher in July only in 2021, when the deficit was $300 billion.
In total, over the past 12 months, budget expenditures amounted to $6.72 trillion, which is 16.4% higher than last year, while revenues amounted to only $4.48 trillion and were 7.3% lower than last year. As a result, the budget deficit over the past 12 months amounted to $2.26 trillion, or about 8.6% of GDP. Even if we discard the $0.4 trillion advanced in September for writing off student loans, the deficit is still extremely high.
Of course, with such a deficit, the fiscal stimulus for the economy is extremely strong and overrides any monetary tightening, but this story will end. The United States will have to normalize the budget, both because of the growth of interest expenses on debt servicing ($0.87 trillion over the past 12 months), and because of the weak dynamics of income, which degraded due to the huge volume of various tax deductions Biden and Co. Which already leads to lower ratings.
Non-interest expenses will have to be cut at some point (or taxes will be raised, which Republicans are unlikely to do), which in conditions of high rates will be quite painful for the economy.
The average US government debt service rate continues to grow by ~25 bps per quarter (in money ~ $80 billion) and in July amounted to 2.84% per annum (in June it was 2.76% per annum). Not so much yet, but growth will continue here, and given the size of the debt (already $32.6 trillion), payments will become increasingly burdensome for the US Treasury.
Homeowners in the US are now spending a record 40% of their gross income on mortgages.
👉 This is HIGHER THAN the 2008 maximum of 39% and the value has increased dramatically over the past 2 years.
After paying income tax and mortgage expenses, most home buyers have less than 30% of their income.
The spread between bulls and bears in the US is 19.20% compared to 27.66% last week and -8.33% last year. This is above the long-term average of 6.47%
THE DEFICIT IN THE WORLD OIL MARKET HAS INCREASED MARKEDLY
The OPEC monthly review published today maintained estimates of global demand in 2023 at 102.0 million bps (+2.44 million bps) vs 102.0 million bps. in June. In 2024, the demand will be 104.25 million bs (+2.25 million bs), the figures are unchanged. The main growth in consumption is China, South-East Asia, Latin America
The forecast of demand for OPEC oil in the third quarter is 29.57 million bs. At the same time, in July OPEC produced only 27.31 million bs, so the deficit in the market rose sharply to -2.26 million bs vs -120 thousand bs in June.
Saudi Arabia practically fulfilled its promise in July, voluntarily reducing production by 968 thousand bps at the declared 1 million bps. Production in Russia amounted to 9.5 million bs (-100 thousand bs by June)
IEA (IEA) REPORT, HIGHLIGHTS:
• Global oil demand will grow by 2.2 million bs in 2023 and reach 102.2 million bs, which will be a new record. The estimate is left unchanged compared to July
• Global oil production is expected to grow by 1.5 million bps to a record 101.5 million bps in 2023, while production growth outside OPEC+ (mainly in the United States) will amount to 1.9 million bps. Next year, non-OPEC+ supplies will also dominate the growth of global supply, increasing by 1.3 million bs, while OPEC+ may add only 160 thousand bs.
• OPEC+ in July lagged behind the oil production plan by 3.67 million bs (by 2.55 million bs – in June)
• RUSSIA: oil exports in June decreased by 200 thousand bs (in June by 600K bs) to 7.1 million bs.
• RUSSIA: China and India accounted for about 80% of all oil from the Russian Federation
• RUSSIA: estimated export revenue in July is the largest since November 2022: $15.3 billion (+ $2.5 billion per month). Since August, Russian exports will be reduced by another 500 thousand bs. According to OPEC estimates, Russia produced 9.5 million bs in July
Already available! The weekly World Economic Digest (Wednesday) on 05.08.2023 presents the most significant economic events and their impact on the world economy. In this issue, we will look at the latest updates in world trade, the development of financial markets, changes in the political situation and their possible impact on international firms and investors.
THE LABOR MARKET IN THE US – THE FIGURES ARE BELOW THE FORECAST, WAGES ARE GROWING AT THE SAME PACE
The released BLS statistics on the US labor market for July showed the following indicators (all worse than expected):
• Number of new jobs 187K vs 185K in June (forecast 200K)
• * Private sector: growth by 172K vs 128K, forecast 179K (we consider the dynamics in Private to be a more representative indicator of the situation)
• Unemployment rate: 3.7% vs 3.9% a month earlier, forecast 3.8%
• Salary growth: 0.4%mm and 4.4%yy vs 0.4%mm and 4.4%yy in June. Forecast: 0.3% mm and 4.2% yy
• Participation rate not: 62.6% vs 62.6 a month earlier.
