ECONOMIC UPDATE – MARKET OVERVIEW

Each week, The Trends Journal gives a general synopsis of trends in the stock market.

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As the data prove, and as we have reported, hard facts and figures don’t count. In the 12 months following each of the 40 midterm elections in the U.S., the S&P 500 has gained an average of 15 percent.

On the reality front, expecting declining economic growth, the International Energy Agency said global oil consumption will decline 240,000 barrels a day this quarter compared to last year. 

Over in China, the world’s second-largest economy and once the powerhouse of economic growth, industrial production grew just 5 percent last month compared to last year and was down from September’s 6.3 percent increase.

Yet, despite the rotten economic news, equity markets spiked on the expectations that Beijing is going to artificially boost the declining housing market with cheap money.

The People’s Daily reported that “the central bank will make comprehensive use of its monetary policy toolkits to maintain reasonably adequate liquidity in the banking system, and financial regulators should implement differentiated policies on the tolerance of non-performing loans for small and micro businesses.”

Again, with retail sales in China falling 0.5 percent thanks to the zero-COVID policy, which we have detailed in this and previous Trends Journals, stocks go up as the economy goes down… and down it goes.

What is becoming a routine, once again the International Monetary Fund, downgraded global economic growth, declaring that the “outlook is gloomier” then previously expected.  

As we have reported, at the start of the year the IMF said the global economy in 2023 would increase 3.8 percent. In July they downgraded 2023 growth to 2.9 percent and last month they dropped it to 2.7 percent saying: “we expect countries accounting for more than one third of global output to contract during part of this year or next.”  

On Sunday, IMF’s research department economist Tryggvi Gudmundsson posted that, “The challenges that the global economy is facing are immense and weakening economic indicators point to further challenges ahead.”  

Stressing that the macroeconomic environment is “unusually uncertain,” he called on the central banks for “continued fiscal and monetary tightening,” saying it is “likely needed in many countries to bring down inflation and address debt vulnerabilities and we do expect further tightening in many G20 economies in the months ahead.” 

Bullshit Has Its Own Sound

Gregory Mannarino wrote this week, in his article titled, “Make No Mistake! Central Banks Will Continue to Inflate. FASTER!” that central banks are not trying to control inflation with their rate hikes; these hikes are just meant to slow demand, and “that’s all—PERIOD.” 

Mannarino’s insights and observations on the damage higher interest rates will cause, who they hurt and help are of trend-worthy importance. 

Currently, while the consumer price index is at 7.7 percent and the Fed’s benchmark interest rate rose this year from nearly zero in March to a 3.75 percent to 4 percent range today… accounting for inflation, interest rates are still deep in negative territory. 

We have also extensively reported that the Fed’s and the European Central Bank’s 2 percent inflation goal is a myth. For nearly two years, central banksters on both sides of the Atlantic have played down the inflation risk, calling it “temporary” and “transitory,” while the mainstream media blackballed those of us who had forecast “inflation is rising” as a reality. (See “TREND TRACKING LESSON: HOW THE TRENDS JOURNAL WAS RIGHT ON INFLATION WHILE FED, BUSINESS JOURNALISTS GOT IT WRONG.”)

Flashing the lower rate hike signal, Federal Reserve Vice Chair Lael Brainard told Bloomberg’s Washington bureau yesterday that she favors raising interest rates a half-point. At the next FOMC meeting in December she predicts “It will probably be appropriate soon to move to a slower pace of increases.” 

“The most recent CPI inflation print suggests that maybe the core PCE measure that we really focus on might be also showing a little bit of a reduction,” she said. “That would be welcome. I think the inflation data was reassuring, preliminarily, just in terms of showing a slowing in categories that I had been anticipating.”

Double Speak

Even though inflation in the U.S. slowed to 7.7 percent in October, the U.S. Federal Reserve is unlikely to halt its steady campaign of interest rate increases, other Fed officials said.

“One month of data does not a victory make,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in an interview with the European Economics and Financial Centre. 

“This is one piece of positive information,” she added. “We’re looking at a whole set of information.”

The lower pace of price increases “is not close enough in any way” to the central bank’s 2-percent target rate “for me to be comfortable,” she said.

Inflation’s moderation is “a welcome relief,” Dallas Fed president Lorie Logan said. “I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving.”

October’s U.S. consumer price index grew by 0.4 percent, significantly slower than the 0.6 percent Dow Jones had forecast.

Still, inflation remains “unacceptably high,” Loretta Mester, president of the Cleveland Fed, said in a statement last week.

“Despite the moves we have made so far, given that inflation has consistently proven to be more persistent than expected, and there are significant costs of continued high inflation, I currently view the larger risks as coming from tightening too little,” she said.

“Monetary policy clearly has more work to do,” Esther George, president of the Kansas City Fed, emphasized to reporters.

She called for a more “deliberate” approach to lifting rates, adding that “now is a particularly important time to avoid unduly contributing to financial market volatility.”

George and Mester are voting members of the Fed’s interest rate-setting committee this year.

The interest rate futures market adjusted to the new inflation report, pricing in an 85.4-percent probability of a half-point Fed hike in December instead of a three-quarter-point rise.

