Summary and Comment
This was a FED week (FOMC meeting and interest rate decision) which was marked by the interest rate pause (kept at 5.25%) and the promise for more rate hikes in the US later in the year. In the EU, reference interest rates rised another 0.25% (25bps).
Overall inflation data in the US points towards a lower YoY figure (4.0% in May 2023) but the annual core consumer price inflation rate, which excludes volatile items such as food and energy, remains at 5.3%, significantly above the FED target of 2%. The core inflation is the most closely monitored metric by the FED.
The University of Michigan consumer sentiment for the US increased to 63.9 in June of 2023, the highest in four months. Figures beat forecasts of 60, reflecting greater optimism as inflation eased and policymakers resolved the debt ceiling crisis. "Consumer sentiment is now 28% above the historic low from a year ago and may be resuming its upward trajectory since then", Surveys of Consumers Director Joanne Hsu said. In June, improvements were seen in both current economic conditions (68 vs 64.9) and consumer expectations (61.3 vs 55.4). Also, year-ahead inflation expectations receded for the second consecutive month to 3.3%.
Does this mean we are going to have a nice summer of consumer spending? Perhaps! Unemployment is still low and if we are entering a recession, it is not obvious for everybody...just yet.
Michael Pento summarizes the actual FED pause and economic situation like this in his weekly commentary:
"The last time the Fed paused hiking the FFR anywhere near 5.25% was not coincidentally during the prelude to the Great Recession & Financial Crisis, which began in December of 2007. But as mentioned, the market still was able to rally for another year. However, this time around, the Fed is pausing with a quantitative tightening program in place, a significantly inverted yield curve, the Index of Leading Economic Indicators is crashing along with the National Federation of Independent Business Optimism Index, the Institute for Supply Management’s Manufacturing Index is in contraction territory, the M2 money supply is plunging, the net percentage of banks tightening lending standards is soaring, commodity prices are falling, and we are in the middle of an earnings recession now as well. None of those conditions were in place during the 2006 pause."
For
the week, the main stock market indices are up, with the
NASDAQ gaining 3.8%, the S&P500 up 2.6%, and the RUSSEL 2000 rising only 0.5 %. Gold and silver are down 0.2% and 0.4%, respectively.
The barrel of WTI recovered 1.9% this
week. Natural gas rised a whopping 17%!!!
The relative strength of the US dollar fell 1.2%. The US 10-year yield rised slightly to 3.77 %. The US bond yield is peaking at 5.34 % in 6 months from now, and the yield curve remains inverted (a recession indicator).
Despite the main indices rising considerably since the beginning of the year (look also at bitcoin rising ~60% since January 2023 until today!), this doesn't represent the overall stock markets, and an earnings recession seems inevitable. A credit crunch should contribute to a slumping economy and unemployment raise, with consequent degradation of consumer sentiment, credit defaults, and a considerable correction in many markets, notably the real estate market - this may be an entering point for many wise investors that are able to control their FOMO and raise cash until it is time to buy some bargains.
Sources:
https://tradingeconomics.com/
https://pentoport.com/category/commentary/
https://pentoport.com/a-pause-like-nonother/
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