Again, there is a strong dissonance with the previously released figures from ADP (+324K). The growth rate of wages is not decreasing.
Now let’s take a closer look at the labor market: 👨🔧Employment is stabilizing before declining in Q3. Job growth in the US amounted to +187K in July. This is 40% lower than the average for 12 months. At the same time, unemployment remains at 3.5%.
👨⚖️The main engine of employment remains government spending: 🏥+63K healthcare 🧑🦼+24K social assistance 🏦+19K financial markets 🏗️+19K construction 🏕️+17K tourism
Government-related segments account for +87K new jobs (46% of the total increase in July). These are mainly healthcare (the Medicare program), social assistance and infrastructure construction (the Biden plan). In these segments, the growth of seats is ahead of the market average for 12 months.
👨🎓In autumn, seasonality will take construction and tourism out of the market. The costs will be hit by the resumption of payments on student loans in the fall. The total amount of debt owed by 27 million citizens exceeds $1.1 trillion. According to BofA, in the 2nd half of the year, the delay will return to 11% ($167 billion). According to Morgan Stanley, 90% of the funds for payments will be transferred from current consumption. This is equivalent to a loss of more than 0.1% of GDP growth.
In general, the labor market report does not change the current situation for the Fed: the labor market is quite hot, there are a lot of vacancies, applications for benefits and the unemployment rate are low, wages are growing faster than the Fed wants to see… but employment growth is slowing down. The labor market is on a trajectory even better than the Fed’s current forecast (4.1% unemployment at the end of the year and another increase after a pause).
USA: QT continues, but Yellen helps
The Fed is gradually continuing to reduce the balance sheet, the securities portfolio has decreased by $33 billion in a week, by $79 billion in the last 4 weeks, the total balance has been reduced by $97 billion in 4 weeks due to the repayment of part of the FDIC loans to $8.2 trillion.
However, this time the US Treasury, which had quite large expenses at the beginning of the month, spent $89 billion from its accounts with the Fed, reducing the amount of funds for them to $461 billion, because there were even more dollars in the system. Given that at the end of the 3rd quarter, the US Treasury wants to have $ 650 billion in the account, and at the end of the year $750 billion – it will withdraw liquidity from the system by the end of the year, the Fed plans to do the same.
At the same time, the US Treasury will have to finance a high budget deficit and plans net market borrowings in the 3rd quarter of $ 1 trillion, of which $178 billion in bonds, and the rest in promissory notes for up to a year, and in the 4th quarter Yellen wants to borrow $0.85 trillion, of which already $339 bonds, taking into account loans in July it is necessary to borrow another $1.5 trillion of net loans, of which about 2/3 are promissory notes and 1/3 are bonds. The pressure on the debt market may increase even more, especially after the psychological action in the form of a downgrade, which makes the market think a little more about the sustainability of the US budget.
Against this background, the debt curve is slowly growing – long securities have reached 4.2-4.3%, i.e. +0.6 pp by the time the debt ceiling is raised. The outflow of liquidity will continue until the end of the year (the Fed and the US Treasury plan to withdraw ~ $0.8 trillion), but it can be significantly offset by a reduction in reverse repo. For the debt market, the situation potentially looks even worse than could be expected, since Yellen’s main loans are still ahead this year….
Global Investors Switch from China’s Flag to India and Vietnam
Global capital flows are shifting away from China in favor of other emerging Asian markets such as India and Vietnam as investors seek alternatives with less economic and geopolitical risks.
❗️ For the first time since 2017, the inflow of foreign investment in Asian emerging market stocks, excluding China, over the past year exceeded the net purchase of mainland Chinese stocks through the Stock Connect program. According to Goldman Sachs, these amounts amounted to $39 and $32 billion, respectively.
This is due to the fact that investment funds specifically designed for non-Chinese economies are emerging at a record pace.
“Foreign purchases have grown strongly in the region outside of China” over the past four months, writes Sunil Cole, Goldman’s Asia-Pacific equity strategist.
China’s economy is experiencing an unexpectedly slow recovery after the pandemic, hampered by a downturn in the real estate market and high youth unemployment. But sluggish growth is not the only problem.
Hiroshi Matsumoto, senior researcher at Pictet Asset Management (Japan), says that American and European investors are concerned about the consequences of a potential Taiwan conflict. “There are concerns that assets may be frozen or otherwise it will be difficult to sell them, as happened with Russia after the start of the SVO,” he said. “Investing directly in mainland Chinese stocks is risky.”
