Outlook: Today is a data day as slow as it gets — weekly MBA mortgage applications, final wholesale inventories in April, and the Energy Department’s oil inventories. Watch out for made-up excesses.
The Atlanta Fed’s Q2 GDPNow came in at a disappointing 0.9%, up from 1.3% on June 1, again on the back of a deterioration in consumer spending and private investment. According to a WSJ headline, this points to a recession while the financial press has turned towards stagflation. This is likely because TreasSec Yellen admitted (again) that she missed the rise in inflation, and yes, it can last longer than we think. The US will raise its forecast to slightly higher from 4.7% after we see the whites of 8% eyes.
Meanwhile, as mentioned above, the World Bank is still focused on the recession. The World Bank is forecasting a slump in global growth to 2.9% in 2022 from 5.7% in 2021, significantly down from 4.1% in January. The US will slow to 2.5% in 2022, down 1.2% from the earlier forecast. “New US inflation data to be released on Friday is expected by economists to show the annual rate held steady at 8.3% in May, near a 40-year high.”
The other notable data yesterday was consumer credit, which was being touted by some at disastrously high levels. A report says it’s up 20%, showing consumers are using cards to support current consumption. But it is not like that. April’s revolving balance is just $1.04 trillion, up 2.6% from April 2019. Year after year is much better and year after year is even better.
If you see significantly higher numbers, you should consider the exact nature of the liability named. Revolving credit (ex-mortgage) is credit cards and personal loans, and as Wolf Street points out, “Since 2019, consumer spending is up 19% and revolving credit is up just 2.9%, both over the non-13% inflation-adjusted period.” In other words, revolving credit growth has lagged well behind inflation and massively lagged behind consumer spending growth. This shows that consumers are turning less to revolving credit.
“Credit cards and some types of personal loans, such as Loans, such as payday loans, are the most expensive form of credit and often carry extortionate interest rates. Credit card rates can exceed 30%. And the Americans figured that out. When they need to finance purchases, many consumers take advantage of cheaper credit, including refinancing their mortgages with payouts. And many, many consumers just use their credit cards as payment and pay them off every month. This is shown by these relatively low balances.”
Wolf also complains about seasonal adjustments to the series and while he’s right it’s not the main event, meaning the US consumer might be greedy, but he’s not stupid, and we don’t see a drunken sailor who, like in some Versions of the series spending data seem to show. Here we have a case of two half-maverick analysts, both deeply skeptical of the government and all its data and minions, but with great charting skills and this time diverging views. Overall, Wolf is less politically biased and we say that helps.
Next up is the ECB policy meeting and perhaps a crisis in the UK where Boris wants to falsify the Northern Ireland Protocol and kick out the European Court of Justice. He could get away with it and it’s not the death knell for his political career as some are hoping, but it’s probably very, very bad for the UK economy depending on what retaliation the Europeans come up with. The euro’s resilience is suspected to spill over to strength against the pound today and in the future on yesterday’s dollar semi-rally. We see sterling’s doom.
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