Sive Morten
Special Consultant to the FPA
- Messages
- 18,676
Fundamentals
So, guys, its summertime. And few economy events last week, despite of huge amount of political ones. It seems that economical crisis begins triggering political consequences. Major events will come on next week and it seems that market has taken a rest before Fed and ECB meetings. Still, we've got some important statistics and market's response to them, such as Retail sales, for example.
Market overview
The U.S. dollar rose from a 15-month low against a basket of currencies on Tuesday after core retail sales saw strong gains in June, as investors wait on the Federal Reserve’s interest rate decision next week. Headline U.S. retail sales rose less than expected in June, with a 0.2% increase during the month. Data for May was also revised higher to show sales gaining 0.5% instead of 0.3% as previously reported.
Core sales showed more resilience, however. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.6% in June. Data for May was revised slightly up to show core retail sales increasing 0.3% instead of the previously reported 0.2%.
The dollar tumbled after consumer and producer price gains slowed in June, boosting expectations that the U.S. central bank will stop hiking rates after a widely expected 25 basis-point increase at its July 25-26 meeting. Fed funds futures traders are pricing in an additional 33 basis points of tightening this year, with the benchmark rate expected to peak at 5.40% in November. Still, Redbook shows that consumption is not rising:
Other data on Tuesday showed production at U.S. factories unexpectedly fell in June, but rebounded in the second quarter as motor vehicle output accelerated after two straight quarterly declines. In fact, the production sector for now is the major intrigue. We have been writing for several months about the industrial downturn in the United States (according to official data, in reality it has been going on since the fall of 2021). But on an annual scale, it was somewhat offset by the previous recovery growth. Again, in reality, this growth ended earlier than at the end of 2022, but, we repeat, we are working with official US data.And so, data on the growth of the US industry on an annual scale for the first time after quarantine showed a decline of -0.4% per year — the 1st minus over the past 28 months:
Since the real decline continues at a fairly constant rate, now this indicator should gradually grow and reach within six months (that is, somewhere by January 2024) to about minus 7-8%. Of course, in reality they will try to downplay it, but it seems to me that it will be quite difficult to do. In any case, we will monitor this situation.
Bank of America analysts noted in a report on Tuesday that recent weakness in the greenback has exceeded the drivers of the move, which "can typically be attributed to stretched positioning and sentiment, as well as technical breaks." In particular the analysts note that gains in the Norwegian krone and Japanese yen have exceeded their expected moves, and that they expect yen underperformance to resume "once the dust settles."
Thursday data showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, boosting expectations the Federal Reserve may continue hiking interest rates if the economy remains strong. Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 228,000 for the week ended July 15, the Labor Department said. Economists polled by Reuters had forecast 242,000 claims for the latest week. Claims are well below the 280,000 level that economists have said would signal a significant slowdown in job growth given the relative size of the U.S. labor market.
Futures are fully priced for a quarter-point rate rise next week, but indicated less than a 50-50 chance of another hike by November and 75 basis points of cuts from the peak by this time next year.
The view that rates will stay higher for longer appears to be gaining traction, with the share of respondents polled during the July 13-18 period who predicted at least one rate cut by the end of March next year down sharply to 55% from 78% last month.
Economists and financial market traders appear to still be slightly out of step with the Fed. The latest "dot-plot" projections from members of the central bank's policy-setting Federal Open Market Committee suggest the benchmark overnight interest rate will peak at 5.50%-5.75%, but only 19 of 106 economists polled by Reuters forecast it will reach that range. None of the inflation gauges polled by Reuters - CPI, core CPI, PCE and core PCE - were expected to reach 2% until 2025 at the earliest.
A slight majority of economists (14 of 23), said wage inflation would be the most sticky component of core inflation. The strong labor market is only expected to loosen slightly, nudging up the unemployment rate to 4.0% from the current 3.6% by the end of 2023, the poll showed.
Goldman Sachs' Chief Economist Jan Hatzius said on Monday the bank was cutting its probability that a U.S recession will start in the next 12 months to 20% from an earlier 25% forecast.
U.S. Treasury Secretary Janet Yellen said a cooling — but not faltering — labor market is playing a leading role in helping slow inflation, among a raft of factors imposing disinflationary pressures, Bloomberg News reported on Tuesday. Yellen also told Bloomberg in an interview on Monday that the United States was making good progress in bringing inflation down and she did not expect the U.S. economy to enter a recession.
