ECONOMIC UPDATE: Powell Prepares His Act for Congress, China Stumbles
After three years of its zero COVID policy, which ended in December of last year, China’s economy has not come back to pre-COVID War levels
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When China launched the COVID War in January 2020, on its Lunar New Year, “The Year of the Rat,” it not only destroyed its economy, it destroyed the lives and livelihoods of billions across the planet.
After three years of its zero COVID policy, which ended in December of last year, China’s economy has not come back to pre-COVID War levels of growth and prosperity.
As we have greatly detailed in last week’s Trends Journal, by the numbers, its economy is weakening and so too are many of its business sectors, especially real estate which accounts for some 30 percent of the nation’s Gross Domestic Product.
In an effort to prop up their economy, as we’ve reported, last Monday the People’s Bank of China (PBOC) lowered its seven-day reverse repurchase rate. Then on Thursday, the PBOC cut its one-year medium-term loan facility.
Living up to its China’s State Council pledged last Friday to roll out “more forceful measures” to “enhance the momentum of economic development, optimize the economic structure, and promote the sustained recovery of the economy,” today the PBOC cut two more key lending rates by 10 basis points from 3.65 percent to 3.55 percent, while trimming the five-year loan prime rate by 10 basis points from 4.3 percent to 4.2 percent.
And as the game goes, the lower interest rates fall, so too does the nation’s currency. Following the rate cut, the Chinese yuan traded at its lowest since last November.
Goldman joined several other major banks Sunday and lowered its GDP expectation for the world’s second-largest economy. The Banksters now anticipate a 5.4 percent growth—which is down from the previous 6 percent expectation.
WATCH: THE OTHER SIDE OF CELENTE
Goldman also lowered its 2024 growth forecast for the country from 4.6 percent to 4.5 percent. They said, “With the reopening boost quickly fading, medium-term challenges such as demographics, the multi-year property downturn, local government implicit debt problems, and geopolitical tensions may start to become more important in China’s growth outlook.”
Back in the U.S.S.A.
While China’s yuan is sinking (which in turn will help increase its exports since countries with stronger currencies can pay less to buy more), with expectations on The Street that the Federal Reserve will raise interest rates two more times this year, the U.S. dollar keeps gaining strength.
TREND FORECAST: Tomorrow and Thursday, Fed-Head Jerome Powell will do his act in front of Congress when he delivers the Feds semi-annual monetary policy report which is expected to be more of the same: Caution ahead with the possibility of keeping interest rates where they are or moving them up in the months ahead.
In other words, it’s a guessing game that the Fed always plays. And should Powell and the other Federal Reserve Bank Presidents such as James Bullard and John Williams hint that there will be more interest rate hikes ahead, the U.S. dollar index will increase and gold prices will weaken.
Again, plain and simple, the higher interest rates rise, the stronger the dollar gets and gold, which is dollar-based, weakens. And, the lower interest rates fall, the weaker the dollar gets and the higher gold prices rise.
We maintain our forecast that in the run-up to the 2024 Presidential Reality Show®, the Feds will lower interest rates to prop up both equity markets and the economy.
Follow the Losers
That America and the world stakes their economic well-being—present and future—on central Banksters is like betting on a losing horse to win the race. Indeed, by their deeds you shall know them. But rather than calling those in charge of the world’s money losers, they are elevated as “officials” and “dignitaries” of a much higher order than the plantation workers of Slavelandia.
For example, despite our 2020 forecasts for rising inflation as governments pumped in countless trillions to artificially juice equities and economics as they imposed draconian COVID War lockdown measures that destroyed the lives and livelihoods of billions—and as central banks kept interests rates in negative and zero territory—it was denied by the Banksters, governments and the media.
Instead they said inflation was just “temporary” and as it increased they called it “transitory.”
