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Week in Review: 25-29 July 2022 - Major Comments and Forecasts

 WEEK IN REVIEW

 

US GDP and Recession? Yes/No/Maybe
 
 
The American economy shrank an annualized 0.9% on quarter in Q2 2022, following a 1.6% drop in Q1 and technically entering a recession, the advance estimate showed. Most investors were expecting a 0.5% growth although some were betting on a negative reading. Inventories and business investment were the main drags. Inventories declined mostly at general merchandise stores as well as motor vehicle dealers. Residential investment sank 14%, structures 11.7% and equipment 2.7%. At the same time, PCE slowed and grew 1%, with spending on goods falling 4.4% and government consumption went down 1.9%, partially reflecting the sale of crude oil from the Strategic Petroleum Reserve. On the other hand, net trade made a positive contribution for the first time in two years, as exports jumped 18%, led by industrial supplies, materials and travel and imports were up 3.1%. Fed Chair Powell recently said he did not believe the US was in a recession and pointed to strength in the labour market. 
 
 
However, the debate about the recession definition continues. You can watch a couple of videos for your amusement!
 
Channel: Andrei Jikh
 

 
 
 

 


 
Earnings Season: Amazon

 
  • Amazon Web Services (AWS) revenue surpassed analyst expectations, reaching $19.7 billion for the quarter. 
  • AWS is Amazon's high-margin cloud computing business. 
  • Amazon posted losses per share for the second consecutive quarter!!!

Amazon.com, Inc. (AMZN) reported mixed results in its Q2 FY 2022 earnings report. Earnings per share (EPS) were -$0.20, while analysts predicted positive EPS. It was the second consecutive quarter in which Amazon reported a net loss, and only the second such quarter in at least four and a half years. Net losses include a pre-tax valuation loss of $3.9 billion included in non-operating expense from the company's investment in Rivian Automotive Inc. (RIVN). Amazon's revenue beat analyst forecasts by a margin of more than $2 billion. Amazon Web Services (AWS) revenue also exceeded consensus estimates, though by a smaller margin.

Despite negative EPS, Amazon.com Inc. shares climbed more than 10% in premarket trading on Friday, boosted by the tech giant’s second-quarter sales beat and robust third-quarter guidance.
 
Suddenly there is no fear in this bear market rally!!! The market does what it has to do. Just ride the trends!!!


 
OIL
 
 
WTI crude futures rose more than 2% to above $98 per barrel on Friday and were set to end the week 4% higher, the most in 9 weeks as tight supplies more than offset worries over an economic slowdown. Shell CEO Ben van Beurden told Bloomberg TV on Thursday that there is more upside than downside for oil prices as “demand hasn’t fully recovered yet and supply is definitely tight.” TotalEnergies CEO Patrick Pouyanne shared the same view, saying oil production could not keep up with recovering demand. The OPEC+ is scheduled to meet on August 3 where the US is hoping for an announcement of additional supply, although analysts warned that member countries are already struggling to meet production quotas due to underinvestment in oil fields. Meanwhile, the US economy shrank for a second straight quarter, fueling recession fears as the country grapples with soaring inflation and rising interest rates. Considering July however, WTI crude is down more than 4%, extending a nearly 8% loss in June.




Natural Gas
 

US natural gas futures corrected to around $8.1/MMBtu as investors unwound some long positions following a massive rally that drove prices to a record level of $9.7/MMBtu earlier this week. Still, the commodity more than doubled in value in July, putting it on track for one of the best monthly performances ever, with higher domestic and international demand being the primary driver. This summer, many regions in the United States have experienced extreme heat, with demand for electricity reaching several record highs. Soaring international demand is also adding to the bullish outlook. Russia's Gazprom said it would reduce flows through the Nord Stream pipeline, citing issues with turbines, delivering only 33 million cubic meters daily, roughly 20% of its capacity, forcing European buyers to find replacements.

 

 
Markets
 

Major US stock indices ended the week in green, marking their best performances in 2022, supported by strong earnings from tech giants like Apple and Amazon. The Dow added 0.97%, the S&P 500 climbed 1.42% and the Nasdaq advanced 1.88%. Also, investors’ fears about the Fed’s aggressive rate-hiking pace waned after the US economy unexpectedly contracted for the second straight quarter. On the economic data front, the University of Michigan Consumer Sentiment Index, improved slightly to 51.5 from the all-time low of 50 hit in June. Meanwhile, the Fed's preferred inflation measure, the US core personal consumption expenditures price index, came slightly above expectations, suggesting that the peak of inflation is yet to come. Turning to the earnings front, shares of Chevron and Exxon Mobil also soared tracking upbeat results while that of Roku and Intel sank as they missed analyst’s estimations. On the week, the Dow rose 2.96%, the S&P 500 4.27% and the Nasdaq 4.7%.

Overall, another green week in the worldwide stock markets, as seen below:



Crypto
 

Bitcoin US Dollar traded at 24,005.0 this Saturday July 30th, increasing 56.0 or 0.23 percent since the previous trading session. Looking back, over the last four weeks, Bitcoin gained 23.69 percent. Over the last 12 months, its price fell by 42.14 percent. Looking ahead, we forecast Bitcoin US Dollar to be priced at 20,499.6 by the end of this quarter and at 14,998.8 in one year, according to Trading Economics global macro models projections and analysts expectations. 
Following the same positive trend as the stock market, cryptocurrencies are in the green for the week.




The Forecast for the Next 18 Months

 
Disclaimer: This is a purely speculative comment and personal forecast by the blog author.
 
Regardless of the recession definition and the bear market rally we are seeing the past few weeks, the economy is slowing down, inflation is elevated, and the effects of the FED (and other central banks) rate rises and balance sheet reduction (quantitative tightening) will only be visible in the coming months. In response to the first negative signs, the stock market will melt down (may take up to a quarter, i.e., November 2022). Until then, markets will probably trade sideways. Europe may be in a worse situation than the US in the coming winter. New lockdowns in China can be expected closer to Winter.
 
My medium-term forecast? There are 2 possible scenarios, so prepare:
 
1) Restrictive monetary policy prevails at least during the next 6 to 12 months (typically by continuous rate adjustments). Within 6 months the recession will be evident and nobody will be able to deny it. Unemployment will increase. Expenditure will go down. Inflation will ease somewhat due to slowing demand (depends on the real economy and supply chain issues, as well as the geopolitical situation). Growth will be negative or around zero for some time.  The price of oil and other commodities will come down. Then, central banks will loosen up the monetary policy again and eventually a new bull market will emerge. Back to business as usual (debt-based system). The USD (dollar) survives this crisis for a few more years.
 
2) The FED (and other central banks) go into quantitative easing too soon (in 6 months). Inflation will explode (12 months from now). To give the impression of a growing economy and keep the wheel spinning, crazy amounts of money printing and buying of bonds by central banks will occur (8-18 months from now). The currencies will be extremely debased relative to hard assets such as precious metals. The stock markets will crash up, with the nominal values of everything going up, not based on valuation or company earnings, but due to liquidity injection and spiraling inflation. The whole system may collapse, leading to the replacement of the currency systems as we know them or the emergence of a new reserve currency of some sort.

So...stay sharp.


 
 

 
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