The market also has priced in a rate cut as soon as next September, a change that Daly said the Fed is unlikely to make.

TRENDPOST: The markets are like racers in the starting blocks waiting for the starting gun to fire: they will leap at the slightest hint of positive news.

Markets will continue to rally on whiffs of positive rumors regarding interest rates and other possible Fed moves.

However, the Fed was overly cautious in beginning to raise interest rates and let inflation get away from it. That behavior suggests the Fed also might be slow in moderating its campaign of rate hikes once the economy clearly stumbles.

Real Inflation

While inflation is not rising as fast as previous months, most of the commodity prices that have gone up are far above where they were before politicians launched the COVID War.

For example, with food prices increasing 10.9 percent in October from a year ago, they have hit the stomach hard. And, the higher the prices rise, the lower the consumer sinks.

As reported today, the shopping warehouse Walmart said the soaring inflation which has hit four-decade highs has changed shoppers’ spending habits, including segments that were once called wealthier customers.

With annual U.S. sales up 8.2 percent in the last quarter at stores open for at least a year, they reported that consumer spending, particularly on groceries, account for more than half of its sales. 

The company said it had “strong grocery share gains,” which account for over 50 percent of their sales, including spending from “high-income households.”

However, on the downside, Walmart said there was “softness in discretionary categories including electronics, home, and apparel.” 

The monthly increase in consumer prices was 0.4 percent, the same as in September.

The core consumer price index, leaving out food and fuel costs, gained 6.3 percent for the month. Energy prices jumped 17.6 percent and food prices added 10.9 percent.

The new numbers “provide early evidence that the [U.S. Federal Reserve’s] campaign to slow rapid inflation may be combining with supply chain healing to ease price pressures,” The New York Times noted.

The good news sparked equity markets’ biggest one-day rally since 2020, which we detail in “Last Week: Markets Soar on Inflation News” in this issue.

“The stock market surge was not driven by concerns over the impossible situation facing workers, whose living costs are exploding while their real wages stagnate or decline,” the World Socialist Web Site (WSWS) pointed out.

Markets “shot up because billionaire investors see in the inflation report the possibility of a return to easy money that existed prior to the Fed interest rate hikes that began early this year,” it added.

However, the Fed has made clear that it is not done raising interest rates, as we report in “Fed Officials Will Raise Rates Further Despite Inflation Slowing” in this issue.

Despite October’s good news, the price of food at work and school has gone up 95.2 percent this year and food at home 12.4 percent. Bread is up 14.8 percent. Airline tickets cost 49.2 percent more than in December 2021 and the cost of public transport has gained 28.1 percent since then, the bureau noted. New car prices rose 8.4 percent, year on year.

Menu prices at restaurants have added 8.6 percent since 2021.

Health insurance premiums have grown by 20.6 percent, gasoline pump prices have risen 17.5 percent, and electricity 14.1 percent. 

Housing costs grew 0.8 percent in October from the previous month, the largest monthly increase since August 1990, according to The Wall Street Journal. 

However, the price of used cars dipped 2.4 percent in October from September and electronics prices also moved down ahead of the holidays.

The price of televisions fell 16.5 percent, year on year, smartphones 23 percent, and computers and similar devices 3.1 percent.

Bad to Worse

While The Street brags about declining inflation, on Main Street the pain has hit the consumer pocket book very hard.

Today the Federal Reserve reported that in the third quarter household debt spiked at the fastest pace in 15 years as more consumers built up credit card debt and are saddled with heavy mortgage balances.

Up 2.2 percent from the previous quarter and 8.3 percent from a year ago, third quarter debt increased $351 billion racking up its highest quarterly increase since 2007. To date, the household debt is at a record high of $16.5 trillion. 

TREND FORECAST: Again, while The Street centers on America, inflation continues to spike in Europe, driving up gas and oil prices to record highs as we have thoroughly reported in The Trends Journal.

And as we have noted, the price spikes are primarily a result of the sanctions the United States and NATO imposed on Russia which used to supply Europe with 40 percent of its gas.

Now, as we go to press, a bad situation has become worse. Earlier we reported how oil prices were down because demand in China was decreasing along with their economy. Now, oil prices are back on the rise following a report that Russian missiles that were fired into Ukraine hit a border town in Poland, killing two people. 

Meanwhile, Russia has destroyed much of Ukraine’s energy facilities launching its biggest barrage of missiles since their 24 February invasion, which as we reported has caused widespread blackouts in well over half of Ukraine.

Again, the month-long barrage of missile attacks by Russia into Ukraine were in retaliation for the blowing up of its Nord Stream pipelines. (See “WEST BLAMES RUSSIA FOR BLOWING UP ITS NORD STREAM PIPELINES.”)

We note this since there are numerous wild cards, as with the alleged Russian missile strike that hit Poland which, should military tensions escalate, will alter socioeconomic and geopolitical forecasts… that will have adverse effects on equity markets.

And, the greater the escalation of what we have noted is the beginning of WWIII, the higher gold and silver prices will rise since, as we note, they are the most precious of precious safe-haven assets. 

To get our full report and other trends, visit TrendsJournal.com