ECONOMIC UPDATE: It's All About Interest Rates
Again, the facts are clear: It’s cheap money and government spending that keeps propping up artificial economies.
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At this point in the stock market game, it’s all about interest rates.
In the U.S., the bet on The Street is that following the Fed’s meeting on Wednesday, there is a 98-percent probability that the central bank will raise interest rates 25-basis points, according to the CME FedWatch Tool.
And despite warnings of economic contraction, companies in Europe and the U.S. are reporting earnings that were stronger than anticipated.
CNBC reported: “Bottom line, JPMorgan doesn’t expect second quarter earnings to give the market much of a boost compared with the first quarter, for a couple of reasons. Stock price reactions in general could be more muted this time, or at least any positive momentum might not have legs.”
Over in Europe it’s the same game.
The European Central Bank (ECB) is expected to raise interest rates 25-basis points following its meeting Thursday even though the euro is on a five-day-slide because of an economic slowdown.
But Will They?
By the data, the EU economy has not recovered from the COVID War and another rise in interest rates will make a bad situation worse.
Yesterday, it was reported that demand for business loans in Europe fell to its lowest level on record.
“This entire batch of negative macro data combined with the increasing risk of a full-swing credit crunch in the eurozone strengthens the case for a pause after Thursday’s meeting,” Carsten Brzeski, an economist at Dutch bank ING, told the Financial Times. The FT noted:
“Following two quarters of stagnation, the eurozone economy risks suffering a further downturn. Official growth figures for the second quarter are due out next Monday and are expected to show few signs of a rebound. A closely watched survey of purchasing managers published on Monday showed a sharp slowdown in orders, output and hiring at companies across the bloc in July. The more ‘dovish’ ECB council members, who favor a cautious approach to rate rises, are likely to be emboldened by the recent data in their push for the ECB to indicate it will stop increasing borrowing costs, even if most still expect this week’s well-flagged move to happen.”
An ECB survey of 158 eurozone lenders found that business loan demand had “dropped to an all-time low since the start of the survey in 2003.”
On Monday, the HCOB flash Eurozone purchasing managers’ index hit an eight-month low as it slumped deeper into negative territory with a score of 48.9 in July, down from 49.9, in June. Thanks to the travel season, the EU’s service sector is in positive territory at 51.1, but it still registered a six-month low.
The manufacturing sector hit a 38-month low at 42.7.
PMI, S&P Global reported that business activity in France fell at its fastest rate since November 2020, with contractions in both services and manufacturing worsening.
And according to the International Monetary Fund, Germany, the world’s fourth largest economy, will stay in recession this year, with its Gross Domestic Product falling 0.3 percent,
Considering the weakening economic data, as to whether or not the ECB will raise rates Thursday, as we had reported last month, ECB-Head Christine Lagarde said she “cannot declare victory yet” in stopping inflation and that it was “unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached.”
TREND FORECAST: With summertime travel spiking high across Europe (which will also keep inflation high in the service sectors), consumer spending will keep EU economies from rapidly declining. However, the decline will accelerate in the Northern Hemisphere when the Autumn Blues set in and the hard data economic reality is no longer hidden by the summer sun.
And, despite the high inflation numbers being racked up by zero-interest rate policy, quantitative easing and trillions of free money pumped into economies to fight the COVID War, the ECB and the mainstream economists blame it on the rising wages… of the plantation workers of Slavelandia.
Inflation and the Fight
Inflation’s rise is not and was not about wages. It’s all about cheap money. It was record-low interest rates and countless trillions that central banks and governments pumped into economies that pushed equities higher and minimized GDP slumps to fight the COVID War. And now, with that cheap money drying up, so too will EU and U.S. economic growth.
But don’t worry, in the U.S., as we have long forecast, the Bankster Bandits running the county—remember the U.S. Treasury Secretary, Janet Yellen was the Fed-Head before moving into the White House—will lower interest rates in the run-up to the 2024 Presidential Reality Show® (that are called “elections’) so that those in power will stay in power.
COVID Kings
And remember, the COVID War was launched by China on Lunar New Year 2020, “The Year of the Rat.” As a result of its three years of zero-COVID policy, as we have been reporting, the government destroyed the lives and livelihoods of hundreds of millions throughout the nation and its economy is on the slide.
Playing the same game of government economic fraud as do most nations, yesterday Beijing pledged to pump in as much cheap money as they can to inflate its sagging economy. Happy with the cheap money binge ahead, China’s slumping yuan rose 0.5 percent and its stock markets spiked.
TREND FORECAST: Again, the facts are clear: It’s cheap money and government spending that keeps propping up artificial economies. At some point financial reality will set in, and when it does, equities will crash and gold prices will soar.