Many are concerned that higher rates will hurt growth, but it turns out that a lot of S&P 500 companies have locked in debt at much lower rates until 2030
Source: Bloomberg, Goldman Sachs
President Joe Biden blasted China’s economic problems as a “ticking time bomb” and referred to Communist Party leaders as “bad folks”
His latest barb against President Xi Jinping’s government even as his administration seeks to improve overall ties with Beijing. In comments that included several major inaccuracies about the world’s second-largest economy, Biden said at a political fundraiser Thursday that China was in “trouble” because its growth has slowed and it had the “highest unemployment rate going.” He also blasted Xi’s signature Belt and Road Initiative as the “debt and noose,” because of the high levels of lending to developing economies associated with the global investment program. Although Biden misrepresented key statistics about China, overall outlook remains grim. This chart by Bloomberg thru Holger Z is a harsh remainder of the amount of leverage in the Chinese economy. As growth slows down alongside deflationary threat, this could become a major issue. Source: Bloomberg
Ominous sign of weakness in Chinese economy: China is suffering Italian style youth unemployment despite Chinese women retiring in early fifties
Source: Francois Trahan thru Michel ArouetT
What are the latest moves when it comes to market expectations on Fed rates ?
A Fed HIKE of 25 bps by NOVEMBER moved from 30% to 33%. It is still below 50%. So not priced in. But a 3% increase (30% to 33%) is the biggest up move in a month. Furthermore, odds of rate CUTS are dropping. Markets now do not see any rate cuts until May 2024 in the base case. 3 months ago, markets expected 4 rate cuts in 2023. Markets seem to be bracing for a long Fed "pause." Source: The Kobeissi Letter, Bianco Research
During stagflationary periods, the SP500 index tends to be inversely correlated with inflation
Tavi Costa: "From the late-1960s to the mid-1970s, equity markets declined whenever CPI rates re-accelerated to the upside. The primary driver behind this negative correlation stems from the market's growing concern about the potential for a tighter monetary policy to address the persistent increase in consumer prices". Source: Crescat Capital, Bloomberg
Will US inflation move in waves as it did in the 70's?
Source: Bloomberg, www.zerohedge.com
US CPI has moved down from a peak of 9.1% in June 2022 to 3.2% today. What's driving that decline?
Lower rates of inflation in Fuel Oil, Gasoline, Gas Utilities, Used Cars, Medical Care, Electricity, Apparel, New Cars, Food at Home, and Food away from Home. Shelter and Transportation are the only major components that have a higher inflation rate than June 2022. Source: Charlie Bilello
US inflation a tad lower than what economists expected: US July CPI accelerates to 3.2% YoY from 3% in June vs 3.3% expected, BUT the first acceleration after 12 consecutive months of decline
Both Goods and Services inflation (YoY) slowed in July - but Services remain extremely high at +6.1%... Core CPI slows to 4.7% YoY from 4.8% in June as expected. Shelter costs contributed to about 90% of the increase in July CPI. Note that #Fed's favorite inflation indicator - Core Services CPI Ex-Shelter - remains sticky' as it reaccelerated in July (+0.2% MoM, and from +3.9% to +4.0% YoY)... Fed Swaps price in lower odds (20%) of another rate hike this year. Source: Bloomberg, HolgerZ, www.zerohedge.com