This is in addition to ongoing concerns about human rights in China.
Investors gravitate towards India as an alternative destination. Having risen since April, the benchmark Sensex index is now hovering in record territory. In 2023, a total of $12.8 billion of foreign capital was invested in Indian stocks, ahead of Taiwan and South Korea, despite the fact that their markets support semiconductors.
Part of India’s appeal lies in expectations of rising domestic demand fueled by an expanding middle class. United Nations data show that the country’s population exceeds the mid-year figure in China and reaches about 1.43 billion people, while it is expected that the gap will only grow.
Investors also expect large multinational corporations to move production from China to India. The American manufacturer of chips Advanced Micro Devices said on Friday that it plans to invest $ 400 million in the country over five years, including in a new design center, which will be the largest in the company.
Money is also flowing into Vietnam, which MSCI considers a “frontier market.” The benchmark VN-Index has jumped by 20% this year.
OVER THE PAST MONTH, EIGHT COUNTRIES HAVE RAISED THE KEY RATE, TWO HAVE LOWERED IT
In July, the actions of regulators in relation to PREP, as well as a month earlier, were somewhat multidirectional.
The cost of borrowing has been raised by Russia, USA, EU, UK, Canada, Denmark, Turkey, Thailand.
Brazil and Chile lowered the rate.
With regard to CPI, the picture is as follows – the indicator is growing in Russia, UK, Chile, Taiwan, Argentina and Turkey. In other states, it is decreasing
INFLATION IN TURKEY: DUE TO THE CENTRAL BANK’S INDECISION, THE PRICE SPIRAL IS UNWINDING MORE AND MORE
According to the Turkish Statistical Institute, the growth of consumer prices in the country in July amounted to 9.49% mm / 47.83% yy vs 3.92% mm / 38.21% yy in June. The figures are slightly higher than the forecast, waiting for 9.1% mm / 47.3% yy
Rising producer prices: 8.23% mm / 44.5% kg vs 6.5% mm / 40.42% yy a month earlier.
The pace, and especially monthly rates, soared sharply. This is not surprising in view of the extremely cautious behavior of the Central Bank, which has already raised the rate 2 times (17.5%) under the new leadership, but this is extremely insufficient to curb price growth. The Turkish lira is currently trading near historical lows of about 27 USD TRY.
The first 3 days of the fall indicate that the August sale was preliminary. A rally after the July events is preferable
Data analysts have checked whether there is any impact on the profitability of August based on the profitability of the first three days:
•Since 1950, when in August the first 3 days fell >-1%:
– yield from the 4th day to the end of the month +1.2% (60% win ratio)
• Since 1950, when the first 3 days of August increased> 1%:
– yield from the 4th day to the end of the month +0.4% (50% win ratio)
• Since 1950, all years:
– yield from the 4th day to the end of the month +0.6% (56% win ratio)
Thus, it is obvious that the worse the beginning of August (the first 3 days), the better the rest of the month.
When markets have a strong momentum in August (as in 2023), the more intermittent the beginning of August, the better. For the reasons mentioned above, I see that this will happen in 2023. The conclusion is this: I believe that the selling pressure in August is frontal, so the rest of the month is safer for investors. But this does not mean that we should lose caution.
❗️Fitch downgraded the US credit rating from “AAA” to “AA+”. Rationale: the rapid growth of the national debt and budget deficit, a record increase in the Fed rate, an increase in the risk of a crisis in the US economy.
👆All the reasons given by Fitch are reasonable and objective. The inertia of growth is still maintained, so the US economy looks better than it really is. But the longer the rate stays at such a high restrictive level, the more problems in the US economy will increase. Now the rating agencies have begun to notice this.
The main difficulty of this whole situation is that it is unclear how to get out of it:
Yes, the rapid growth of the national debt…but if it is not increased, then how to cover the budget deficit.
Yes, the budget deficit…but if you remove the deficit, then social and political problems will begin.
Fed rate hike. But if you do not raise it, then confidence in the dollar is lost due to high inflation.
The risk of a crisis in the economy. But a moderate crisis is needed to reduce demand. Otherwise, how to reduce inflation?
In general, the United States is in a tangle of problems connected with each other. And the only answer of the authorities is – let’s collect more debt and use it to close the holes in the budget. This method will not work forever. Hence the downgrade of the US.
