Lots of news and all are sad

May 11-17, 2024

Big news. The week turned out to be fantastically eventful. Even if we ignore politics (Putin’s visit to China, the assassination attempt on the Prime Minister of Slovakia Fico, information about a possible coup in Turkey; details will be in the last section of the Review), there is also something to discuss in the economy. The role of the main event of the week is claimed by both information about the (allegedly) decrease in inflation in the US, and negative data on the (partial) results of the reporting season in the US, and, finally, the event that we consider to be the main one.

India and Iran signed an agreement to operate the Chabahar port in the south of the Islamic Republic. For ten years, Delhi will operate the only Iranian port with direct access to the Indian Ocean, which is planned as a key point in the North-South transit corridor. The United States has long tried to prevent this project and again threatened with sanctions. But the development of the situation in the global economy led India to the decision that the North-South corridor seemed more promising than satisfying the United States.

This decision not only creates a new transit option, an alternative not only to the US-British (by sea), but also to the Chinese (via the Pakistani port of Gwadar). The main thing here is that it is not controlled anywhere by the American fleet. Taking into account China’s transit through the ports of the DPRK, the Sea of Okhotsk and the Northern Sea Route, this will in the fairly near future destroy the US monopoly on control over the main transit routes.

Taking into account Putin’s agreements with Xi in Beijing, which, in fact, invite the world to consider a new economic and security model, the monopoly of the Anglo-Saxon world on control over the global economy is gradually being destroyed. And although the supporters of this monopoly take extremely drastic actions, it is no longer possible to stop the objective process of destruction of the Bretton Woods dollar system.

Macroeconomics. We traditionally look at Chinese data, which is again ambiguous:

Investments in fixed assets slowed down slightly:

Industrial production accelerated, but did not reach the local peaks of February:

Annual retail sales growth is the lowest in 16 months (only +2.3%: excluding Covid, this is a record low):

House price decline accelerated to -3.1% per annum, 9-year low:

Japan’s GDP -0.5% QoQ, 3rd consecutive quarter of no growth:

And -0.2% per year, excluding Covid, the worst dynamics in almost 10 years:

Dutch GDP -0.1% per quarter, 4th minus over the last 5 quarters:

And -0.7% per year, the 4th quarterly minus in a row:

Industrial production in the eurozone -1.0% per year, 10th minus in the last 11 months:

Industrial output in Japan -6.2% per year, the weakest dynamics in 3.5 years:

Orders for machine tools and similar equipment in Japan -11.6% per year, 16th minus in a row:

PMI (expert industry performance index; its value below 50 means stagnation and decline) of the New Zealand service sector 47.1 – without taking into account Covid, this is the bottom since 2009:

The New York Fed index has been in the red for 6 months in a row:

US building permits require a minimum of 16 months:

CPI (consumer inflation index) South Africa +33.7% per year, 28-year peak:

Argentina CPI +289.4% p.a., 33-year high:

However, the Argentine Central Bank cut the rate for the 6th time in a row, from 50% to 40%:

PPI (industrial inflation index) USA +2.2% per year, annual maximum:

But the inflation index (that is, consumer inflation) in annual terms decreased from 3.5 (March to March 23) to 3.4 (April to April), or 0.3% in April versus 0.4% in March. This gave some optimistic hopes, but we remind you that these coefficients are subject to very serious distortions (for this, see the last section of the previous review: https://fondmx.pro/en/weekly-wrap/good-week/).

We are looking at a much less subject to change indicator, price changes for the full volume of industrial goods:

For the first time in almost a year, prices rose rather than fell, which suggests that inflationary processes in the United States are continuing. This is what we should proceed from when assessing the real situation.

To this we add data on the index of leading indicators in the United States. Let us remember that its fall by more than 5% always led to a recession. In our case, for two and a half years (even more, in September there will be three) there has been a full-fledged recession, so talking about a recession is not entirely correct, but in public discourse in the United States (where the recession has not yet been recognized) this fact will certainly play a role your role:

The number of hired workers in Britain is 85 thousand per month, not counting Covid, this is an anti-record for 10 years of statistics:

Main conclusions. The structural crisis continues. Against this background, those who are trying to maintain the current order at any cost begin to commit drastic actions. In particular, the attempt on the life of the Prime Minister of Slovakia is most likely due to the fact that he was going to seriously raise the issue of the need for sanctions against Russia.

But in purely economic matters the situation is not very good. An analysis (still preliminary) of the reporting season for large US corporations, carried out by Pavel Ryabov, shows that their indicators are within the medium-term norm.

“The reporting of American companies in 1Q24 is extremely lousy.

The revenue of American companies since September 2022 has decreased by about 5% in real terms, and it would be strange to think that things are better with profit.

Over the year, the decline in profits of non-financial companies amounted to 11.8% at par (14.2% taking into account inflation), over two years the decline was 3.5% (11% taking into account inflation), and by September 22 the collapse was 16.8% at par and almost minus 21%. in real terms according to own calculations based on company reports.

It should be noted that the data is preliminary based on the reporting of approximately 74% of US public companies by revenue, but large companies (Walmart, Home Depot, Nvidia, Dell, HP, Cisco, Broadcom, Target and others) are ahead with the reporting quarter ending in April ( I take them into account for the first quarter.

All success stories in the technology sector and selected companies in retail (Amazon), because… net income excluding the technology sector fell 22% y/y, which is the worst indicator since the COVID crisis.

The phase of active expansion of profits was in 2020-2021 with stabilization in 2022, where the profits of all non-financial companies increased by 45-48% at par relative to the 3rd-4th quarter of 2019. Since 2023, there has been a trend towards a decrease in profits with more obvious degradation processes at the beginning of 2024.

Growth points are concentrated in the technology sector, whose profit grew by 20.7% year-on-year, the consumer sector (goods and services) is not bad with profit growth by 8% y/y, profit is also growing by 1% y/y in wholesale and retail trade for account of the Amazon effect.

Profits collapsed 57.4% y/y in the medical sector (medical technology + health care and social security), where profits are at a 15-year low.

Industry (processing + commercial services + industrial and technical services) was in the red by 20.7% y/y.

The raw materials and utilities sector is losing profits by 27.8% y/y due to lower prices for raw materials, and transport and communications are minus 11.6% y/y.”

It would seem that what the problem is, it’s not worsening! But the fact is, the stock market is growing much faster than average! In other words, a very solid bubble has formed on it, which threatens to dry out. With clear consequences.

If we add to this that US industry is not growing (this is according to official inflation data, but in reality it is falling quite significantly) and there are no resources for demand growth (namely, demand forms about 70% of US GDP), then it turns out that no there are no more or less serious reasons to assume some kind of not only positive, but even relatively peaceful development of the situation. The world is on the verge of the most powerful crisis in human history!

Against this background, proposals from Putin and Xi look extremely attractive. It is for this reason that, most likely, the Western media are extremely sparing in discussing this visit. Its content is not included in the topic of macroeconomics in any way, so we only mention it, but there is no doubt that this topic, alternative models for building the economy, finance and security, will actively find more and more new supporters.

Well, we wish our readers a good weekend and an easy working week!