Uncategorized
Week Ahead – Turkey heads to the polls, US retail sales eyed, China ponders rate cut
US Wall Street will remain focused on debt ceiling drama, a plethora of Fed speak, retail earnings, and bank stress. It will be a busy week filled with…
US
Wall Street will remain focused on debt ceiling drama, a plethora of Fed speak, retail earnings, and bank stress. It will be a busy week filled with economic releases, with most of the attention falling the Empire manufacturing survey, a retail sales report that is expected to show a rebound in spending, weekly jobless claims, and existing home sales.
Debt ceiling talks were delayed and are expected to resume this week. Default risks are going up and that would be catastrophic for the economy.
Given the weakness that is emerging within in the labor market and disinflation trends, the Fed might be persuaded to keep rates on hold a little longer than most were assuming. This week contains nine Fed appearances, with the highlights coming from Bostic on Monday, Goolsbee on Tuesday, while Fed Chair Powell participates on a panel with Former Fed Chair Bernanke on Friday.
Eurozone
There are a lot of economic releases over the next week but I’m not sure any really fall into the tier one category, despite having some potential to do so. HICP is obviously a huge release but revisions are generally marginal at best. It’s unlikely to be a game changer but never say never. Flash GDP data will also be of interest, with growth having basically flatlined over the last year. Could a recession be on the cards? That aside, it’s all about the ECB speak, most notably President Lagarde on Tuesday and Friday.
UK
The Bank of England remains confident that inflation will return to target over the forecast horizon and yet the new staff projections highlighted how challenging it will be. Inflation and growth were both revised significantly higher for this year and labour market figures on Tuesday could help explain why that is. Unemployment is expected to remain at 3.8% and wage growth ex-bonuses at 6.8%.
Neither are consistent with inflation falling to 2% but at the same time, they aren’t likely to stay there for long. Inflation is expected to start falling sharply in April and interest rates will keep the pressure on. We’ll hear from a variety of BoE policymakers next week including Governor Bailey but I don’t expect to hear anything different from the press conference after the rate decision on Thursday.
Russia
GDP data in focus next week alongside an appearance from central bank Governor Elvira Nabiullina, with traders looking for clues on when the next policy move could happen and in which direction.
South Africa
The calendar is looking a little thin once again next week, with unemployment and retail sales the only releases. The former was 32.7% in Q4 2022 and is expected higher at 33.2% in Q1, while retail sales slipped 0.5% in February but are expected to have bounced back 2.8% in March.
Turkey
The election this weekend has been talked about for many months and could have big ramifications for Turkish markets. The monetary policy experiment of the last couple of years has arguably been conducted with an eye on this weekend’s election, with President Erdogan hoping that a successful gamble could help extend his two-decade rule.
The race for the Presidency will require one candidate – Erdogan or Kilicdaroglu – to get more than 50% of the vote or it will go to a run-off on 28 May. Voting on Sunday opens at 8 am local time and polls close at 5 pm. By the time markets open next week, we may know who has won the Presidential election.
Switzerland
PPI data is the only notable event next week but traders will be paying close attention for signs of lower price pressures, with the SNB showing zero tolerance so far for above-target inflation.
China
The recent spate of disappointing economic data that covers both external and internal demand have increased the expectations of a policy interest rate cut from China’s central bank, the PBoC, to address current sluggishness. The tentative date for the upcoming decision on the one-year medium-term lending facility (MLF) rate is set for Monday, 15 May.
Next up, a busy schedule ahead with another set of key data releases; on Tuesday, 16 May, we will have industrial production, retail sales, unemployment rate and year-to-date fixed asset investments for April. Attention will be paid to retail sales as policymakers have flagged concerns about the recent softness in domestic demand. The consensus is for a further pickup in retail sales growth to 20.1% year-on-year from 10.6% in March.
Housing data will be the focus on Wednesday, with a further improvement being forecasted for the deceleration of the House Price Index to -0.2% year-on-year in April from -0.8% in March. If it turns out as forecasted, it will be the 3rd consecutive month of improvement in the China property market.
