SVET Markets Weekly Update (August 8, 2022)
Despite the vocational period, with our main trouble-maker - FED - being in a recess, this August might become less slowish than many market participants anticipate due to the worsening geopolitical climate, when all three major nuclear powers coming closer and closer to a military confrontation.
Sure, the WW3 is not looming on us, yet :) However, it feels like many, including, supposedly 'moderate' politicians, on all sides of the ideological spectrum have already started to loose their cool readying themselves and their supporting apparatuses not only for upcoming election campaigns but also for the prolonged de-liberalization era in the international and domestic affairs.
Even the most dovish reps are now reconsidering their stance on govs armaments budgets and cross-border trades by supporting 'domestic industries development' economically non-viable bills. It won't be too long before we'll see a new torrential wave of the regulatory 'strengthening' of all sides of our lives, providing bureaucrats with unprecedented powers.
As usual, most peoples will be mislead by 'the patriots' scaring them of their minds by a doomsday rhetoric. As a result voters are expected to back those ruinous policies up wholeheartedly.
We can count on that cryptocurrencies will be among of the first scapegoated by politicians, as 'the treat to the national security and the economic stability'. The sound logic that DeFi makes the world a better place by providing talented entrepreneurs with needed funds and a public with an access to cheaper services won't work on politicians and their constituencies being under the double stress of a stagflation and a nuclear annihilation.
Obviously, it will not come to us all at once this August :) However, as I have mentioned, we better not to be too relaxed. Markets are our best approximation of the time-travel machine. Prices almost always move faster than actual events. So, even slight altercations in economic data might initiate significant price moves when everyone expect those moves to happen for other reasons.
For example, two out of three data releases, expected to come out this week - the yearly Inflation rate for July (including, Core Inflation, which excludes food and energy) on Wednesday, August 10 at 8.30 AM ET and the monthly Producer Price Index (PPI) for July on Thursday, August 11 at 8.30 AM ET - might trigger some anxious traders, leading to a chain reaction on all markets in case of a sufficiently large deviation from the expected 9.1 and 0.4 percent correspondingly.
A single major forward-looking indicator to be published this week on Friday, August 12 at 10.00 AM - Michigan Consumer Sentiment (MCS) preliminary index for August - has a lesser chances to bulge a needle for markets have already largely priced in US households cutting on their expenses.
The previous index (for July) reached 51.5, which, according to the University of Michigan Surveys Of Consumers, "showed little change in consumer sentiment from its historic low in June".
Those Surveys also say:
Quote: The one-year economic outlook fell to its lowest reading since 2009. At the same time, concerns over global factors have eased somewhat. This easing provided some limited support to buying conditions for durables, which remained near the all-time low reached last month, as well as a modest retreat in long run inflation expectations. However, inflation continued to dominate consumers’ attention, and labor market expectations continued to soften. EQ:
Many analytics expect August will not improve consumers sentiments and they are forecasting MCS to drop a couple of pips further to 51.3. However, it might turn out that increasing "concerns over global factors" might wight more heavily on consumers minds than predicted causing a more significant drop of MCS.
As to the Inflation Rate reported in June, which is measured as the percentage change in the yearly Consumer Price Index (June 2021 to June 2022), it showed the following prices increase by different categories (according to the Consumer Price Index for All Urban Consumers (CPI-U) table find on the Bureau of Labor Statistic site):
10.4 percent for Food, including, 19.2 for flour and foods prepared from its as well as 14.2 for rice, pasta and cornmeal, 11.7 for meats, 11.0 for seafood, 33.0 for eggs, 16.4 for milk, 8.1 for fruits with oranges prices rising to 10.9, 6.5 for fresh vegetables with canned vege prices going up to 14.3, 15.8 for coffee, 11.9 for nonalcoholic beverages with alcoholic beverages rising only 4.0 :);
41.6 percent for Energy, including, 98.5 for fuel oil, 59.9 for gasoline, 13.7 for electricity, 38.4 for gas;
The Core Inflation Rate (all other items less food and energy) showed 5.9 percent of yearly increase), including: 10.2 for household supplies, 5.2 for apparel with 24.9 for men suits, 5.8 for footwear, 12.5 for new cars with 7.1 for used ones and 15.4 for tires, one of the lesser price increase was registered for jewelry with its 1.1 percent;
Home rent prices, which are also included in the core inflation rate, come up 5.6 percent, transportation services went north 8.8 percentage with public transportation appreciating to 23.7 percentage (talking about the absence of a competition) and 34.1 for airline fares, with that ship fare goes down to -7.8.
Another rare deflationary tendencies observed during the 2021-2022 period include: -1.1 for watches, -5.6 for video and audio products with -12.7 for televisions, -6.7 for information technology commodities with -0.6 for computers and peripherals as well as -20.0 for smartphones, -7.7 for car and truck rental.
The most recent (June) Producer Price Index (PPI) news release published by Bureau of Labor Statistics on Thursday, July 14 showed prices of goods rise 2.4 percent and services increase 0.4 percent. Also, BLS reported that "on an unadjusted basis, final demand prices moved up 11.3 percent for the 12 months ended in June, the largest increase since a record 11.6-percent jump in March 2022."
BLS attributed almost all of the PPI rise to surge in the price of energy (specifically to the price of a gasoline).
Quote: Nearly 90 percent of the June increase can be traced to a 10.0-percent jump in prices for final demand energy. The indexes for final demand goods less foods and energy and for final demand foods advanced 0.5 percent and 0.1 percent, respectively. ... Over half of the June increase in the index for final demand goods is attributable to gasoline prices, which jumped 18.5 percent.EQ:
As to services side of PPI, which rose much less dramatically than was registered for its 'final goods' side (0.4 compare to 2.4), report traced it to the rise in food and booze prices. Quote: Over 30 percent of the June advance in the index for final demand services can be traced to margins for food and alcohol retailing, which rose 3.8 percent. EQ
By just reading those numbers it must be quite obvious for all independent observers that the less competitive is the industry - the more readily it transfers all price increases on its consumers.
The most technologically advanced and competitive industry - information technology - does not register any price rise at all, instead, it showed deflationary dynamics, despite being dependent on imported parts.
On the other hand, all over-regulated, governments subsidized, over-centralized economic sectors, such as oil, gas, electricity production, petrochemicals, airlines, big retailers, public transport - led by technologically outdated corporations, which upper echelon management is heavily infested by former political operatives, are obsoletely incapable to adjust to rapidly changing environments.
As a result, instead of implementing innovative technologies and spearheading cheaper products those de-facto oligopolies can simply rise prices indefinitely without fear to loose their market shares.
This rotten to core system is glorified by main-stream economists and is backed by the monstrous FED-led coercion apparatus, which hand-picks who of their friends and relatives will get an access to practically unlimited free-money and who must just remain laws-abiding-citizens.