June 1-7, 2024
Big news. It is, of course, a reduction in the key rate in Canada by 0.25% to 4.75%:
Рис. 1
and 0.25% in the eurozone (up to 4.25%):
Рис. 2
However, it became clear that this is not a trend yet.
And if the decision of the Central Bank of Canada was rather unexpected, then the ECB’s decision was completely within the expectations, since ECB officials directly created a projection of intentions for June.
Starting in July, the balance of securities purchased under COVID anti-crisis programs (PEPP of 1.62 trillion euros) will begin to be reduced by 7.5 billion per month (reinvestment is now taking place at the rate of repayment).
The new interest rate policy will take effect on June 12: margin lending is now 4.5%, the lending window at fixed rates is 4.25%, and deposits with the ECB are now 3.75%. For all three rates this is the level of Aug-Sep 23.
This is the first change in rates since September 20, 2023 (lasted 266 calendar days), the first rate reduction since March 2016 for loan rates and the first reduction since September 2019 for the deposit rate, and the last time the rate was reduced by 0.25% or more was in June 2014.
Deposit rates are the benchmark and floor for European interbank rates and it is important to note that even after the 0.25% cut, the current rate of 3.75% is higher than the 2007-2008 monetary tightening cycle (3-3.25%) and comparable to the peak of tightening in October 2000 (3.75%), i.e. For now, the monetary policy is restrictive, but easing has begun.
We have addressed the topic of rates many times (last time two weeks ago: https://fondmx.pro/en/weekly-wrap/gold-above-all/), so we will repeat it very briefly. The rate needs to be raised because inflation is growing (and real inflation generally far exceeds all standards established by the Fed). But this will kill the already declining industry and the economy as a whole. In addition, the need to stimulate private demand requires additional money, which can only be taken from the issue. Thus, given the election year, the monetary authorities are forced to listen to purely political expediency.
Macroeconomics. New Zealand Manufacturing Sales -2.2% p.a., 6 consecutive quarters of decline:
Рис. 3
Industrial production in Germany -3.9% per year, 11th minus in a row:
Рис. 4
Industrial orders in Germany -0.2% per month, 4th minus in a row:
Рис. 5
And -1.6% per year.Over the past 26 months, this indicator has turned positive only twice (on single large orders):
Рис. 6
Let us remind you that this is all based on underestimated inflation! In reality the situation is much worse.
An independent survey of the Chinese industry looks noticeably better than the official one, with a 2-year peak (51.7):
Рис. 7
In the service sector the picture is approximately the same (54.0):
Рис. 8
The new orders component of the US industrial PMI is the worst for the year (45.4):
Рис. 9
Australian industrial activity has fallen to its worst levels since Covid:
Рис. 10
The US foreign trade deficit is the highest in 1.5 years:
Рис. 11
Turkey’s CPI (consumer inflation index) (+75.5% per year) is approaching the 26-year high set in 2022 (+85.5%):
Рис. 12
Building permits in Australia have fallen to 2008/12 levels:
Рис. 13
The UK mortgage rate (7.93%) is still just 0.09% from last autumn’s 26-year peak:
Рис. 14
Mortgage applications for home purchases (not refinancing) in the US are only 4% above last year’s 29-year low:
Рис. 15
Economic optimism in the US is the lowest in six months and not far from global lows:
Рис. 16
Retail sales in Italy -1.9% per year: 5-year minimum (excluding Covid):
Рис. 17
Unemployment in Germany has increased (monthly) for 17 months in a row:
Рис. 18
The number of unemployed is at its peak in 9 years (not counting Covid, although its peak is already nearby):
Рис. 19
Unemployment in Canada is the highest in 7 years (excluding Covid):
Рис. 20
No wonder they lowered the rate. Whether this was agreed upon with the Fed is another matter. Most likely, yes, then this corresponds to the slogan: “The most dangerous experiments are on the least valuable crew members!”
The number of vacancies in the United States fell by 296 thousand over the month, but is still slightly higher than pre-Covid values:
Рис. 21
The Central Bank of India did not change the rate.
Main conclusions. At the press conference, ECB head Lagarde exactly repeated the Fed’s rhetoric regarding the monetary policy trajectory: decisions will depend on incoming data and economic conditions (flexibility and adaptability). Future rate changes will be determined at each meeting depending on the analysis of inflation prospects, the dynamics of core inflation and the effectiveness of monetary policy transmission.
The ECB is satisfied with current inflation, the inflation trend is “moving in the right direction,” and therefore it will focus on a wider range of economic data.
The interpretation here is clear: the political pressure on the ECB is weaker than on the Fed, so you can hold on stronger. But the economic situation in the European Union is significantly worse than in the United States, which is clearly visible in the previous section of the Review. In general, here we decided to check what the effect would be.
And finally, savings rates in the US:
The data here is heavily revised, so comparing it with data from “The Decline of the Dollar Empire…” is pointless. But even with this much improved data, it is clear that savings have fallen dramatically. This means that household expenses will have to be compensated from the budget – there are no other options. With all the ensuing consequences, since there is no more free money on the market. This means emissions. The only question is tomorrow or the day after tomorrow.
Well, we wish our readers a pleasant weekend and an effective working week.