EU
European Central Bank (ECB) governing council member Klaas Knot said on Tuesday that the bank will look closely for signs of inflation cooling down in the coming months to avoid taking rate hikes too far. The European Central Bank will raise interest rates by 25 basis points on July 27, according to all economists in a Reuters poll, a slight majority of whom were now also expecting another hike in September.
Inflation in the euro zone has almost halved, down to 5.5% in June from a peak of 10.6% last October, but that has not been enough to deter the ECB, which said inflation was "projected to remain too high for too long" and it had "more ground to cover".
After eight consecutive rate rises since July 2022 for a total of 400 basis points, investors and analysts are now hotly debating how many more hikes are needed and how long rates will have to stay high to bring inflation to the 2% target. Economists were less unanimous about further tightening. While 35 of 75 predicted no more hikes, 40 economists now see another 25 basis point rise in September - a significant increase from only four in a June poll and similar to market expectations.
If realised, that would take the deposit rate to its highest since it was first launched as a policy tool in 1999. The expectation of narrowing interest rate differentials has partially boosted the euro around 5% against the dollar this year.
As in the US, wage inflation will be the most sticky component of core inflation, according to all but two of 26 economists. Adding to the pressure, the unemployment rate was expected to barely increase to 6.8% from 6.5% now over the next two years. Still, demand in the 20-member bloc has slowed, with the euro zone falling into a recession, primarily dragged by Germany, its biggest economy.
Indeed, the German economy may shrink by more this year than expected only a few weeks ago despite a small bounce in the second quarter, the Bundesbank said on Monday. The outlook was more bleak than the central bank's own estimate for a 0.3% contraction this year, which was published less than a month ago, due to worsening sentiment. The Ifo institute shows that German business morale worsened for the second consecutive month in June, particularly in the industrial sector.
Investors' rush to the safety of cash, a dominant theme in capital flow data this year, may be peaking, Bank of America global research said on Friday. There was a net $10 billion dollars of outflows from cash in the two weeks to Wednesday, BofA said, referencing EPFR data, describing this as "a tentative top after $642 billion of inflows". BofA's own "bull bear indicator" rose to its most bullish level in the year-to-date.
Some Stats
As we've said in the beginning, the question of Industrial Production in the US is coming on the first stage. If we take a look at some additional data, here is the picture that we see:
The number of Americans filing for jobless benefits for the first time last week fell from 237k the prior week to 228k (well below the 240k exp) - the lowest since May. However, on a non-seasonally-adjusted basis, initial claims remain at the highest since January... California and Georgia saw the biggest rise in initial claims last week while Michigan and Kentucky saw declines...
Continuing claims rose from 1.721mm to 1.754mm Americans...
Situation in banking sector mostly remains the same, the deposits outflow remains. The flow of funds continues into retail money-market accounts and banks' usage of The Fed's bank bailout fund remains at record highs (above $100 billion), but tonight we get to see The Fed's latest efforts in obfuscation and seasonal-shenanigans about US banks' deposits and loans.
Large Banks saw a massive $78bn (SA) deposit outflow last week (the biggest outflow since Oct '22) with Small Banks seeing a small $1.25bn outflow... Will the 'smaller' banks be able to relieve themselves of the $100-billion-plus of BTFP Fed-bailout program borrowing within the next 8 months? Not if this deposit run continues!
Meantime, BTFP programme runs at full capacity. Usage of The Fed's Bank Term Funding Program facility rose once again last week (up $622mm), hovering around the record high level of $103 billion. After an unexpected outflow last week, US money market funds saw inflows this week - albeit a minor $4.22 billion - with the total assets now having hovered around record highs for 7 weeks.
The Fed's balance sheet continued to shrink below pre-SVB levels, falling $22.4 billion last week to its smallest since Aug 2021 around $7.623 Trln.QT re-accelerated last week with The Fed selling $21.4 billion in securities.
Meanwhile, the US Treasury continues to accumulate money in the TGA account, and the inflow of money there comes from the reverse repo. Nothing new, but even on the scale of 2022, not enough money has been accumulated, the maximum then was close to $1 trillion. It can be assumed that if the purpose of the current accumulation is to accumulate enough and subsequently use them to stimulate the economy and close holes during a recession, then, given the complexity of the accumulated problems in the financial system, comparable amounts are needed and they are still far from the plan. Well, apparently, all the money from the reverse repo should be withdrawn.