On the earnings front, a slew of releases from China’s Big Tech; Baidu on Tuesday, 16 May, Tencent Holdings on Wednesday, 17 May, and Alibaba Group on Thursday, 18 May.
India
The balance of trade deficit for April is forecasted to widen further slightly to US$21.5 billion from US$19.7 billion in March amid a lackluster global demand environment.
On Wednesday, wholesale inflation is expected to decelerate further into a negative growth of -0.2% year-on-year in April from 1.34% printed in March. If it turns out as expected, it will mark the 11th consecutive month of contraction.
Australia
A busy week. First up we will have the Westpac consumer confidence data for May on Monday where the consensus is expecting a decline of -1.7% month-on-month due to the surprise interest rate hike from RBA.
On Tuesday, market participants will have a chance to scrutinise the meeting minutes of the recent RBA monetary policy decision for further clues on the reasons behind the surprise rate hike and anticipate the RBA’s thought processes and future actions.
On Thursday, employment data for April will be out and the expectation is a slowdown in hiring with 25K new additions from 53K added in March. Meanwhile, the unemployment rate is expected to hold steady at 3.5% in April, close to a 50-year low.
New Zealand
The key data to focus on will be April’s balance of trade release on Friday where the forecast is expecting a surplus of NZ$0.2 billion for April from a deficit of NZ$1.273 billion recorded in March. If it turns out as forecasted, it will be the first monthly surplus since May 2022.
Japan
A busy week packed with key inflationary data that may offer clues on the speed of Bank of Japan’s ultra-easy monetary policy normalization that is expected to take shape in the second half of 2023.
On Monday, growth in producer prices is forecasted to dip to 6.5% year-on-year in April from 7.2% in March. Next up, Q1 GDP will be released on Wednesday where the consensus is expecting an annualized improvement in growth to 0.7% from 0.1% recorded in the previous quarter.
The balance of trade for April will be out on Thursday where the surplus is forecasted to narrow to JPY 690 billion from JPY 754.5 billion.
The all-important consumer inflation rate for April will be released on Friday, core inflation is forecasted to increase to 3.2% year-on-year from 3.1% in March and the core-core rate (excluding fresh food and energy) is forecasted to accelerate to 3.9% year-on-year from 3.8% in March, close to a 30-year high.
Singapore
The key data to watch will be April’s non-oil domestic exports release on Wednesday. Consensus is expected further deterioration in growth to -9.7% year-on-year from -8.3% in March. If it turns out as expected, it will be the 7th month of contraction in non-oil domestic exports amid a weak external environment.
Economic Calendar
Saturday, May 13
Economic Data/Events
Results of local polls in India
Fed’s Cook delivers the commencement address at Tuskegee University in Alabama
EU Indo-Pacific Ministerial Forum in Stockholm
Sunday, May 14
Economic Events
Turkish Presidential Election: President Recep Tayyip Erdogan’s re-election is in doubt
Thailand holds a general election
Monday, May 15
Economic Data/Events
US cross-border investment, New York Fed Empire Manufacturing
Canada existing home sales, housing starts
Colombia GDP
Eurozone industrial production
India trade, wholesale prices
Indonesia trade
Japan PPI
Poland CPI
Saudi Arabia CPI
Thailand GDP
BOC issues financial system survey, based on “expert opinions on the risks to and resilience” of the country’s financial system
Fed’s Bostic delivers welcoming remarks at his bank’s annual financial markets conference
German Chancellor Scholz speaks at the Global Solutions Forum in Berlin
Arab League summit runs through Friday
BOE chief economist Pill speaks about the bank’s monetary policy report
European Commission releases spring economic forecasts
Tuesday, May 16
Economic Data/Events
US retail sales, industrial production, business inventories
Canada CPI
China retail sales, industrial production
Eurozone GDP
Germany ZEW survey expectations
Hungary GDP
Italy CPI
Mexico international reserves
