A millstone around the neck of global optimism

Time period: 18 – 21 September 2021

Top news story. The headline, no doubt, is the threat of bankruptcy of China’s biggest developer. The graph really makes an impression:

The thing, however, is that world markets have not fallen, and after a very, very small decline, they are back to growth. If we look at the opinion of market professionals, Morgan Stanley says 20% adjustments, the rest are even more optimistic:

S&P graph 500 with one-day intervals with MS forecast

On the other hand, the situation is far from encouraging.

Truck traffic and S&P 500 Index in the United States

The graphs show a break-up of the long-standing relationship between the two indicators – that is, indeed, the structural crisis. And based on this graph, the fall of the S&P 500 index must be at least 40%. Or transport operations must increase substantially, for which there is no justification. By the way, traffic is calculated in such a way that it is difficult to influence it by lowering inflation – that is, it is more objective than many others, in particular, than GDP.


PMI (Purchasing Managers’ Index; below 50 signifies stagnation and decline) the Euro Area industry is the worst in seven months, although it is still growing:

Euro Area Manufacturing PMI

In services, the lowest in four months, while inflation has peaked since 2008:

Euro Area Services PMI

If we assume that inflation is under-reported (as usual), we cannot rule out that the indicators have already entered the recession zone. In Britain, the PMI was the lowest in seven months, and the price hike broke the record:

United Kingdom Manufacturing PMI
United Kingdom Services PMI

In the US industry, PMI is at its trough for six months:

United States Manufacturing PMI

Here we know exactly: official rates of industrial inflation about 7%, in reality not less than 20% (see previous Reviews).

And in the service sector, the trough in 14 months:

United States Kansas Fed Manufacturing Index is the weakest since July 2020:

United States Kansas Fed Manufacturing Index

Business climate in Germany (IFO survey) at the trough in 5 months:

Germany IFO Business Climate Index

Australia Leading Economic Index have fallen four months in a row, the last negative value being the lowest since April 2020:

PPI (Produce Price Index) in Germany +12.0% per year, the highest since 1974:

Housing prices in Canada are +12.2% per year, one of the largest values in 40 years of observation:

Canada New Housing Price Index

Existing home sales in the United States have slumped unexpectedly, at a price of +14.9% a year:

United States Existing Home Sales

Retail sales in Canada are the third consecutive negative in the last 4 months:

Canada Retail Sales MoM

In the UK, the same minimum has been in six months:

United Kingdom CBI Distributive Trades

The above observation about inflation understatement is equally true here: if the magnitude of the price distortion is similar in scale to that of US industry, there is already a real recession. In this situation, it is not unforeseen that British pessimism is the greatest in five months:

United Kingdom Consumer Confidence

In Brazil, the situation is similar:

Brazil FGV Consumer Confidence

United States Initial Jobless claims in the United States reached a monthly peak, exceeding projections:

United States Initial Jobless Claims

The United States Federal Reserve, though not raising the rate at its Open Markets Committee (FOMC) meeting, expects to start cutting back on asset purchases soon. Half of the board expects the rate to be raised as early as 2022, and forecasts for the economy and inflation for this year are less favorable. But raising rates is highly unlikely before markets fall: FOMC members will not take such political responsibility, but what if the collapse … This forecast implicitly indicates that the collapse is expected in the coming months.

The Bank of England made virtually the same decision.

The Central Bank of Japan has abandoned politics, but has worsened economic forecasts.

China’s central bank kept it that way, but began to inject liquidity into the financial system. Given the abundance of credit in the giants of the Chinese economy, this is not surprising.

The Central Bank of Indonesia left everything in place. Brazil’s CB raised the rate by 1.00% to 6.25%, and promises to do so again at the next meeting.

The Central Bank of Turkey, by contrast, cut the rate by 1.0% to 18.0%, after which the lira updated the record low to the dollar:

Summary. By comparing the graphs of traffic and the S&P 500 Index that we gave in the first section of the Review, we see that the internal ratios of the US economy have changed dramatically. However, the models that govern financial management and the management of negative deviations from benchmarks have almost certainly remained the same. They can’t be changed that quickly. This means that the quality and reasonableness of economic and, to a greater extent, financial management in the US, and consequently in the world, have sharply deteriorated.
From our experience, we can say that the likelihood of sub-prudent action by monetary authorities has increased dramatically. At this point, in September of this year, it is reported that a number of Fed leaders are investing their personal resources in instruments that depend on the decisions they make .
This could certainly be a coincidence. But this information may have been known for a long time, but it was made public now so that it could be blamed for serious errors, not by the system as a whole, but by specific individuals acting in their own self-interest. In any case, similar cases have occurred in history.
We wish our readers a good work week and pretty autumn weather!


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