Time period: 15-21 January 2022
Top news story. The main event of the week was a large press conference by US President Biden. Its political and/or electoral implications are not the subject of discussion in this Review, but what Biden has conclusively proved to the world is that the US leadership has no way out of the crisis.
Last time we explained this situation in detail in the previous Review, so just a few words: High monetary inflation requires (this is an election year!) tightening of monetary policy, but this will inevitably lead to an increase in the structural component of price growth. The latter, according to our calculations in previous Surveys, roughly corresponds to 20-25% for manufactured goods, making consumer inflation almost inevitably double-digit by spring.
It should also be noted that it is likely that official inflation figures are under-reported, so that the situation may be much deplorable. In any case, the reaction of the stock market followed, the capitalization of the S&P500 index suffered losses in the amount of $5 trillion.
We will quote the opinion of the stock market experts in the final section of the Review, but now we can only note that the monetary authorities do not seem to have understood the reasons and peculiarities of the structural component of the price growth.
The December statistics of China mainly show a slowdown in the economy. GDP +4.0% per year, which is 1.5 times lower than pre-pandemic levels (which, in turn, are the worst in 30 years):
Let us warn once again: it is very likely that statistics are well-off because of the underestimation of real inflation, it is very possible that the real conditions are actually worse.
Fixed investment returned to pre-pandemic multi-year low annual growth rates (+4.9%):
Industrial production has picked up slightly, but growth is still weak (+4.3% YoY):
The unemployment rate rose slightly:
Retail sales +1.7% per year, much less than expected and a record low, not taking into account the 2020 COVID-19 drawdown:
And here, when all these graphs are compared, the logical question is: Maybe China’s economy has reached a new level that is more or less stable? Or, perhaps, only approaching it, then stable performance will be slightly worse than shown above. And, given the warning above, are these growth rates, albeit less intense than before? Or, on the contrary, are these recession indicators that mean that the economy is no longer capable of taking stimulus measures from the Chinese government?
The answers to these questions are largely unorthodox, with everyone in one way or another relevant to China’s economy answering them differently. But one thing is certain: China will not be an engine of the world economy for years to come!
Germany ZEW Economic Sentiment Index rose, but only through optimistic expectations:
While the estimation of current conditions is the worst in 8 months:
The same situation in the Euro Area as a whole:
The business climate in France is the most pessimistic in 9 months:
United States NY Empire State Manufacturing Index dropped into the red zone for the first time since June 2020, and new orders also appeared there:
Then inflation indicators begin, they, as usual, break long-term records.
CPI (Consumer Price Index) of Italy +3.9% per year, at its highest since 2008:
German CPI +5.3% per year, this is the peak since 1992:
The Euro Area CPI +5.0% per year, which is a record for 31 years of survey:
Less food, alcohol, tobacco and energy, this is also a record, but for 25 years of statistics:
UK CPI +5.4% per year, this is also the peak since 1992:
UK Retail Price Index (more objective than CPI) +7.5% per annum, highest since 1991:
Canadian CPI +4.8% per year, at the top since 1991:
Less food and energy +4.0%, which is the peak since 1989:
And even in Japan, which has suffered from deflation for many decades, CPI is at a 2-year high (+0.8% per year):
PPI (Producer Price Index) of Germany +24.2% per year, this is a record for all 72 years of survey:
Let us note that this figure is close to the maximum rate of increase in producer prices in the U.S. (See previous Review). And such coincidences are very supportive of both indicators, because in the same models in more or less similar conditions the indicators should be similar. Incidentally, the case of the US and Chinese economies, where the share of domestic stimulus (emitting, in fact) is about 25% of GDP, is relevant.
US existing home sales suddenly dropped, prices +15.8% per year:
British sentiment is worst in a year:
What immediately affected their purchases: retail -3.7% per month (trough since January 2021):
US jobless claims are on the rise again (they are at a 3-month high):
As we noted in one of the New Year’s Reviews, it cannot be excluded that indicators are so low because the models for estimating unemployment are seriously flawed in the face of severe inflation understatement. If this hypothesis is correct, it can be assumed that the US authorities either adjusted the models or decided to show a more adequate inflationary picture. As more information becomes available, we will try to answer this question.
The Central Bank of China cut its key rate by 0.1% to 3.7%.
ЦБ Индонезии ничего менять не стал, как и ЦБ Турции.
Summary. Judging by the political hysteria that has been going on for weeks, the authorities in the major developed countries have realized the real problems with the economy, but they do not yet know what to do. As the insanity of monetary raging gradually stops – the US elections appear to be an important factor, and it should also be added that the current administration in Washington failed to push through the decision to change the election rules, which practically ensures the victory of the Republican Party in November of this year – the stock market starts to hang over.
Brent crude oil prices can be given as an example:
It would seem that the crisis is triggering a reduction in demand, but structural changes are driving up prices and are likely to last. Of course, one must take into account that $100 tomorrow is not $100 in 2012, so the real share of oil in production costs may not increase.
For an example of technical analysis, let us give the calculation picture sent to the M. Khazin Foundation by the well-known stock market specialist Igor Toshchakov:
This is a situation analysis for Tyson Foods, a food company that is part of the Dow Jones Index. This graph can be used as an indicator of the general conditions of the stock markets. And what this graph shows is a very serious market collapse. It’s not instantaneous, it’s almost two years from now.
It should be noted that similar, albeit somewhat less specific, forecasts have begun to be made by other market experts. So the trends are quite clear. With the Fed’s decision to start a series of rate hikes mentioned in the previous Review, each local subsidence of the markets will slow the process somewhat, causing it to take some time. At the same time, prices for consumer goods will be limited (due to discharge limits), the assortment in large stores will be significantly reduced, and they will be closed.
At the same time, producer prices will continue to rise, in line with the processes of structural change in the economy. This will inevitably lead to a deterioration in the real sector of the American economy, which will be only partially reversed by the various budget programs, whereas gaps may appear for the development of small and medium-sized businesses due to the weakening of competitive pressure from large companies, which will gradually withdraw from the market.
We wish our readers a successful working week!