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Week in Review: 3-7 July 2023

Summary and Comments


This week's highlights are on the inflation data all around the world.

China's consumer price inflation (YoY) came out flat (0%) in June 2023, missing market expectations. This was the lowest reading since a deflation in February 2021. Core consumer prices, which exclude prices of food and energy, went up 0.4% YoY, the least since March 2021. On a monthly basis, consumer prices unexpectedly dropped by 0.2%, the fifth straight month of falls. China's producer prices dropped 5.4% YoY in June 2023, steeper than a 4.6% fall in the prior month and worse than market forecasts of a 5.0% decline. It was the ninth consecutive month of producer deflation and the fastest fall since December 2015 amid weakening demand and moderating commodity prices. On a monthly basis, producer prices decreased by 0.8%.

Inflation Rate in Germany increased to 6.38% in June (from 6.1% in May of 2023). The annual inflation rate in Brazil receded to 3.16% in June of 2023 from 3.94% in the prior month, the lowest since September 2020 - it was the fourth consecutive month that Brazil recorded an inflation rate below the central bank’s upper tolerance band of 4.75%. The annual inflation rate in Russia rose to 3.2% in June 2023 from 2.5% in May - the central bank indicated its intention to potentially raise interest rates this year with the aim of bringing price inflation back to its 4% target by 2024 as it predicts that inflation will likely reach 4.5%-6.5% by the end of 2023.

The annual inflation rate in the US slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May. The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%. The annual core consumer price inflation rate in the United States, which excludes volatile items such as food and energy, fell to 4.8% in June 2023, the lowest since October 2021, from 5.3% in the prior month and below market expectations of 5%. On a monthly basis, core consumer prices rose by 0.2% from a month earlier in June. Producer prices for final demand in the US edged up 0.1% month-over-month in June 2023, following an upwardly revised 0.4% fall in May.

The University of Michigan consumer sentiment for the US increased for a second month to 72.6 in July of 2023, the highest level since September of 2021. Both current economic conditions (77.5 vs 69) and consumer expectations (69.4 vs 61.5) improved, largely attributable to the continued slowdown in inflation along with stability in labor markets. Still, inflation expectations edged slightly higher for the year ahead (3.4% vs 3.3%) and the five-year outlook (3.1% vs 3%).

St. Louis Federal Reserve President James Bullard, a leading hawk at the U.S. central bank who pushed for aggressive interest rate hikes, will leave the Fed regional bank next month before taking up a post as the inaugural dean of the Mitchell E. Daniels, Jr. School of Business at the university in Indiana. Bullard, who has led the St. Louis Fed since 2008 and is the Fed's longest-serving current policymaker, will stay on in an advisory role at the regional bank until Aug. 14. He will not take part in the policy deliberations or the rate-setting decision at the Federal Open Market Committee's meeting on July 25-26, according to a statement from the St. Louis Fed.

For the week, the main stock market indices are up (AGAIN!), with the NASDAQ gaining an additional 3.5%, the S&P500 2.4%, and the RUSSEL 2000 rising 3.6%! Gold and silver recovered 1.6% and 8.1%, respectively. The barrel of WTI gained 2.2% this week (now at ~75 USD), while natural gas was flat. Bitcoin continues stable around 30 000 USD.

The relative strength of the US dollar dropped abruptly (2.6%), accompanied by falling bond yields, which has helped to push the stock markets up. The US bond yield is peaking at 5.5% in 6 months from now, and the 10-year yield now sits at 3.83 %. The yield curve remains inverted (a recession indicator).

China has not been the economic driver of international markets in the post-covid recovery. Worldwide economies are slowing and business is not expected to boom in the short term. Most central banks in the western countries are keeping an aggressive stance and bank lending is hampered. However, the stock markets have been soaring lately - perhaps too optimistically in our opinion. It may be too soon to call in a new bull market - the timing is not right in the business cycle.

Sources

https://www.usnews.com/news/top-news/articles/2023-07-13/feds-bullard-steps-down-to-be-dean-at-purdue-school-of-business

https://www.tradingeconomics.com


 

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