Gone flat post covid, adjusted for inflation:
The post covid slump continues, and now there are war disruptions:
US Consumer Sentiment Lowest since 2011
The University of Michigan consumer sentiment for the US fell to 59.7 in March of 2022 from 62.8 in February, below market forecasts of 61.4, preliminary estimates showed. It is the lowest reading since November of 2011, as inflation expectations rose sharply due to a surge in fuel prices exacerbated by the Russian invasion of Ukraine. The current economic conditions index fell to 67.8 from 68.2 while the expectations gauge sank to 54.4 from 59.4. The year-ahead expected inflation rate (5.4%) rose to its highest level since 1981, and expected gas prices posted their largest monthly upward surge in decades. Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940 pointing out that the high inflation rate is impacting incomes.
Still slowly working its way back to the pre covid trend:
New rigs continue to come online, but it won’t interfere with Saudi/Russian price setting until sufficient production comes online to reduce Saudi sales. And right now sales are going up, indicating that demand for oil at the Saudi’s prices is increasing, as the Saudis set price and let their refiners buy all they want at their posted prices:
As previously discussed, Saudi OSP’s (official selling price spreads vs benchmarks) are now set above ‘fair value’ imparting a continuous upward pressure on prices. If this policy continues prices will continue to rise and seriously disrupt markets as happened in 2008:
Quite a few price increases, which the media now calls ‘inflation’ even though inflation is a continuous increase in the price level:
The annual inflation rate in the US surged to 6.2% in October of 2021, the highest since November of 1990 and above forecasts of 5.8%. Upward pressure was broad-based, with energy costs recording the biggest gain (30% vs 24.8% in September), namely gasoline (49.6%). Inflation also increased for shelter (3.5% vs 3.2%); food (5.3% vs 4.6%, the highest since January of 2009), namely food at home (5.4% vs 4.5%); new vehicles (9.8% vs 8.7%); used cars and trucks (26.4% percent vs 24.4%); transportation services (4.5% vs 4.4%); apparel (4.3% vs 3.4%); and medical care services (1.7% vs 0.9%). The monthly rate increased to 0.9% from 0.4% in September, also higher than forecasts of 0.6%, boosted by higher cost of energy, shelter, food, used cars and trucks, and new vehicles. source: U.S. Bureau of Labor Statistics
The longer term chart show how so far it’s just a one time blip up:
Quite a few commodities are also looking like it’s been a one time blip up:
Oil prices, however are set by Saudi Arabia working closely with Russia,
so at least for the medium term the price is an entirely political decision:
Not looking good:
Russians and Saudis now cooperating to set crude oil prices.
Not good:
Post covid fiscal contraction is underway and debt/gdp is forecast to fall a lot further.
Most of the Federal assistance was the likes of unemployment benefits which have
now expired and new spending programs from Congress seem to be not happening,
at least any time soon. Also, higher prices mean the inflation adjusted value of the
outstanding public debt falls which is a drag on private sector spending as agents seek
to sustain the value of their savings:
Down a bit since Federal benefits expired. This materially cuts gov. spending:
A lot worse than expected. They thought the end of Federal benefits would send people back to work.
However, a cut in Federal spending cools down aggregate demand:
Transitory comes to mind:
Saudis and Russians are working together to set price. What could go wrong???
:(
The US is about to send a lot more oil into an already oversupplied world market
The U.S. is about to boost its status as a major oil exporter. New pipelines are coming online to transport oil from a bottleneck in the Permian Basin to the Gulf Coast where it can be shipped to the world. The U.S. is turning the Gulf Coast into a major export hub, and that could one day make U.S. crude an international benchmark, according to Citigroup’s Ed Morse. Citigroup says U.S. oil exports of 3 million barrels a day could grow by a million barrels a day this year and another million next year.
Initially, all else equal, this will result in a drop in Saudi sales as they set price and let quantity float with demand. The Saudis can do this to sustain their price targets if they wish to do that, until their exports fall to maybe 3-5 million barrels per day, after which it becomes economically problematic to cut back further (based on prior history), and oil prices collapse from the excess supply.
At the same time, global demand is likely peaking this year, and likely to begin falling next year, a process likely to be accelerated by a global economic slow down and the shift to electric vehicles, etc., all of which will further cut into Saudi sales and reduce the time it takes for their sales to fall to minimum levels that trigger a price collapse.
A price collapse can be avoided by cutbacks from other oil producers, particularly Russia, but that’s rarely happened, and would only be temporary unless demand increased.
Saudi sales:
Saudi price settings:
This has been know to be associated with the housing cycle:
This has taken a dive recently:
Global economy enters ‘synchronised slowdown’
(F) The global economy has entered a “synchronised slowdown” which may be difficult to reverse in 2019, according to the latest update of a tracking index compiled by the Brookings Institution and the Financial Times. The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and investor confidence with their historical averages for the global economy and for individual countries. The headline readings slipped back significantly at the end of last year and are at their lowest levels for both advanced and emerging economies since 2016.
Corporate Profit Squeeze Looms, Threatening Stocks’ Climb
(WSJ) Analysts project S&P 500 profits in the first quarter will contract 4.2% from a year earlier, according to FactSet, followed by flat growth in the second quarter. That puts the broad index at risk of entering its first earnings recession—marked by at least two or more consecutive quarters of negative earnings growth—since 2016. S&P 500 companies grew profits 20% in 2018, one of the best growth rates since the financial crisis, according to FactSet. Analysts see profits growing just 3.7% this year. S&P 500 companies are trading at 16.7 times their future earnings, the same level the broad index traded at in early October.
