Outlook: Today is as slow a day of data as possible – weekly MBA mortgage applications, final April wholesaler inventories and Department of Energy oil inventories. Watch for fabricated outrages.
The Atlanta Fed’s GDPNow was a disappointing 0.9% for the second quarter, down from 1.3% on June 1, again due to deteriorating consumer spending and private investment. This points to a recession, while the financial press has turned its back on stagflation, according to a WSJ headline. It’s probably because TreasSec Yellen has admitted (again) that it missed the rise in inflation and yes, that may linger longer than we think. The United States will increase its forecast from 4.7% to something higher now that we have seen the whites of the eye of 8%.
Meanwhile, as noted above, the World Bank is still focused on the recession. The World Bank forecasts global growth to collapse to 2.9% in 2022 from 5.7% in 2021, significantly lower than 4.1% in January. The United States will slow to 2.5% in 2022, down 1.2% from previous forecasts. “New U.S. inflation data, to be released on Friday, is expected to show the annual rate holding steady at 8.3% in May, near a 40-year high.”
The other data of note yesterday was consumer credit, touted by some at catastrophic levels. A report indicates that it has increased by 20%, showing that consumers are using cards to support current consumption. But this is not the case. The revolving credit balance is just $1.04 trillion in April, up 2.6% from April 2019. You should cut out non-revolving credit and beware of single-month annualization . Year after year it’s much better and year after year it’s even better.
When you see much larger numbers, consider the exact nature of the liability named. Revolving credit (excluding mortgages) includes credit cards and personal loans, and as Wolf Street points out, “Since 2019, consumer spending has grown 19% and revolving credit has grown only 2.9%. %, both unadjusted for inflation of 13% over the period. In other words, revolving credit growth has been significantly below inflation and massively below consumer spending growth. This shows that consumers rely less on revolving credit.
“Credit cards and some types of personal loans, such as payday loans, are the most expensive form of credit, and they often come with usurious interest rates. Credit card rates can exceed 30%. And the Americans have understood this. If they need to finance purchases, many consumers resort to cheaper loans, including cash refinancing of their mortgages. And a lot of consumers are using their credit cards as payment methods, and they’re paying them back every month. This is what these relatively low balances show.
Wolf also complains about the series’ seasonal adjustments and while he’s right, that’s not the main event that the American consumer may be greedy, but he’s not stupid, and we we don’t see a drunken sailor bingeing as some versions of the data seem to show. Here we have the case of two semi-maverick analysts, both deeply skeptical of the government and all its data and minions, but with a great capacity for mapping and this time, differing points of view. Overall Wolf is less partisan politically and we say that helps.
Next up is the ECB policy meeting and possibly a crisis in the UK, where Boris wants to tinker with the Northern Ireland Protocol and kick out the European Court. He could get away with it and it’s not a death knell for his political career as some hope, but it’s probably very, very bad for the British economy, depending on the retaliation from the Europeans. On the face of it, the Euro’s resilience against a USD semi-recovery yesterday will strengthen against the Pound today and in the future. We see the fate of sterling.
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