By the way, here is another sign of an approaching recession - a slowdown and even a decrease in lending. As you can see, the same thing happened in 2008.
This time, the banking crisis in March 2023 was the trigger. In 2008, it took about half a year after the end of lending growth for a financial crisis to occur in an acute phase. Let's see what will happen this time, will it also happen in August-September or will it last until the beginning of next year (or maybe longer, who knows). But there is a crisis factor.
But, at the same time, the M2 money supply has stopped declining and is starting to grow, which is a consequence of the placement of new treasures, and not the growth of lending.
At the same time, together with higher interest rates we get simultaneously rising of delinquencies and slowdown of credits:
Since the Fed began raising interest rates on auto loans in March 2022, they have risen from 4.5% to 7.5%, credit card interest rates have risen from 16% to 22%, and growth in loans for both small and and slowed down for the big banks. With the Fed still in the process of raising and saying it will keep interest rates at current levels "for a couple of years", the ongoing slowdown in consumer spending will also continue.
The bottom line is that monetary policy is working exactly as intended: higher rates lead to slower growth and will obviously lead to a recession at some point. The figures for delinquencies already, before the recession, are approaching 2008, despite the fact that unemployment is record low. Add 8% unemployment (as an inevitable consequence of the recession), which, in fact, is what the Fed is trying to achieve, as if relying on the Phillips curve (a curve illustrating the inverse relationship between the inflation rate and the unemployment rate), because Powell himself often mentions it and get all the possible depths of the depths of the banking crisis deeper, than in 2008.
Conclusion:
The structural crisis in the global economy continues as usual: here and there something worsens. But it is very interesting how the US monetary authorities will behave in terms of ascertaining the industrial downturn. Either they will ignore it and the recession will intensify, or they will somehow show that the situation is improving. This is the main intrigue of the coming weeks. By the way, will they correct deflationary trends in industry at the same time? Also interesting.
In two words speaking, the optimists suggest a combination of ongoing jobs market strength and some rotation of sectoral stock holdings underlines 'soft landing' hopes and marks a healthy broadening of what has been a very narrow-led market gain so far this year. Pessimists think the Fed is not done tightening yet and any further rate hikes after next week will just hasten a downturn in 2024. That has sobered up the Treasury market a touch after a couple of weeks of disinflation relief. So, we could say only - choose your poison.
Here we need to use the commons sense to analyse major factors on both sides. What do we have on the opposite one - decreasing of CPI (ex Core CPI), more or less stable Retail Sales and strong job market. Concerning CPI we already told and now other economists start talking about it again - effect of high comparison base should start decreasing in Aug-Sep and inflation could turn up again. Besides core inflation is too stubborn, despite Fed efforts.
At the same time, credit scoring company, Vantage Score, said late last month that subprime and near-prime borrowers were falling behind on their payments, as delinquencies climbed across loan categories. Auto loan delinquencies surged most sharply (chart is above), while late payments on credit cards and mortgages increased to a lesser extent, it said. Rising defaults have also prompted lenders to start increasing their rainy day funds at a time when concerns around the health of the economy remains. Wells Fargo set aside $1.71 billion in provisions for credit losses in the second quarter, compared with $580 million a year earlier and admitted that consumer net loan charge-offs will continue to gradually increase.
Still, consumers and businesses have healthy balance sheets and their overall credit quality is still strong, its CEO Charlie Scharf said. U.S. consumer spending fizzled in May as households cut back on purchases. While spending edged up only 0.1%, it remains underpinned by strong wage gains in a tight labor market.
But it always starts from near-prime and subprime borrowers. Maybe this is just the first signs of problems? Finally the job market. As a lot of other statistics, data is adjusted here by multiple changes in calculation algorithms and experts suggest that unemployment is greater in reality. Besides the Fed now works hard to increase it. All these moments together make difficult to us to take an "optimistic" side. Maybe within 1-2 months, if none of mentioned events happen, we change our view, but for now we remain cautious on overall US situation. Besides we see warning signs on stock market that we will consider tomorrow in Gold market report. Finally, we probably belong to minority of those who suggest that Fed cycle will be over on nearest July meeting and markets overprice this moment, betting on too much and too early on dollar weakness. In a case of recession demand for USD increases.
Meantime, since we have 2+months until situation could change, we're going to follow existing trends. Because results of as Fed as ECB coming meetings hardly bring any surprises.
