November 2-8, 2024
Big news. Well, the US elections, which Trump won, are political news. Although the fact that a civil war did not start as a result (and many wanted it to) can also be interpreted as economic news. But the main news is still different.
The number of mortgage applications in the US has reached its lowest since 1994! Let me remind you that this is the second year of Clinton’s first presidency. At the same time, the US population has grown by 82.7 million people since then. If you look at it by year, the picture looks like this:
19% less than in 2022.
52% less than in 2021.
56% less than in 2020.
46% less than in 2019.
This is not just a crisis, it is something stunning in scale! And this, oddly enough, is much more important than the outcome of the US elections, since it is this process, the decline in the standard of living of the population, that will determine the actions of any administration of any US president. Another matter is how adequate the American leadership will be to the problems that have arisen, but this is already a question that does not relate to macroeconomics.
Macroeconomics. Industrial production in Germany -4.6% per year, the 16th negative in a row (previously this happened only in 2000/09):
Рис. 3
Italy -4.0% per year, 20th minus in a row and the worst dynamics in 13 months:
Рис. 4
The US trade deficit is growing; it was only slightly higher than the current one in Q1 2022:
Рис. 5
Mortgage rates in the US continue to rise, although they are still far from last year’s peaks:
Рис. 6
As a result, loan applications have been falling for 5 weeks in a row (currently -10.8% per week), the final result is in the first section of the Review:
Рис. 7
And now not only refinancing has collapsed, but also loans for purchasing housing, they are very close to the 30-year bottom:
Рис. 8
Used car prices in the US are down 3.2% per year, the 26th consecutive negative (this is a record):
Рис. 9
The number of people receiving unemployment benefits in the US has again reached a 3-year high:
Рис. 10
New Zealand’s unemployment numbers have hit a 12-year high after Covid peak, and are on track to hit a 30-year high:
Рис. 11
Sweden’s central bank cut interest by 0.50% to 2.75%, the Bank of England cut rates by 0.25% to 4.75%. Brazil’s central bank raised rates by 0.50% to 11.25%, citing the risk of high inflation.
The UK budget presentation disappointed markets
(too big a deficit is expected), sending rates to recent 16-year highs:
Рис. 12
The Central Bank of Australia left its monetary policy unchanged (it hasn’t even started to soften it yet), the same with the Central Bank of Norway.
Main conclusions. The structural crisis continues. And to once again show its specifics (the destruction of the usual relationships between economic parameters), we present a picture:
Its essence is simple: against the background of a decrease in the discount rate, the mortgage rate rises. This does not fit into stereotypes, but it is a fact.
The Federal Open Market Committee has again (minimally) lowered the rate. Since everyone expected this, there is no special news in this event. But there were some interesting moments in both the cover letter and Powell’s speech. First, the cover letter:
“▪️ Economic activity continues to grow at a steady pace.
▪️ Labor market conditions have improved since the beginning of the year.
▪️ Unemployment has increased, but remains low.
▪️ Inflation has approached the 2% target.
▪️ The risks to the Fed’s dual mandate are balanced (inflation/labor market).
▪️ The economic outlook is uncertain.
▪️ The Fed’s further monetary policy depends on macro data.
▪️ The Fed will continue to reduce its balance sheet at the current pace of QT – $25 billion per month.”
The first two points are shocking. Science does not know what “risks are balanced” means. The last points do not make much sense.
Next, Powell’s press conference.
▪️ The economy is strong.
▪️ The labor market remains stable.
▪️ Inflation has declined significantly.
▪️ Consumer spending growth remains robust.
▪️ Inflation is steadily moving toward the 2% target.
▪️ The Nonfarm Payrolls report would have been better if not for the hurricanes and strikes.
▪️ Wage growth has slowed.
▪️ Labor market conditions are now less tense than before the pandemic.
▪️ The labor market is not a source of inflationary pressure.
▪️ The risks to the Fed’s dual mandate are balanced (inflation/labor market).
▪️ A Fed rate cut will help maintain sustainable economic growth.
▪️ The election will NOT have any impact on the Fed’s monetary policy in the near term.
▪️ Any new fiscal policy from the Administration or Congress could have significant consequences, the Fed will take them into account.
▪️ The rise in Treasury yields is NOT related to rate expectations right now. It’s a matter of supply and demand.
▪️ US macro data has improved since the September meeting.
▪️ The risks of a slowdown in economic activity have decreased.
▪️ Before the December meeting, we will see a lot of macro data – another employment report, two more inflation reports, and many other reports.
▪️ The Fed will make a decision based on the economic situation in the country.
▪️ We have gained confidence that inflation is approaching 2%.
▪️ I don’t want to give many predictions about the future path of the Fed’s monetary policy.
▪️ The Fed will not comment on fiscal policy.
▪️ The Fed’s monetary policy remains restrictive.
▪️ The labor market has cooled significantly.
▪️ There is no need for the labor market to cool further to achieve the inflation target.
▪️ If the labor market worsens, we will respond.
▪️ We can start cutting rates at a slower pace if the US economy remains strong.
▪️ Inflation may RISE again, but one or two months of bad macro data will not reverse the disinflation process.
▪️ I will not resign if asked to do so.
▪️ I’m not going to discuss the presidential election.
▪️ The Fed is ready to adjust monetary policy as the economic outlook changes.
▪️ Geopolitical risks have increased.
▪️ I have said many times that US fiscal policy is unsustainable (US debt problems).
▪️ The law prohibits demoting the Fed chairman.
▪️ There is a risk of cutting rates too quickly or too slowly, we should be careful.
▪️ We can contain inflation by maintaining a strong labor market.
▪️ We do NOT plan to raise rates.
▪️ Our plan: avoid stagflation.
Everything in these theses is wonderful, especially the reasoning that he, Powell, cannot be fired, and the Fed’s goal is to prevent stagflation (with a strong labor market and falling inflation?). Commenting on this would only spoil it. A student who would say this during an exam at any university would be kicked out.
In general, let’s be honest, it was an outstanding speech. And what Trump (and the demiurges behind him) will do with such leadership of the main regulator of monetary policy, I don’t even know… I can only suggest looking at the first section of this Review.
Well, and in conclusion, we traditionally wish our readers to relax from their current worries on the weekend and work out how they can protect their business and their savings from such outstanding specialists. Well, and, accordingly, to start implementing this plan in the following working week.