How did the downgrade affect the markets? A slight rise in the VIX and a drop in the indices
Already available! The weekly World Economic Digest (Wednesday) on 30.07.2023 presents the most significant economic events and their impact on the world economy. In this issue, we will look at the latest updates in world trade, the development of financial markets, changes in the political situation and their possible impact on international firms and investors.
In June, after mortgage rates rose to ~6.8% per annum on a thirty-year mortgage in the United States, the average mortgage payment set a new record of $2.16 thousand per month, or 51.2% of the average salary of non-management personnel.
Relative to the s/p, the payment for the first time turned out to be higher than the highs of 1989 and 2006.
USA: housing prices are rising
The S&P/Case-Shiller US house price index in May showed a third consecutive month of growth, this time by 0.7% mom (sa), the annual price drop was a modest 0.5% YoY, after a 44% increase since 2019, prices have so far only moderately adjusted and that is mainly due to inflation. In real terms, the dynamics of prices are worse, but here, too, price growth has been outpacing inflation for three months in a row. In the 20 largest cities, prices increased by 1% mom, although they decreased by 1.7% YoY.
Moreover, according to Zillow, prices continued to rise in June, and nominal prices were able to rise above the highs of 2022. Although after the rise in mortgage rates, the demand for houses shrank, but the supply also decreased. Rent, although it has slowed down growth, has reached new highs and is adding further.
U.S. consumer confidence rose in July. An interesting point is that although more than 70% of American households believe a recession is likely, most of them personally expect the situation to improve.
PS: The Fed will raise the rate by 25 bp today, and the signal may be tougher than the market expects.
The Fed, as expected, raised the rate by 25 bps to 5.25-5.50%, the market was fully laying this decision, so there are no surprises here.
Recently, the belief in the markets that this is the last increase has started to decline a little, although it dominated. The Fed practically repeated the June statement, leaving itself the opportunity to raise the rate in the fall, but still the general tone is expected to be a little more cautious.
QT will continue at the same volumes, Powell may try to add some rigidity… but the market doesn’t really believe him.
US GDP – on government incentives and services
US GDP growth in the second quarter was 2.4% QoQ in annual terms (0.6% QoQ), annual growth was 2.6% YoY (but it should be taken into account that in the first half of 2022, GDP was declining, i.e. relatively low base). In fact, the entire growth of 2.4% is:
✔️ Consumption of services with a contribution of 0.9 pp (the one that supports inflation);
Growth of investments of companies with a contribution of 1.1 percentage points (mainly subsidized under state programs);
✔️ Growth of government spending with a contribution of 0.4 pp.;
On the one hand, the growth is certainly higher than expected, on the other hand, its structure is still largely launched state stimulus programs with a huge budget deficit and record interest costs, as well as the inflationary service sector with a fairly strong labor shortage – the number of new applications for benefits is again declining.
All this will complicate the situation for the Fed, especially if some price increases from the resource markets are added…
China continues to convert its foreign economic activity into yuan
The total volume of China’s external payments on the current and financial account increased by $268 billion, while in dollars it decreased to $226 billion. Payments in yuan for the last 4 months have consistently exceeded payments in dollars and in general exceeded dollar payments for the first half of the year.
The total volume of receipts from foreign economic activity to China in June rose to $264 billion in yuan and amounted to $255 billion in dollars. Although here the yuan has surpassed the dollar only in the last 2 months and for half a year so far the dollar has not caught up.
The net balance of income from foreign economic activity in dollars is positive, i.e. more dollars come to China than go (in June + $28 billion). On the contrary, the balance of receipts in yuan is slightly negative (in June – $ 4 billion), i.e. gradually the number of yuan in the foreign market is growing, although extremely slowly.
Last time, the active process of internationalization of the yuan was brought down on the fly and actually stopped for 4-5 years by the crisis in the stock market, which provoked a powerful outflow of capital and the loss of $1 trillion in reserves. After that, conclusions were drawn and the Chinese are promoting the yuan through trade with strict moderation of capital flows.
#CNY #China #export #economy #fx
The IMF, as usual, is quite optimistic about the situation in the economy, the growth of the world economy will be 3% in 2023 and 3% in 2024, too
The only major economy that will face a recession according to the IMF is the German economy: -0.3% in 2023, but it will grow by 1.3% in 2024. But in Britain, the IMF did not find a recession. But the forecast for world trade has been lowered. There is every chance in the autumn forecast to see a downward revision.