So, guys, its summertime. And few economy events last week, despite of huge amount of political ones. It seems that economical crisis begins triggering political consequences. Major events will come on next week and it seems that market has taken a rest before Fed and ECB meetings. Still, we've got some important statistics and market's response to them, such as Retail sales, for example.
Market overview
The U.S. dollar rose from a 15-month low against a basket of currencies on Tuesday after core retail sales saw strong gains in June, as investors wait on the Federal Reserve’s interest rate decision next week. Headline U.S. retail sales rose less than expected in June, with a 0.2% increase during the month. Data for May was also revised higher to show sales gaining 0.5% instead of 0.3% as previously reported.
Core sales showed more resilience, however. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.6% in June. Data for May was revised slightly up to show core retail sales increasing 0.3% instead of the previously reported 0.2%.
The dollar tumbled after consumer and producer price gains slowed in June, boosting expectations that the U.S. central bank will stop hiking rates after a widely expected 25 basis-point increase at its July 25-26 meeting. Fed funds futures traders are pricing in an additional 33 basis points of tightening this year, with the benchmark rate expected to peak at 5.40% in November. Still, Redbook shows that consumption is not rising:
Other data on Tuesday showed production at U.S. factories unexpectedly fell in June, but rebounded in the second quarter as motor vehicle output accelerated after two straight quarterly declines. In fact, the production sector for now is the major intrigue. We have been writing for several months about the industrial downturn in the United States (according to official data, in reality it has been going on since the fall of 2021). But on an annual scale, it was somewhat offset by the previous recovery growth. Again, in reality, this growth ended earlier than at the end of 2022, but, we repeat, we are working with official US data.And so, data on the growth of the US industry on an annual scale for the first time after quarantine showed a decline of -0.4% per year — the 1st minus over the past 28 months:
Since the real decline continues at a fairly constant rate, now this indicator should gradually grow and reach within six months (that is, somewhere by January 2024) to about minus 7-8%. Of course, in reality they will try to downplay it, but it seems to me that it will be quite difficult to do. In any case, we will monitor this situation.
Bank of America analysts noted in a report on Tuesday that recent weakness in the greenback has exceeded the drivers of the move, which "can typically be attributed to stretched positioning and sentiment, as well as technical breaks." In particular the analysts note that gains in the Norwegian krone and Japanese yen have exceeded their expected moves, and that they expect yen underperformance to resume "once the dust settles."
Thursday data showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, boosting expectations the Federal Reserve may continue hiking interest rates if the economy remains strong. Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 228,000 for the week ended July 15, the Labor Department said. Economists polled by Reuters had forecast 242,000 claims for the latest week. Claims are well below the 280,000 level that economists have said would signal a significant slowdown in job growth given the relative size of the U.S. labor market.
Futures are fully priced for a quarter-point rate rise next week, but indicated less than a 50-50 chance of another hike by November and 75 basis points of cuts from the peak by this time next year.
The view that rates will stay higher for longer appears to be gaining traction, with the share of respondents polled during the July 13-18 period who predicted at least one rate cut by the end of March next year down sharply to 55% from 78% last month.
Economists and financial market traders appear to still be slightly out of step with the Fed. The latest "dot-plot" projections from members of the central bank's policy-setting Federal Open Market Committee suggest the benchmark overnight interest rate will peak at 5.50%-5.75%, but only 19 of 106 economists polled by Reuters forecast it will reach that range. None of the inflation gauges polled by Reuters - CPI, core CPI, PCE and core PCE - were expected to reach 2% until 2025 at the earliest.
A slight majority of economists (14 of 23), said wage inflation would be the most sticky component of core inflation. The strong labor market is only expected to loosen slightly, nudging up the unemployment rate to 4.0% from the current 3.6% by the end of 2023, the poll showed.
Goldman Sachs' Chief Economist Jan Hatzius said on Monday the bank was cutting its probability that a U.S recession will start in the next 12 months to 20% from an earlier 25% forecast.
U.S. Treasury Secretary Janet Yellen said a cooling — but not faltering — labor market is playing a leading role in helping slow inflation, among a raft of factors imposing disinflationary pressures, Bloomberg News reported on Tuesday. Yellen also told Bloomberg in an interview on Monday that the United States was making good progress in bringing inflation down and she did not expect the U.S. economy to enter a recession.
