May 10-16, 2025
Big News. For the first time, we highlight two top stories and break them down by content. Psychologically, the top story is the downgrade of the US rating: “Moody’s (NYSE:MCO) on Friday downgraded the long-term issuer and senior unsecured bond ratings of the United States to Aa1 from Aaa, citing a sustained deterioration in fiscal metrics. The outlook on the credit rating was changed to stable from negative, reflecting continued institutional strength and the dollar’s enduring role in global finance.”
Note that other rating agencies have done this for a long time. But, given the psychological and political tension in the world, this message had an impact on the markets and, in general, on the overall assessment of the situation, including from consumers.
But the main news in terms of content is the decline in prices in the US industrial sector.
PPI (industrial inflation index) US -0.5% per month, not counting covid, this is the worst decline in 10 years:
Рис. 1
Without food and fuel -0.4% per month, worse than during Covid and the 10-year bottom:
Рис. 2
In the services sector, as much as -1.0% per month. This has never happened in the entire history of observations:
Рис. 3
Please note that the lows of the Covid quarantine era have been exceeded (or should we say, “undercut”?). This means serious deflation, and not in the sector of all manufactured goods (here we have repeatedly explained that deflation in this sector means the displacement of production outside the US), but in the sector of final goods in production chains. In other words: even imports to the US have encountered demand constraints (see the next section of the Review)!
Macroeconomics. The latest survey of consumer sentiment in the US from the University of Michigan is even worse than the previous ones.
The main index almost repeated the record low of 2022:
Рис. 5
The expectations component broke through and hit a 45-year low:
Рис. 6
Annual inflation expectations (+7.3%) are also at their highest since late 1980:
Рис. 7
And 5-year-olds (+4.6%) – since autumn 1990:
Рис. 8
This is about the rate issue, which we discussed in detail in the previous Review: https://fondmx.pro/en/weekly-wrap/powell-at-a-crossroads/ , Powell had very serious economic reasons to raise the rate.
The US housing market index has almost returned to the 13-year lows set at the end of 2022:
Рис. 9
Рис. 10
Norway’s GDP -0.1% quarter-on-quarter, 3rd straight negative:
Рис. 11
And -0.4% per year, 2nd minus in a row:
Рис. 12
Japan’s GDP -0.2% QoQ amid falling external demand and stagnant domestic demand:
Рис. 13
The assessment of the current situation in the index of economic observers in Japan is the worst since 2019 (omitting the Covid dip):
Рис. 14
The same picture is seen in the assessment of expectations for this indicator:
Рис. 15
Germany’s current account surplus is the highest in history:
Рис. 16
China loans +7.2% per year, a record low for all 27 years of data collection:
Рис. 17
Mexico’s Central Bank cuts rate by 0.5% to 8.5%, intends to continue easing policy:
Рис. 18
Main conclusions. It seems that the negative processes in the global economy have accelerated slightly. This contradicts the logic of a structural crisis, which should proceed evenly, but if we take into account the growth of inflationary processes due to emission, then this assumption is correct. Although it is difficult to verify.
But the main thing is that the “optimistic barrier” behind which the US authorities kept the negative news has clearly broken through. Households (the main consumers in the US) clearly understood that the economic situation is seriously deteriorating and began to draw the appropriate conclusions. At the same time, of course, the stability of the financial system has sharply decreased.
The authorities are trying to appeal to financial markets, but their potential prospects were demonstrated by the United Health company (a component of the Dow Jones index), which, against the backdrop of a wave of negative
news, in just 5 weeks played back the entire growth of the previous 7 years:
Рис. 19
The key question is: will the US monetary authorities be able to hold the situation together in the conditions of growing political uncertainty? Or will they have to make a new portion of emission injections, which will lead to an increase in consumer inflation and real industrial deflation? Well, and to a new, stronger round of GDP decline. We cannot give an answer to this, since it clearly goes beyond the economy and finance and is in the political sphere. But we will repeat once again: we believe that the probability of a collapse of financial markets this year is very high.
At the same time, we very much hope that the consequences of this event for our readers will be minimized, since they have long been warned about the developing events. So we wish them a good time on the weekend and a fresh start to the work week!