But the forecast for inflation is 6.8%, for developed countries 4.7% for 2023 – unchanged, but it will not be possible to return to the goal in 2024 (2.8%), for developing countries 8.3% in 2023 and 6.8% in 2024.
#world #IMF #economy
The Bank of Japan has finally decided … while the truth is only on signals
The Bank of Japan left its short-term negative interest rate unchanged at -0.1%. The Central Bank kept the target yield of 10-year bonds at about 0%, but said that its ceiling of 0.5% is a guideline, not a hard limit in an attempt to make its easing program more flexible.
Although formally all the goals have remained the same, the Bank of Japan, trying to find a way out and abandon the control of the yield curve, no longer guarantees a tight retention of the yield of ten-year government bonds below 0.5%. In general, this is the first step in giving up control of the curve, Japan’s government bonds, of course, tried to sell off and the yield jumped to 0.56, the yen strengthened slightly, but the Central Bank will continue active interventions… but the market will try to attack by getting rid of JGB and trying to break the Bank of Japan.
Yesterday, the ECB predictably raised the rate by 25 bps to 4.25%, but it signals the imminent completion of this process, it is obvious that it is becoming increasingly difficult to raise, the economy is close to recession, although inflation is still significantly higher than the target. In September, an increase is still likely, but the ECB no longer gives any clear signals “everything will be determined by data”, just like the Fed.
#Japan #rates #inflation #BOJ #JPY
The IMF has improved India’s economic outlook while China’s recovery is on the wane
The International Monetary Fund on Tuesday raised its economic forecast for India this year amid a slight improvement in global growth prospects, but said China’s recovery from the pandemic has weakened. According to the IMF’s World Economic Outlook bulletin for July, India remains the fastest-growing major economy in the world with growth of 6.1% this year, 0.2 percentage points higher than the IMF’s April forecast. The IMF expects India to account for about a sixth of total global growth this year. The IMF said China will be the second-fastest growing major economy with a 5.2% growth rate this year, but its recovery from the COVID-19 pandemic is slowing, so the fund left its forecast unchanged. The IMF currently forecasts that global growth will reach 3% this year, which is 0.2 percentage points higher than in April, but still below the 3.5% growth recorded in 2022.
The exchange rate of the US dollar to the Indian Rupee. Thoughts.
Perhaps for me, as an investor, the main problem of investing in India is the regular fall of the Indian rupee against the US dollar. Although from October 2022 to the present, the rupee to the dollar have been in the same place, moreover, technical indicators speak for a correction, but if you look at history, the rupee is falling all the time. When investing in India in rupees, be sure to keep in mind that with a high probability of 10-15% per year there may be a depreciation of the local currency.
An interesting event is taking place on the American stock market – since the beginning of the year, insiders have mostly been selling stocks (the chart is longer and deeper in the bearish zone). Insiders are top managers and CEOs of companies who have more information about their activities than other investors. If they decide to sell their shares in a growing market, this is probably an unfavorable signal for a steady rise in stock prices. @ESG_Stock_Market
The American housing market has adapted to high rates at the moment and continues to revive slowly. The laying of new single-family houses in May sharply increased by 18.5% mom, the annual dynamics remained negative -5% YoY. The number of construction permits issued grew modestly +5.4% mom and -8.1% yoy.
Sales of single-family homes on the secondary market did not change much in May (-0.3% mom), since the fall of 2022, the decline has stopped here. Sales of new single-family homes in May soared to 763 thousand per year., giving an increase of 12.2% mom and 25.9% yoy. The shortage of ready-made housing remains an actual story, housing stocks for sale cover only 3 months of sales in the secondary market, overstocking is higher in the primary market, but has decreased very sharply (6.7 month of sales).
Prices on the US secondary market in May showed an annual drop of 3.4% yoy, but this is rather the effect of the base of last year, the current price dynamics indicates that the decline has stopped and prices are rising. Zillow for May counted a price increase of 0.5% mom and 2% YoY, S&P today published a report for April, where an increase of 0.5% mom and a fall of -0.2% yoy, in the 20 largest cities +0.9% mom and -1.7% yoy. In fact, at the moment prices returned, albeit to inactive, but growth, against the background of a shortage of ready-made housing, despite the fact that mortgage rates are 6.5-7%. Considering that Zillow and other sources indicate that rent growth has resumed at a rate of 0.5-0.6% mom, it turns out that even in this segment of the economy (extremely sensitive to rates), price pressure will not go away so quickly. The Fed will have to strain even more now …
PS: And consumer confidence has grown. @ESG_Stock_Market