EU
European Central Bank (ECB) governing council member Klaas Knot said on Tuesday that the bank will look closely for signs of inflation cooling down in the coming months to avoid taking rate hikes too far. The European Central Bank will raise interest rates by 25 basis points on July 27, according to all economists in a Reuters poll, a slight majority of whom were now also expecting another hike in September.
Inflation in the euro zone has almost halved, down to 5.5% in June from a peak of 10.6% last October, but that has not been enough to deter the ECB, which said inflation was "projected to remain too high for too long" and it had "more ground to cover".
After eight consecutive rate rises since July 2022 for a total of 400 basis points, investors and analysts are now hotly debating how many more hikes are needed and how long rates will have to stay high to bring inflation to the 2% target. Economists were less unanimous about further tightening. While 35 of 75 predicted no more hikes, 40 economists now see another 25 basis point rise in September - a significant increase from only four in a June poll and similar to market expectations.
If realised, that would take the deposit rate to its highest since it was first launched as a policy tool in 1999. The expectation of narrowing interest rate differentials has partially boosted the euro around 5% against the dollar this year.
As in the US, wage inflation will be the most sticky component of core inflation, according to all but two of 26 economists. Adding to the pressure, the unemployment rate was expected to barely increase to 6.8% from 6.5% now over the next two years. Still, demand in the 20-member bloc has slowed, with the euro zone falling into a recession, primarily dragged by Germany, its biggest economy.
Indeed, the German economy may shrink by more this year than expected only a few weeks ago despite a small bounce in the second quarter, the Bundesbank said on Monday. The outlook was more bleak than the central bank's own estimate for a 0.3% contraction this year, which was published less than a month ago, due to worsening sentiment. The Ifo institute shows that German business morale worsened for the second consecutive month in June, particularly in the industrial sector.
Investors' rush to the safety of cash, a dominant theme in capital flow data this year, may be peaking, Bank of America global research said on Friday. There was a net $10 billion dollars of outflows from cash in the two weeks to Wednesday, BofA said, referencing EPFR data, describing this as "a tentative top after $642 billion of inflows". BofA's own "bull bear indicator" rose to its most bullish level in the year-to-date.
Some Stats
As we've said in the beginning, the question of Industrial Production in the US is coming on the first stage. If we take a look at some additional data, here is the picture that we see:
The number of Americans filing for jobless benefits for the first time last week fell from 237k the prior week to 228k (well below the 240k exp) - the lowest since May. However, on a non-seasonally-adjusted basis, initial claims remain at the highest since January... California and Georgia saw the biggest rise in initial claims last week while Michigan and Kentucky saw declines...
Continuing claims rose from 1.721mm to 1.754mm Americans...
Situation in banking sector mostly remains the same, the deposits outflow remains. The flow of funds continues into retail money-market accounts and banks' usage of The Fed's bank bailout fund remains at record highs (above $100 billion), but tonight we get to see The Fed's latest efforts in obfuscation and seasonal-shenanigans about US banks' deposits and loans.
Large Banks saw a massive $78bn (SA) deposit outflow last week (the biggest outflow since Oct '22) with Small Banks seeing a small $1.25bn outflow... Will the 'smaller' banks be able to relieve themselves of the $100-billion-plus of BTFP Fed-bailout program borrowing within the next 8 months? Not if this deposit run continues!
Meantime, BTFP programme runs at full capacity. Usage of The Fed's Bank Term Funding Program facility rose once again last week (up $622mm), hovering around the record high level of $103 billion. After an unexpected outflow last week, US money market funds saw inflows this week - albeit a minor $4.22 billion - with the total assets now having hovered around record highs for 7 weeks.
The Fed's balance sheet continued to shrink below pre-SVB levels, falling $22.4 billion last week to its smallest since Aug 2021 around $7.623 Trln.QT re-accelerated last week with The Fed selling $21.4 billion in securities.
Meanwhile, the US Treasury continues to accumulate money in the TGA account, and the inflow of money there comes from the reverse repo. Nothing new, but even on the scale of 2022, not enough money has been accumulated, the maximum then was close to $1 trillion. It can be assumed that if the purpose of the current accumulation is to accumulate enough and subsequently use them to stimulate the economy and close holes during a recession, then, given the complexity of the accumulated problems in the financial system, comparable amounts are needed and they are still far from the plan. Well, apparently, all the money from the reverse repo should be withdrawn.