South Africa unemployment
UK jobless claims, unemployment
RBA releases minutes of May policy meeting
Fed’s Mester speaks on the economic and policy outlook at an event hosted by the Central Bank of Ireland in Dublin
Fed’s Williams discusses the economy and monetary policy at an event hosted by the University of the Virgin Islands
Fed’s Bostic and Goolsbee speak on the economic outlook during Atlanta Fed’s annual financial markets conference
Economic and Financial Affairs Council (ECOFIN) meeting in Brussels
Council of Europe Summit in Reykjavik
Wednesday, May 17
Economic Data/Events
US housing starts
China property prices
Eurozone CPI, new car registrations
France unemployment
Italy trade
Japan industrial production, GDP
Russia GDP
Singapore trade
South Africa retail sales
ECB’s de Guindos delivers the closing speech at the 18th IESE banking industry meeting
Riksbank’s Floden speaks at a research seminar
Earnings from Target Corp and Cisco Systems Inc
BOE Governor Andrew Bailey delivers a keynote speech at the British Chamber of Commerce annual conference
Thursday, May 18
Economic Data/Events
US initial jobless claims, Conference Board leading index, existing home sales
Australia unemployment
Chile GDP
Japan trade
Mexico rate decision: Expected to keep the overnight rate steady at 11.25%
Philippines balance of payments, rate decision
Spain trade
BOC news conference on financial system Review, billed as “a detailed analysis of developments in the financial system.”
Northern Ireland holds local elections
Most of Europe observes Ascension Day holiday
Bitcoin 2023 conference in Miami
BOE’s chief economist Pill delivers opening remarks at the CCBS Macro-finance workshop 2023
Friday, May 19
Economic Data/Events
Fed Chair Powell and former chair Ben Bernanke to take part in a panel discussion at conference
Canada retail sales
Japan CPI, tertiary index
Malaysia trade
New Zealand trade
G7 leaders meet in Hiroshima
ECB’s Schnabel gives speech at Conference on Financial Stability and Monetary Policy in London
ECB’s President Lagarde and Hernandez participate in a panel at Brazil’s central bank conference on post-pandemic challenges
Fed’s Williams delivers the keynote address at monetary policy research conference in Washington
BOE’s Haskel delivers a speech at the Economic Statistics Centre of Excellence Conference
Sovereign Rating Updates
Ireland (S&P)
South Africa (S&P)
Italy (Moody’s)
Portugal (Moody’s)
Denmark (DBRS)
bitcoin pandemic home sales oilUncategorized
Q4 Update: Delinquencies, Foreclosures and REO
Today, in the Calculated Risk Real Estate Newsletter: Q4 Update: Delinquencies, Foreclosures and REO
A brief excerpt: I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened followi…
A brief excerpt:
I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble). The two key reasons are mortgage lending has been solid, and most homeowners have substantial equity in their homes..There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/ mortgage rates real estate mortgages pandemic interest rates
...
And on mortgage rates, here is some data from the FHFA’s National Mortgage Database showing the distribution of interest rates on closed-end, fixed-rate 1-4 family mortgages outstanding at the end of each quarter since Q1 2013 through Q3 2023 (Q4 2023 data will be released in a two weeks).
This shows the surge in the percent of loans under 3%, and also under 4%, starting in early 2020 as mortgage rates declined sharply during the pandemic. Currently 22.6% of loans are under 3%, 59.4% are under 4%, and 78.7% are under 5%.
With substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties.
Uncategorized
‘Bougie Broke’ – The Financial Reality Behind The Facade
‘Bougie Broke’ – The Financial Reality Behind The Facade
Authored by Michael Lebowitz via RealInvestmentAdvice.com,
Social media users claiming…
Authored by Michael Lebowitz via RealInvestmentAdvice.com,
Social media users claiming to be Bougie Broke share pictures of their fancy cars, high-fashion clothing, and selfies in exotic locations and expensive restaurants. Yet they complain about living paycheck to paycheck and lacking the means to support their lifestyle.
