Gold above all

May 18-24, 2024

Big news. The big news of the week is, of course, political, the death of the President and Foreign Minister of Iran. And there will be economic consequences from them too. But even within the framework of a purely economic agenda, two news can be noted. The first is a record for gold prices:

Yes, by the end of the week the price of gold dropped from its highs, but, apparently, new highs are not far off. It is possible, by the way, that the last maximum was just on the news of Raisi’s death.

The second news is that the European Union, apparently, continues to destroy the world trade system following the example of the United States. We already noted in the last review that the United States has significantly increased duties on some goods from China – and it’s not just cars. The duty on chips was doubled to 50%, on batteries from 7.5% to 25%, on solar panels – from 0 to 25%. And now Europe is thinking about introducing similar restrictions on Chinese exports.

Taking into account the development of the situation in this region (see the next section of the review), the EU can be understood. But the already dying old model of financial capitalism in the Bretton Wood’s era, apparently, will soon be dealt another hard blow.

Macroeconomics.  German GDP -0.2% per year, 2nd quarterly minus in a row:

Argentina’s monthly GDP is -8.4% per year, the worst dynamics in 15 years (excluding covid):

Let us note, once again, this is all in conditions of greatly reduced inflation.
 
  Foreign direct investment in China -27.1% per year, 15-year minimum:

And these data say much more about the state of affairs in China than the official data given in large quantities in the previous review: https://fondmx.pro/en/weekly-wrap/lots-of-news-and-all-are-sad/ .
 
  The balance of industrial orders in Britain, the 22nd minus in a row and a very weak value by historical standards:

Americans are the most pessimistic in six months:

Retail sales in Mexico -1.7% per year, the worst dynamics since 2017 (excluding Covid):

New Zealand retail -2.4% per year, 6th consecutive quarter of decline:

Retail in Canada -0.2% per month, 3rd minus in a row:

Britain’s budget deficit is the worst in 3 years; excluding Covid, it was higher only once, 12 years ago:

The Chinese Central Bank has not changed anything in its monetary policy, as have the Central Banks of New Zealand, Indonesia, South Korea and Turkey.
 
  But the Central Bank of Nigeria raised the rate by 1.50% to a record peak of 26.25%:

Main conclusions. The minutes of the latest US Federal Reserve meeting showed board members’ frustration with the lack of progress in reducing inflation, which will keep rates high longer than expected; Some participants in the discussion were even ready to explore the possibility of new percentage increases. In fact, this means that it is impossible to make any objectively optimal decision at the level of economic or financial analysis, as we have written about several times.

On the one hand, inflation not only does not fall, but grows. This means the rate needs to be raised. On the other hand, industry, like the entire economy, is in decline, and this means that the rate needs to be lowered. Moreover, real inflation is much higher than official indicators, but we will leave this to the conscience of US statistical authorities.

Since the leadership of the Fed is, after all, financiers, it would seem that they should be more worried about inflation rather than stagnation of the real sector (within the framework of the second “mandate” of the Fed to increase employment). But taking into account the elections in November, it is quite possible that the White House made a political decision to reduce the rate… And the financiers in the leadership of the Fed proceed from the same logic, while more politically engaged officials tend to listen to the opinion of the Biden administration. However, there is still no good solution.

With the exception of these collisions, the overall picture is almost identical to that of previous weeks: a classic structural decline is taking place. Which will continue for several more years. And the only factor that can accelerate it will be the collapse of financial markets. Which will happen in the medium term.

In the meantime, we wish our readers to get the most out of the weekend and start the work week with fresh energy!