By the way, here is another sign of an approaching recession - a slowdown and even a decrease in lending. As you can see, the same thing happened in 2008.
This time, the banking crisis in March 2023 was the trigger. In 2008, it took about half a year after the end of lending growth for a financial crisis to occur in an acute phase. Let's see what will happen this time, will it also happen in August-September or will it last until the beginning of next year (or maybe longer, who knows). But there is a crisis factor.
But, at the same time, the M2 money supply has stopped declining and is starting to grow, which is a consequence of the placement of new treasures, and not the growth of lending.
At the same time, together with higher interest rates we get simultaneously rising of delinquencies and slowdown of credits:
Since the Fed began raising interest rates on auto loans in March 2022, they have risen from 4.5% to 7.5%, credit card interest rates have risen from 16% to 22%, and growth in loans for both small and and slowed down for the big banks. With the Fed still in the process of raising and saying it will keep interest rates at current levels "for a couple of years", the ongoing slowdown in consumer spending will also continue.
The bottom line is that monetary policy is working exactly as intended: higher rates lead to slower growth and will obviously lead to a recession at some point. The figures for delinquencies already, before the recession, are approaching 2008, despite the fact that unemployment is record low. Add 8% unemployment (as an inevitable consequence of the recession), which, in fact, is what the Fed is trying to achieve, as if relying on the Phillips curve (a curve illustrating the inverse relationship between the inflation rate and the unemployment rate), because Powell himself often mentions it and get all the possible depths of the depths of the banking crisis deeper, than in 2008.
Conclusion:
The structural crisis in the global economy continues as usual: here and there something worsens. But it is very interesting how the US monetary authorities will behave in terms of ascertaining the industrial downturn. Either they will ignore it and the recession will intensify, or they will somehow show that the situation is improving. This is the main intrigue of the coming weeks. By the way, will they correct deflationary trends in industry at the same time? Also interesting.
In two words speaking, the optimists suggest a combination of ongoing jobs market strength and some rotation of sectoral stock holdings underlines 'soft landing' hopes and marks a healthy broadening of what has been a very narrow-led market gain so far this year. Pessimists think the Fed is not done tightening yet and any further rate hikes after next week will just hasten a downturn in 2024. That has sobered up the Treasury market a touch after a couple of weeks of disinflation relief. So, we could say only - choose your poison.
Here we need to use the commons sense to analyse major factors on both sides. What do we have on the opposite one - decreasing of CPI (ex Core CPI), more or less stable Retail Sales and strong job market. Concerning CPI we already told and now other economists start talking about it again - effect of high comparison base should start decreasing in Aug-Sep and inflation could turn up again. Besides core inflation is too stubborn, despite Fed efforts.
At the same time, credit scoring company, Vantage Score, said late last month that subprime and near-prime borrowers were falling behind on their payments, as delinquencies climbed across loan categories. Auto loan delinquencies surged most sharply (chart is above), while late payments on credit cards and mortgages increased to a lesser extent, it said. Rising defaults have also prompted lenders to start increasing their rainy day funds at a time when concerns around the health of the economy remains. Wells Fargo set aside $1.71 billion in provisions for credit losses in the second quarter, compared with $580 million a year earlier and admitted that consumer net loan charge-offs will continue to gradually increase.
Still, consumers and businesses have healthy balance sheets and their overall credit quality is still strong, its CEO Charlie Scharf said. U.S. consumer spending fizzled in May as households cut back on purchases. While spending edged up only 0.1%, it remains underpinned by strong wage gains in a tight labor market.
But it always starts from near-prime and subprime borrowers. Maybe this is just the first signs of problems? Finally the job market. As a lot of other statistics, data is adjusted here by multiple changes in calculation algorithms and experts suggest that unemployment is greater in reality. Besides the Fed now works hard to increase it. All these moments together make difficult to us to take an "optimistic" side. Maybe within 1-2 months, if none of mentioned events happen, we change our view, but for now we remain cautious on overall US situation. Besides we see warning signs on stock market that we will consider tomorrow in Gold market report. Finally, we probably belong to minority of those who suggest that Fed cycle will be over on nearest July meeting and markets overprice this moment, betting on too much and too early on dollar weakness. In a case of recession demand for USD increases.
Meantime, since we have 2+months until situation could change, we're going to follow existing trends. Because results of as Fed as ECB coming meetings hardly bring any surprises.
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