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Outlook: We see the outline of the emerging world economy in the form of tidbits.
Russia declares force majeure on natural gas to oppress Europe. The announcement came overnight in the US time scale but failed to make the WSJ, NYT or even the FT. Bloomberg includes it but not as a headline. Reuters and the Guardian are the two that headline the story.
The FT’s top headline is an unattributed claim that the ECB may consider a 50 bp hike on Thursday instead of the announced and expected 25 bp. “Some Baltic states” is as close as we get to the origin. Meanwhile, we still await the “anti-fragmentation” policy tool.
Apple is cutting investment and hiring. Johnson and Johnson whines that profits are suffering from the too-strong dollar. (We used to consult to them on FX at Citi and like most big organizations, they can’t get out of their own way; funny, Japanese companies know how to hedge and you never hear that complaint from them.)
The US Congress is considering a bill to fund domestic chip-making to get around foreign shortages–not exactly totally free capitalism. Look what happened to the waste and failure when we tried the same thing with government-funding solar.
We get US housing starts and permits today, plus sales later this week. Yesterday the NAHB/Wells Fargo Housing Market Index for July crashed by 12 points for the second biggest drop in the data going back 35 years (after the April 2020 covid lockdown). The housing market is “stalled.” Moreover, it’s the 7th monthly drop and returns the index to where it was in May 2015. Notice that this, too, is not making the headlines. Buyer traffic fell off the cliff. Homebuilder stocks are way down, too. This has the makings of a crisis of some sort, although one accompanied by falling prices.
The idea that Pres Biden visited Saudi Arabia to firm up the West’s relations and push China out is getting some traction. Bloomberg reports Pres Xi invited all the top European leaders to a summit in November and they have not yet responded. “The proposed meeting would mark a return to in-person diplomacy with the West for Xi, who hasn’t left his country since the outset of the pandemic in January 2020. Relations soured after the EU sanctioned Chinese officials over accusations of human rights abuse in Xinjiang.” Separately, Russia is making deals with Iran and Iran already has a special relationship with China. So, China + Russia + Iran = new cold war.
For the moment, we have a resurgence in risk appetite that coincides with a need among big FX players to dump some long dollar positions. This is a big, fat correction not connected to inflation expectations, central bank policies, rate forecasts, or growth or other hard data. It’s simple repositioning and highly speculative. Usually we try to avoid these pushbacks and stick to the primary trend, but this one promises to be a humdinger. How long can it last? Until something comes along to trash the US stock market, maybe. The current pullback in equities seems incomplete to many (and in comparison with historical precedent). Or there is some other Shock.
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