Ian Reynolds
A week with everything in it:
- Bank of Japan hikes rates
- FED holds rates
- Bank of England cuts rates
- Nikkei 225 plunges 6% on Friday alone
- USD / YEN down 9 big figures
- US 10 Year drop 40bp in yield
- Nonfarm payroll / unemployment shows economy weakening
- FED says September rate cut in play
- US Gov sells the Bitcoin Trump said was to into strategic reserve
- Investors concerned that there's no profits showing in AI yet
- Gold nears 2,500
Gold Daily
Another FED policy mistake is the take in markets. Cutting too late and driving the global economy in recession. Sounds wild but FED policy mistakes are like London buses. You don't see them for ages then 3 turn up at once.
Did the fed make a policy mistake by not cutting interest rates in July [Bloomberg]
The longer the Fed drag things out, the better chance the Treasury has at refinancing debts closer to 2% in 2025.
Breaking
World Cup Borrowing Binge Leaves Qatar’s Banks Grappling With Losses [Bloomberg]
Ukraine has a month to avoid default [The Economist]
In Focus
Japan
BoJ Hikes !!
Bank of Japan lifts rates as Fed inches towards cut [Reuters]
BoJ Policy Rate
The Bank of Japan surprised markets by hiking short term rates and winding back further it's bond buying policy.
You can see that massive policy adjustment above.
That tiny increased crashed their own stock market but strengthened the Yen which caused more unwinding of the Yen carry trade.
Monetary Policy Statement [Bank of Japan]
Japan Industrial Production June 2024
Unfortunately Japan is in no position to raise rates. They've spent decades trying to get inflation higher !
It finally got to place where Japan might have seen some sort of positive economic growth after decades of stagnation. All that work blown apart by a 15bp hike.
Japanese Businesses Are Taking Price-Raising Lessons to Survive[Bloomberg]
US Economy
FED holds
(Forward to 56 minutes)
On the first question, Powell turned to a tab in his materials and began to read a prepared answer about September: "...A reduction in the policy rate could be on the table as soon as the next meeting in September." “We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate, but we’re not quite at that point.”
US Initial Jobless Claims Weekly
Claims moving higher now, with weakening manufacturing indicators.
US Manufacturing ISMs July 2024
US Nonfarm Payroll July 2024
Intel plans 15,000 job cuts after AI fumble
China
China remains in focus but under the radar. There's way too much happening in the foreground to notice that all the news in China is bad currently.
China GDP Quarterly
Rate cuts and increased liquidity don't seem to be holding the economy up. Take COVID out of the graph above and you'll see a secular decline.
In The Background
CRE / Banks / CLOs
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It's nearly time for banks to purge their bad CRE debts, which will create a banking crisis leading to the absorption of regional US banks into the mega banks and, no doubt, more FED programs and some sort of QE. At some stage the CDBC conversation will return big time.
Deutsche Bank Is Unloading $1 Billion in US Real Estate Loans [Bloomberg]
Yet there are good stories emerging.
Distressed Debt Windfall in the Windy City[M&A]
Reversing the Real-Estate Doom Loop Is Possible. Just Look at Detroit [Wall St Journal]
Bitcoin / US Election
Bitcoin Drops as Focus Shifts to Supply From Trump Endorsement [Bloomberg]
BTC Slides as U.S. Government-Linked Selling Pressure Looms [Coindesk]
Canada
USD / CAD Daily
Despite the USD dropping against all the majors, the Loonie managed to significantly underperform, now breaking resistance in USD / CAD. It's GDP numbers this month shows how things have stagnated.
Canada GDP June 2024
Europe
Only in Europe is there any talk of a real risk of something catastrophic for the global economy: Deflation.
Stournaras said there's even a risk of price growth falling below 2% in the medium term and that officials should be “equally concerned about overshooting and undershooting the inflation target.” The services sector has emerged as a key focus amid concerns that strong wage increases will lead to sticky inflation.
ECB’s Stournaras Still Sees Two More 2024 Cuts Amid Weak Growth [Bloomberg]
Germany GDP Q2 2024
Slightly better across the whole EU
EU GDP Q2 2024
Prices paid certainly nearer the target than in the US
Germany CPI July 2024
EU CPI July 2024
United Kingdom
Old Lady Cuts !
Australia
Australia Building Approvals June 2024
And a benign CPI reading. Way too high of course at double the target but should stop the RBA from hiking for the moment at last.
Australia CPI Q2 2024
PPI definitely wasn't benign
Australia PPI Q2 2024
What's Next ?
RBA on Tuesday should be a non-event
Expect lots of volatility in global stock and bond markets. A FED policy error will force investors to rethink their strategies and, firstly, that means a flight to cash.
Make no mistake Friday was a crash. Everything going down at the same time. Forced liquidations and margin calls.
Expect regulators and authorities to start jawboning plus adding liquidity, to stop the rot.
It's a very long time to the September FED meeting. An emergency FED cut isn't out of the question if the stock markets start taking a real hammering.
This Week's Important Economic Indicators [London time]