Las Vegas Real Estate in March: Sales Down 16% YoY, Inventory up 92% YoY
Gold buying like this functions as ‘off balance sheet deficit spending’. It’s off balance sheet as the payments by the CB don’t count as fiscal expenditures as they are accounted for as CB asset. And it’s functionally state deficit spending as the purchases add income in the form of net financial assets to the non government sectors:
China’s on a bullion-buying spree. The world’s second-largest economy expanded its gold reserves for the fourth straight month, adding to optimism that central banks globally will continue to build holdings.
The People’s Bank of China raised reserves to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. In tonnage terms, last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.
China, the world’s top gold producer and consumer, is facing signs of a slowing economy, even as some progress is being made in trade negotiations with the U.S. The latest data from the PBOC indicate that the country has resumed adding gold to its reserves at a steady pace, much like the period from mid-2015 to October 2016, when the country boosted holdings almost every month. Should China continue to accumulate bullion at that pace over 2019, it may end the year as the top buyer after Russia, which added 274 tons in 2018.
Governments worldwide added 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council. Russia quadrupled its reserves within the span of a decade amid President Vladimir Putin’s quest to break the country’s reliance on the U.S. dollar, and data from the central bank show that holdings rose by 1 million ounces in February, the most since November.
Tariff man, aka Agent Orange, doing a number on global economies…
Just went negative:
Services moved up some but the trend still looks down:
Japan appearing to be collapsing as well:
And these recent headlines:
Argentina Leading Economic Index
The economy of Argentina shrank 0.1 percent month-over-month in January 2019, following a 0.3 percent contraction in the previous month. It is the eleventh consecutive decrease in economic activity but the softest since a mild 0.2 percent expansion seen in February last year.
Russia GDP YoY
Russia’s gross domestic product growth slowed to 0.7 percent year-on-year in January 2019, the weakest since a contraction seen in November 2017, from an upwardly revised 2.3 percent in the previous month. Output rose at a softer pace for construction (0.1 percent vs 2.6 percent in December), retail trade (1.6 percent vs 2.3 percent), freight turnover (2.4 percent vs 3.2 percent) and industrial production (1.1 percent vs 2 percent). On the other hand, agriculture activity expanded at a faster 0.7 percent, compared to a 0.1 percent decline in December.
Brazil Business Confidence
The Industrial Entrepreneur Confidence Index in Brazil fell to 64.5 in February 2019 from 64.7 in the previous month. Future expectations deteriorated (69 from 69.9 in January), namely regarding the company’s situation (69.2 from 69.9) and the country’s economic situation (68.5 from 69.8). Meanwhile, the assessment for current conditions improved (55.6 from 54.1), boosted by both the country’s economic situation (57.1 from 54.8) and the company’s situation (55 from 53.7). Among sectors, confidence weakened in construction (63.3 from 63.7) and manufacturing (64.7 from 64.9) while strengthened in mining (66.7 from 65.1).
Mixed bag again, as auto sales contributions are volatile in a generally softening auto market. And the Fed estimates the tax cuts and spending increases will add about .4-.5% to GDP this year. Also, the spending numbers are not inflation adjusted, and year over year cpi has been moving higher:
Highlights
Strong gains for the discretionary categories of autos and restaurants and a big upward revision to May highlight the June retail sales report. Total sales rose an as-expected 0.5 percent in June with May, in what will be another positive for second-quarter GDP, revised a sharp 5 tenths higher to an outsized 1.3 percent jump.
What’s striking is that autos were very strong in both June and May, up 0.9 and 0.8 percent respectively, with restaurants really showing unusual acceleration, up 1.5 and 2.6 percent in the two months. Gains here point to new confidence among consumers and are consistent with the strength underway in the labor market.
Sales at health & personal care stores were unusually strong in June, up 2.2 percent following a series of very strong gains in the 1 percent range. Nonstore retailers, in a sign of e-commerce strength, rose 1.3 percent in June and continue to make ground compared to other components. Gasoline stations, boosted by high gas prices, saw a 1.0 percent rise in June sales following a 3.0 percent spike in May. Building materials, at plus 0.8 percent in June, and furniture store sales, up 0.6 percent, are both positive indications for residential investment.
Consumer spending in May was at first modest overall on weakness in spending on services though today’s upward retail revision will offer a major lift for May’s final result. And unless services prove flat again, June — based on today’s report — should prove a very strong finish for the second-quarter economy.
Retail are only a bit more than 10% higher than they were in 2008, adjusted for inflation but not population, again demonstrating how weak this recovery has been:
Trump declines to denounce Putin over election meddling at summit, blames ‘both countries’
President Donald Trump and Russian leader Vladimir Putin met in Finland’s capital city on Monday for a bilateral talk that lasted more than two hours — longer than the 90 minutes that had originally been planned. “The Russian state has never interfered and is not going to interfere into internal American affairs including election process,” Putin said during the conference alongside Trump. “There was no collusion. I didn’t know the president. There was nobody to collude with,” Trump said Monday.
‘I don’t see any reason why’ Russia would interfere in election, Trump says
Disputing the US intelligence community, President Trump said at a press conference alongside Russian President Vladimir Putin Monday that “I don’t see any reason why” Russia would interfere in the 2016 election.
