Time period: 22-28 January 2022
Top news story. The highlight of the week was the US Federal Reserve Open Market Committee meeting. There, in particular, it was decided not to change the interest rate. Whether the IMF’s sharply negative opinion, voiced by its head (see the previous Review) or natural anxiety, combined with the hope that everything “will pass” in the situation of huge transactions of the reverse REPO, played a role here, we can’t say. So as long as Kristalina Georgieva can remain calm for a while.
But the main decision was to promise in March to start a cycle of rate hikes. This is a promise, which, in theory, can still be taken back, but everyone understands that the Fed will be under tremendous pressure from the White House. Which, following the failure of the US Election Reform Bill, is due to bring about a significant improvement in the country’s economic conditions by May. Otherwise, the Democratic Party will suffer a fantastic defeat in November.
At the same time, the Fed’s management lacks an understanding of the structural problems of inflation (the nature of which we have explained many times in detail in the Reviews), so it is almost certain that they will only worsen the overall economic environment, including by accelerating the negative, including inflationary, processes. K. Georgieva understands this, to some extent, but Powell and other American financiers who have not studied political economics simply do not see the relevant processes.
Given political pressure, it is unlikely that a raise will be avoided. This means that industrial inflation, which is more sensitive to the structural crisis than consumer inflation, will rise from its current level of 20-25%. With all the circumstances. What the Fed leadership will do in this situation cannot yet be understood. But we pledge to monitor the situation closely.
The first month of the year ends, and the stats return to familiar indicators.
German GDP returned to negative values, much less than expected (-0.7% per quarter):
The US GDP deflator is 7.0% per quarter “in YoY terms”, which is the 40-year-old peak:
And there is food for thought. Let me remind you that the GDP deflator is a measure of price change in the whole economy, both in the consumer sector and in the industrial sector. In the fourth quarter of last year, industrial inflation was already over 20%. Consumer is about 6-7% (most likely an understatement). The share of industry in the US economy is about 20%, so the average is, of course, closer to consumer inflation. But not identical to them!
If we consider that the “specific weight” of consumption is 80% compared to the industrial 20% (all other components are very small), you get that the deflator should be in the range of 9.5-10%. And if we assume that consumer inflation is in the range of 12-15% (a very plausible assumption), then the deflator is in the range of 14.5-16%…
And with Q4 growth estimated at about 7%, with a real deflator above 14%, the difference between the official and the real must be subtracted (if the real deflator was less than the official deflator, it would be necessary to add). That is, we can conclude that there is no economic growth in the US at all.
The same is true of the personal consumer expenditures:
Less highly volatile food and energy prices:
Orders for durable goods in the US -0.9% per month, this is the worst performance since April 2020:
PMI (Industry Status Index, below 50 signifies stagnation and decline) Australia’s industry is the worst in five months (55.3 points):
As in the service sector, which also fell into the red zone (45.0):
The pattern is similar in Britain, but there are two sectors in the growth zone:
U.S. manufacturing sees 15-month low:
In the service sector – for 18 months and stagnation (50.9 points):
And in the Euro Area – for 9 months (51.2):
United States Chicago Fed National Activity Index is at the trough in 10 months with declining output and private demand:
Activity in the Richmond Fed area is the weakest in 4 months and in manufacturing:
And in the service sector:
Business confidence in Australia went to the red zone, and was the worst in 1.5 years:
Canada business barometer at 15-month low:
The business climate in Germany (IFO Survey) has grown a little bit, but the assessment of the current situation is the worst in nine months:
In Britain, the same figure went into the red amid the most powerful rise in costs since 1980:
Economic sentiment in the Euro Area is the worst in 9 months:
The same in the service sector:
There is a 7-month trough in the industry:
US merchandise trade deficits were both in December and in 2021:
PPI (Producer Price Index) of South Africa +10.8% per year – record for nine years of statistics:
Australian PPI +3.7% per annum, it’s a 13-year high:
PPI Italy +22.6% per year, a record for 30 years of Review:
PPI of Spain +35.9% per year, which was a record for all 46 years of observation:
CPI (Consumer Price Index) in New Zealand is the highest in 32 years (+5.9% per year):
CPI without food and energy in Mexico is the highest since 2001 (+6.1% per year):
United States Personal Consumption Expenditure Price Index in the US in December +5.8% per year, this is a 40-year high:
Without food and energy 4.9%, this is the top since 1983:
US personal consumption spending:
Mortgage applications in the United States -7.1% per week against 22 months of peak rates:
Mortgage refinancing is at the trough for two years::
Pending existing home sales -3.8% MoM, the 2nd negative in a row:
And -6.9% per year – the 7th negative in a row:
Consumer sentiment in the Euro Area is the worst in 10 months:
And in the USA – for more than 10 years:
As is the assessment of the current conditions:
Annual inflation expectations +4.9%, the peak since 2008:
5-year +3.1%, which is the top since 2011:
US personal spending -0.6% MoM – the first decline in 10 months:
The United States Federal Reserve has kept the rates unchanged, but intends to pick them up as early as March; after that, the Central Bank’s balance sheet will begin to shrink. The Central Bank of South Africa raised the rate by 0.25% to 4.00%. The Central Bank of Canada left rates in place, but made it clear that it was ready to start raising them.
Summary. Inflation in the European Union and the United States is strong, as are consumer and business expectations. Accordingly, it is clear why there is a panic surrounding US President J. Biden. And the cries about the “aggression of Russia” in this situation are obvious: anything, but journalists and experts should not ask questions about inflation! It’s just a taboo.
But such a situation also creates problems in speculative markets. So far, the decline in United States stock figures has fallen into a slight adjustments. But there are more perilous aspects, in particular, we can look at the gap in returns on 10- and 2-year US Federal Treasury bonds:
It is not difficult to see that when the difference has fallen quite low, a formal recession has always begun. It is clear that today, probably for some time, there has been a structural recession that has had nothing to do with the recession, and it is understandable that economic growth indicators are being inflated. But in this case, one has to consider that this graph is seen by both speculators and bankers, and they draw conclusions from official figures. And these conclusions are negative.
In general, once the economy began to move at its usual pace and there were many statistics at the end of the previous year and at the beginning of the current year; it became clear that no improvement in the world economy was foreseen, but rather that it might be a serious setback.
But let’s hope that our readers (including by understanding reality through our Reviews) will not be disturbed! Have a good week at work!