On the verge of great deeds

July 13-19, 2024

Big news. The amount of political news, despite the summer, is off the charts. The assassination attempt on Trump, the (re-)election of Ursula von der Lein as head of the European Commission (despite clear evidence of her corrupt practices), the mysterious plenum of the CPC Central Committee… And each of them has serious economic consequences.

Moreover, not all of them are easy to guess. The assassination attempt on Trump did not cause a sharp change in the markets (perhaps if he had been killed, the markets would have risen?). Moreover, there was no reaction to any attempts to keep Biden in the election campaign, nor to the decision that had already been practically made about his departure. There was no reaction to Trump’s choice of vice president (Senator Vance from Ohio), although this means that after his victory the pressure on bankers and digital workers (the main beneficiaries of the Biden administration) will be very strong.

Von der Lein’s reappointment means that the course towards deindustrialization of the European Union will continue. Of course, this doesn’t fundamentally change anything. Although those forces that want to change such a course could react. But no …

The Plenum of the CPC Central Committee decided the question of China’s economic course: should it try to resist the United States or sign capitulation? Judging by some details, for example, the report of Xi Jingping’s stroke, the capitulators quite seriously counted on victory. But it didn’t work out. If we consider that it is the capitulators who are behind the serious deterioration in economic relations between China and Russia, this could entail numerous serious consequences.

And finally, the main economic event is the global computer crash at the end of the week. Yes, in many ways it has already been stopped, but the story itself is very revealing. Because it shows how fragile the entire system of total digitalization is. By the way, it is possible that here, too, there are political reasons, since tough battles in the White House, in terms of creating a new political configuration, could not but affect the “digitals.” The influence of which has grown greatly over the years of Biden’s presidency.

And the general conclusion is simple: today it is almost impossible to separate political events from economic ones, which creates serious problems for economic commentators. Who are usually not very versed in the specifics of government economic management.

Macroeconomics. New data on the Chinese economy has been released. And they are, in general, worse.

GDP slowed to +0.7% per quarter (yearly minimum):

China GDP Growth Rate
Pic. 1

And +4.7% per year (not counting covid, this is a 35-year bottom):

China GDP Annual Growth Rate
Pic. 2

Investments in fixed capital have similar dynamics:

China Fixed Asset Investment
Pic. 3

Industrial production also slows down:

China Industrial Production
Pic. 4

Retail is record weak (+2.0% per year), not counting the Covid setbacks:

China Retail Sales YoY
Pic. 5

The price dynamics of new buildings (-4.5% per year) is approaching the record low of 2015:

China Newly Built House Prices YoY Change
Pic. 6

However, the Central Bank of China continues to pump liquidity out of the financial system:

China One-Year Medium-Term Lending Facility Rate
Pic. 7

It is possible that this is happening in parallel with the growth of budget investments. But unlike Russia, China’s financial system is oversaturated with investments, and inflationary processes emerge instantly.

Output in the eurozone construction sector -2.4% per year, the worst performance since January 2017 (excluding Covid):

Euro Area Construction Output
Pic. 8

The US housing market index is the weakest in 7 months:

United States Nahb Housing Market Index
Pic. 9

Export prices in South Korea +12.2% per year, 2-year top:

South Korea Export Prices YoY
Pic. 10

Wholesale food prices in India are growing at the fastest rate in 2 years (+8.7% per year):

India WPI Food Index YoY
Pic. 11

Nigeria CPI (Consumer Inflation Index) +34.2% per annum, 28-year high:

Nigeria Inflation Rate
Pic. 12

Including food inflation +40.9% per year, a record in the entire history of data collection:

Nigeria Food Inflation
Pic. 13

The unemployment rate in Britain is still the highest in 7 years (excluding the Covid surge):

United Kingdom Unemployment Rate
Pic. 14

Initial claims for unemployment benefits in the US are the highest in 11 months:

United States Initial Jobless Claims
Pic. 15

And repeated ones – in 2.7 years:

United States Initial Jobless Claims
Pic. 16

Net external inflow into long-term US securities in May – $54.6 billion. Not counting Covid, in all 46 years of observation it was worse only three times (once each in 2007, 2013 and 2016):

United States Net Long-term TIC Flows
Pic. 17

The ECB did not change anything in its monetary policy after cutting rates at the previous meeting.

Main conclusions. One should not think that markets are completely ignoring the situation. The price of gold rose sharply due to the events of last weekend:

Gold
Pic. 18

However, then the situation more or less calmed down, which suggests that the global financial elite is still in control of the situation. And here a very interesting point begins, which was analyzed in detail by Pavel Ryabov. His main theses have already been mentioned several times here in reviews, but it is quite possible that our readers will be interested in the details.

Pic. 19
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Pic. 22

“Changes to the Fed’s Balance Sheet

There hasn’t been a review of the Fed’s balance sheet for a long time, what’s new? As of July 17, the Fed has 4.42 trillion Treasuries on its balance sheet vs. 5.77 trillion before the tightening began in June 2022, and MBS and agency securities are now 2.34 trillion vs. 2.71 trillion.

Pic. 23

The total balance of securities decreased by 1.72 trillion to 6.76 trillion vs 8.48 trillion before the start of QT.

Before the start of the monetary frenzy in March 2020, the balance was 3.85 trillion, i.e. the scale of QE was a staggering 4.63 trillion in exactly two years from Mar.20 to Mar.22.

Accordingly, over the 25 months from June 2022, the balance sheet reduction amounted to only 37% of QE 2020-2022.

Since June 2024, sales of Treasuries have been reduced from 60 to 25 billion, and sales of MBS have been formally left at 35 billion. In reality, there is nothing close to the plan.

Since the beginning of the year, MBS have decreased by only 96 billion against the plan of 230 billion, and since June 2024 they have reduced the balance by 19 billion against the plan of 54 billion. Treasuries are being implemented close to the plan.

The real reduction in the Fed’s balance sheet since June 2024 is about 35 billion per month, against the stated 50 billion. Of course, no one will ask the Fed, what the hell is going on?

The emergency lending program for banks through BTFP and the discount window has stabilized at 110 billion and has remained virtually unchanged since mid-May 2024 (a decrease of 5 billion), and at its peak it was 400 billion.

The Fed’s total balance sheet is 7.26 trillion – this is the level of November 2020 vs. the maximum of 9.01 trillion.

Excess reserves in reverse repo balance at the level of 390-400 billion. At the beginning of April there were 440 billion, why did they decrease so little? In April-June, the US Treasury threw almost 300 billion bills into the system, but will take them back by October.

By the end of August, excess reserves could be reduced to 150 billion and almost completely depleted in September as bills are placed at 100 billion per month, QT at 25 billion and the tax period in September.

The entire sustainability resource is almost exhausted, all that remains is dust. It will be hot before the elections, and not only in the political arena, the financial system will burst at the seams.”

In conclusion, we note that the US monetary authorities held out almost until the elections (at the beginning of the year there were thoughts that the money might run out in April). But the political situation has developed such that no one will be puzzled by financial issues anymore, the issue is being resolved about Power. And for this reason, there is no need to count on any complex plans; whatever the Fed can do at the tactical level, it will do.

Well, we wish our readers a pleasant holiday and good weather!

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