And rather than calling the central Banksters incompetent, ill-informed—or they knew inflation was rising but lied about it so they could keep interest rates low to artificially juice up equities and economies as governments fought the COVID War—as evidenced by the front page of today’s Wall Street Journal, their monumental failures are simply “mistakes”:
Persistent Inflation Worldwide Keeps Heat on Central Banks
The world’s central banks underestimated inflation last year. They are trying not to make the same mistake twice.
Across affluent countries, central bankers are sharply lifting inflation forecasts, penciling in further interest-rate increases and warning investors that interest rates will stay high for some time. Some have set aside plans to keep interest rates on hold.
The “central banks underestimated inflation last year”?
How about they got it wrong, were too stupid to see it… or they knew inflation was rising but lied about it?
Yes, some have penciled in future interest rate hikes, others will keep them on hold, and of course, as economies weaken, as evidenced with China, they will lower interest rates in hope of boosting failing economies. In Japan, with their stock market on the rise, its central bank kept its ultra-loose interest rate policy unchanged.
LAST WEEK: STOCK INDEXES SET 2023 HIGHS
The three major stock indexes set yearly highs last week, rising Thursday after the U.S. Federal Reserve declined to raise interest rates again.
The Dow Jones Industrial Average grew by 1.1 percent over the week. The NASDAQ marked its eighth consecutive week of gains—a streak unmatched since 2019—adding 2.7 percent. The Standard & Poor’s 500 index was up 2.3 percent, continuing its positive run into a fifth week, the first such stretch in 18 months.
Stocks settled back slightly on Friday, with weakness in the tech sector outweighing gains in consumer staples, materials, and utilities.
The markets’ strength this year has depended on a handful of major tech stocks doing well—especially Meta Platforms, which doubled its price since December, and chipmaker Nvidia, which sailed to a trillion-dollar market value on the frenzy over artificial intelligence.
That leaves some analysts concerned that “the market is not going gangbusters, even though it looks that way,” financial advisor Randy Watsek at Raymond James told The Wall Street Journal.
However, investors are growing more confident that the Fed can wrangle inflation back to its 2-percent target without throwing the economy into a recession, the WSJ reported.
Partly as a result, “the rally is broadening into areas of the economy beyond just tech,” Tony Roth, chief investment officer at Wilmington Trust, told the WSJ. “That’s an indicator the market thinks we’re avoiding any meaningful economic slowdown.”
Airline and cruise line stocks were major gainers last week.
On 16 June, the University of Michigan’s monthly survey of consumer sentiment also found shoppers with a sunnier outlook. The confidence meter registered 63.9, compared to 59.2 in May and beating analysts’ forecast of 60.
Retail spending rose 0.3 percent last month from April, according to the U.S. commerce department; analysts had foreseen a 0.2-percent drop. However, the figure was not adjusted for inflation, which registered 4.0 percent in May.
The result: consumers spent more dollars to buy less stuff, as we detail in “Again in May, Consumers Spent More to Buy Less” in this issue.
Also, the labor market is holding its own, having added more than 1.6 million jobs this year through May.
The yield on the 10-year treasury note edged up to 3.767 percent Friday after closing at 3.728 Thursday. Treasury yields rise as securities’ prices fall.
Gold rose less than 0.1 percent for the week, trading at $1,977.80 at 5 p.m. U.S. EDT on 16 June.
Brent crude oil moved up 3.5 percent over the week, trading at $76.61 at 5 p.m. U.S. EDT on 16 June. West Texas Intermediate crossed back above $70, reaching $71.78.
Bitcoin edged down less than 0.1 percent to $25, 850.30 61 at 5 p.m. U.S. EDT on 16 June.
Abroad, the London FTSE added 1.0 percent for the week. Europe’s Stoxx 600 was up 1.4 percent.
The Nikkei 225 in Japan shot up 4.0 percent, reaching a 33-year high. In contrast, the South Korean KOSPI went down 0.8 percent.
China’s indexes all jumped on expectations that the government will continue to roll out stimulus actions to enliven the economy.
Hong Kong’s Hang Seng grew by 3.0 percent, the CSI Composite 3.5 percent, and the tech-focused SSE Composite 1.5 percent.