Bougie broke is like “keeping up with the Joneses,” spending beyond one’s means to impress others.
Bougie Broke gives us a glimpse into the financial condition of a growing number of consumers. Since personal consumption represents about two-thirds of economic activity, it’s worth diving into the Bougie Broke fad to appreciate if a large subset of the population can continue to consume at current rates.
The Wealth Divide Disclaimer
Forecasting personal consumption is always tricky, but it has become even more challenging in the post-pandemic era. To appreciate why we share a joke told by Mike Green.
Bill Gates and I walk into the bar…
Bartender: “Wow… a couple of billionaires on average!”
Bill Gates, Jeff Bezos, Elon Musk, Mark Zuckerberg, and other billionaires make us all much richer, on average. Unfortunately, we can’t use the average to pay our bills.
According to Wikipedia, Bill Gates is one of 756 billionaires living in the United States. Many of these billionaires became much wealthier due to the pandemic as their investment fortunes proliferated.
To appreciate the wealth divide, consider the graph below courtesy of Statista. 1% of the U.S. population holds 30% of the wealth. The wealthiest 10% of households have two-thirds of the wealth. The bottom half of the population accounts for less than 3% of the wealth.
The uber-wealthy grossly distorts consumption and savings data. And, with the sharp increase in their wealth over the past few years, the consumption and savings data are more distorted.
Furthermore, and critical to appreciate, the spending by the wealthy doesn’t fluctuate with the economy. Therefore, the spending of the lower wealth classes drives marginal changes in consumption. As such, the condition of the not-so-wealthy is most important for forecasting changes in consumption.
Revenge Spending
Deciphering personal data has also become more difficult because our spending habits have changed due to the pandemic.
A great example is revenge spending. Per the New York Times:
Ola Majekodunmi, the founder of All Things Money, a finance site for young adults, explained revenge spending as expenditures meant to make up for “lost time” after an event like the pandemic.
So, between the growing wealth divide and irregular spending habits, let’s quantify personal savings, debt usage, and real wages to appreciate better if Bougie Broke is a mass movement or a silly meme.
The Means To Consume
Savings, debt, and wages are the three primary sources that give consumers the ability to consume.
Savings
The graph below shows the rollercoaster on which personal savings have been since the pandemic. The savings rate is hovering at the lowest rate since those seen before the 2008 recession. The total amount of personal savings is back to 2017 levels. But, on an inflation-adjusted basis, it’s at 10-year lows. On average, most consumers are drawing down their savings or less. Given that wages are increasing and unemployment is historically low, they must be consuming more.
Now, strip out the savings of the uber-wealthy, and it’s probable that the amount of personal savings for much of the population is negligible. A survey by Payroll.org estimates that 78% of Americans live paycheck to paycheck.
More on Insufficient Savings
The Fed’s latest, albeit old, Report on the Economic Well-Being of U.S. Households from June 2023 claims that over a third of households do not have enough savings to cover an unexpected $400 expense. We venture to guess that number has grown since then. To wit, the number of households with essentially no savings rose 5% from their prior report a year earlier.
Relatively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many families. When faced with a hypothetical expense of $400, 63 percent of all adults in 2022 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”). The remainder said they would have paid by borrowing or selling something or said they would not have been able to cover the expense.
Debt
After periods where consumers drained their existing savings and/or devoted less of their paychecks to savings, they either slowed their consumption patterns or borrowed to keep them up. Currently, it seems like many are choosing the latter option. Consumer borrowing is accelerating at a quicker pace than it was before the pandemic.
The first graph below shows outstanding credit card debt fell during the pandemic as the economy cratered. However, after multiple stimulus checks and broad-based economic recovery, consumer confidence rose, and with it, credit card balances surged.
