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Markets ended the week on a negative note, dampening initial optimism after inflation rose 3.2% in July, slightly below the 3.3% forecast.
But shouldn’t it be the other way around, since positive data portends a Fed policy review? In short, no.
First, because of the sharp rise in oil and gasoline prices, prices have actually risen since June. Thus, the deflationary trend is slowing down, forcing the Fed to raise interest rates.
Secondly, despite several months of price decreases, taxpayers have had to spend their savings to maintain their previous standard of living.
Those who have not prepared an emergency fund are forced to resort to borrowing. As a result, credit card debt has reached a record $1.03 trillion.
Where the demand for assets that are risky in this sense will come from is unclear.
Third, the economic calendar data shows the overall situation remains uncertain.
In addition to the risks of slowdown and even recession, there is a looming crisis in the commercial real estate sector as delinquency rates increase.
JPMorgan, Goldman Sachs, Capital One, and M&T Bank are already trying to get rid of toxic loans, but it’s hard to find buyers. Regional banks must also be struggling…
News from Asia did not bring optimism either. First, China’s exports and imports declined more than consensus forecasts, indicating a widening economic growth deficit.
Second, credit tensions are intensifying as a record number of local state-owned financial institutions default on short-term debt payments.
Recent incidents include Country Garden, the nation’s largest private real estate developer, defaulting on two bond coupons totaling $22.5 million.
Finally, the geopolitical front is also turbulent – last week, US President Joe Biden signed a decree imposing restrictions on investments in the Chinese technology sector.
To summarize, we can say that there are enough “black swans” on all fronts, and it is not clear where market growth will come from in such conditions.
It seems that all it takes is one spark to start a fire. No wonder the DXY index is approaching 103.