The current trend is steeper than the pre-pandemic trend. Some may be a catch-up, but the current rate is unsustainable. Consequently, borrowing will likely slow down to its pre-pandemic trend or even below it as consumers deal with higher credit card balances and 20+% interest rates on the debt.
The second graph shows that since 2022, credit card balances have grown faster than our incomes. Like the first graph, the credit usage versus income trend is unsustainable, especially with current interest rates.
With many consumers maxing out their credit cards, is it any wonder buy-now-pay-later loans (BNPL) are increasing rapidly?
Insider Intelligence believes that 79 million Americans, or a quarter of those over 18 years old, use BNPL. Lending Tree claims that “nearly 1 in 3 consumers (31%) say they’re at least considering using a buy now, pay later (BNPL) loan this month.”More telling, according to their survey, only 52% of those asked are confident they can pay off their BNPL loan without missing a payment!
Wage Growth
Wages have been growing above trend since the pandemic. Since 2022, the average annual growth in compensation has been 6.28%. Higher incomes support more consumption, but higher prices reduce the amount of goods or services one can buy. Over the same period, real compensation has grown by less than half a percent annually. The average real compensation growth was 2.30% during the three years before the pandemic.
In other words, compensation is just keeping up with inflation instead of outpacing it and providing consumers with the ability to consume, save, or pay down debt.
It’s All About Employment
The unemployment rate is 3.9%, up slightly from recent lows but still among the lowest rates in the last seventy-five years.
The uptick in credit card usage, decline in savings, and the savings rate argue that consumers are slowly running out of room to keep consuming at their current pace.
However, the most significant means by which we consume is income. If the unemployment rate stays low, consumption may moderate. But, if the recent uptick in unemployment continues, a recession is extremely likely, as we have seen every time it turned higher.
It’s not just those losing jobs that consume less. Of greater impact is a loss of confidence by those employed when they see friends or neighbors being laid off.
Accordingly, the labor market is probably the most important leading indicator of consumption and of the ability of the Bougie Broke to continue to be Bougie instead of flat-out broke!
Summary
There are always consumers living above their means. This is often harmless until their means decline or disappear. The Bougie Broke meme and the ability social media gives consumers to flaunt their “wealth” is a new medium for an age-old message.
Diving into the data, it argues that consumption will likely slow in the coming months. Such would allow some consumers to save and whittle down their debt. That situation would be healthy and unlikely to cause a recession.
The potential for the unemployment rate to continue higher is of much greater concern. The combination of a higher unemployment rate and strapped consumers could accentuate a recession.
Uncategorized
The most potent labor market indicator of all is still strongly positive
– by New Deal democratOn Monday I examined some series from last Friday’s Household survey in the jobs report, highlighting that they more frequently…
- by New Deal democrat
On Monday I examined some series from last Friday’s Household survey in the jobs report, highlighting that they more frequently than not indicated a recession was near or underway. But I concluded by noting that this survey has historically been noisy, and I thought it would be resolved away this time. Specifically, there was strong contrary data from the Establishment survey, backed up by yesterday’s inflation report, to the contrary. Today I’ll examine that, looking at two other series.
-
Uncategorized3 weeks ago
All Of The Elements Are In Place For An Economic Crisis Of Staggering Proportions
-
International5 days ago
EyePoint poaches medical chief from Apellis; Sandoz CFO, longtime BioNTech exec to retire
-
Uncategorized4 weeks ago
California Counties Could Be Forced To Pay $300 Million To Cover COVID-Era Program
-
Uncategorized3 weeks ago
Apparel Retailer Express Moving Toward Bankruptcy
-
Uncategorized4 weeks ago
Industrial Production Decreased 0.1% in January
-
International5 days ago
Walmart launches clever answer to Target’s new membership program
-
Uncategorized4 weeks ago
RFK Jr: The Wuhan Cover-Up & The Rise Of The Biowarfare-Industrial Complex
-
Uncategorized3 weeks ago
GOP Efforts To Shore Up Election Security In Swing States Face Challenges