Market comment 2022

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The Bank of Japan made a surprise decision to let a benchmark interest rate rise to 0.5% from 0.25%, pushing the yen higher and ending a long period in which it was the only major central bank not to increase rates. The BOJ said the yield on the 10-year Japanese government bond could rise as high as 0.5% from a previous cap of 0.25%. The central bank has set a target range around zero for the benchmark government bond yield since 2016 and used that as a tool to keep overall market interest rates low. The 10-year yield, which had been stuck around 0.25% for months because of the central bank cap, quickly moved up to 0.46% in afternoon trading.  The yen rose in tandem. In Tuesday afternoon trading in Tokyo, one dollar USDJPY, -3.33% bought between 133 and 134 yen, compared with more than 137 yen before the BOJ’s decision.

 Yen surges as Bank of Japan surprises by letting benchmark rate rise - MarketWatch

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A majority of U.S. employed consumers continue to find it difficult to keep up with the pace of inflation that's running at a four-decade high, hence 65% of employees lived paycheck-to-paycheck in September versus 60% a year ago, according to a recent LendingClub survey, which inquired 3,942 consumers between September 9-23. Indeed, the mismatch between inflation and wages is quite stark. In September, headline inflation rose 8.2% Y/Y while average hourly earnings increased just 4.9%, as seen in the chart below. In turn, 26% of the survey respondents said they have more than one job, and 30% of workers reported they're likely to switch jobs over the next six months to receive higher pay.

Most employees live paycheck-to-paycheck as inflation easily outpaces wages | Seeking Alpha

The worry is that the Fed may be choosing to look more at current economic data and isn’t thinking enough about the lag effect of its existing rate hikes. Inflation in the US economy may not have peaked yet, but there is a growing sense that we’re pretty darn close to that. “It is critical that policymakers…prepare for a slowdown in demand as the lagged impact of rising interest rates and inflation begins to exert a powerful downward pull on economic activity,” Joseph Brusuelas, chief economist at RSM US, said in a report. He added that the economy “clearly is at risk of falling into recession in the near term.”

The Fed may have to blow up the economy to get inflation under control

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As Susannah Streeter, an analyst at Hargreaves Lansdown, says: “Mass hospitalisations are likely to prompt a fresh bout of trepidation for consumers and businesses and constrain the Chinese economy further, while the prospect of fresh supply chain snarl-ups could prolong the price pains being felt in countries around the world.” Mark Williams, chief Asia economist for the consultancy Capital Economics, estimates China’s economy will contract by 2.5% this year and expand by 2% next year – a far cry from the double-digit annual growth rates notched up a decade ago. “For the economy, reopening has so far been entirely negative,” he says. “Activity has been depressed for most of the past year as fear of getting forced into quarantine has kept people at home. Fear of quarantine has now given way to fear of infection, and the economic outcome is even worse.”

China’s screeching U-turn on Covid will not be an instant fix | China | The Guardian

• Reinforces the stagflationary forces as it creates new supply chain bottlenecks (China is still the factory of the world) as well as China's consumers will be a drag on growth.
  

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After the sudden easing of President Xi Jinping’s “zero Covid” rules, the country is now on course for up to 280 million infections and at least 1 million deaths as the virus rips through the population, according to some predictive models.  In addition to the brutal human toll, the virus risks crippling the world's second largest economy just as it was attempting to reopen. As ports shut down because of sickness, supply chains seize up and millions of consumers panic, the implications are dire - both for China and the West, which buys so many of its goods. After a year in which a Russian invasion that few saw coming tipped the global economy into crisis, could China's Covid disaster prove to be the "black swan" moment of 2023?..

In a sign of the chaos to come, almost 37 million people may have been infected on a single day this week, according to internal government estimates reported by Bloomberg on Friday. The figures said some 248 million people - nearly one-fifth of the population - were likely to have contracted the virus in the first 20 days of December.

Peter Lindström, head of research at Norwegian shipping company Torvald Klaveness, on Wednesday tweeted that 90pc of the Chinese agents used by his firm were unwell, including those in Beijing, Tianjin, Shanghai, Ningbo, Guangzhou and other cities. He claimed the spread of Covid in China was “out of control”.

How Xi’s Covid catastrophe put the global economy at risk

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The euro will collapse below parity with the dollar next year as the European Central Bank “kamikaze” rate rises backfire and a scramble for energy supplies pushes the bloc into a prolonged economic downturn, City economists have said. JP Morgan, ING, Capital Economics and Barclays all believe the single currency will drop below parity against the dollar within months to a fresh 20-year low. They forecast for a 10pc fall in the euro, taking it down to a 20-year low of $0.95. One euro is currently worth $1.05. The gloomy predictions come despite hawkish talk from Christine Lagarde, president of the European Central Bank (ECB), and predictions that interest rates will climb close to a record high next summer.

Euro set to plunge below dollar parity after Christine Lagarde rate rises

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Let’s review:

• Gross domestic product grew at a 3.2% annualized rate last quarter, a sharp bounce back from shrinking in the first half of the year.
  
• Consumer confidence unexpectedly grew in December.
  
• Last month’s jobs report defied analysts’ expectations, with unemployment remaining at almost a half-century low.
  
• And multiple recent inflation reports show prices are starting to cool off.
  

However, these are just ingredients in a murky soup of conflicting “yes, but” headlines. Yes, consumers say they feel lousy about the economy. But a record 196 million Americans went shopping over the Thanksgiving weekend — and those roaring sales numbers weren’t just because inflation has pushed prices higher, but also because people were making more transactions, according to Adobe Analytics. 

Curtis Dubay, chief economist at the US Chamber of Commerce calls this “second-hand pessimism” and says the economy might not be doing as poorly as you think. Yes, inflation at near 40-year highs is biting into family budgets. But Americans are booking air travel and heading to Disney parks in near-record numbers, even with higher park prices. Yes, economists are worried about a recession, but the job market is incredibly tight with more than 10 million open jobs and 1.7 jobs available for anyone who’s searching for one (or looking to job hop).

Why America’s economy remains surprisingly strong – but you don’t realize it

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Russia is prepared to resume gas supplies to Europe via the Yamal-Europe gas pipeline, which was previously stopped for political reasons, Russia’s Deputy Prime Minister Alexander Novak told Russian state news agency TASS on Sunday. “The European market remains relevant, as the gas shortage persists, and we have every opportunity to resume supplies. For example, the Yamal-Europe pipeline, which was stopped for political reasons, remains unused,” Novak said. There is an increase in demand for gas from Europe, Novak said, according to TASS. “Today, we can confidently say that there is a demand for our gas. Therefore, we continue to consider Europe as a potential market for the sale of our products. It is clear that a large-scale campaign was launched against us, which ended with acts of sabotage against Nord Stream,” he said.

Russia ready to resume gas supply to Europe via Yamal-Europe gas pipeline

U.S. consumers expect price pressures to moderate notably in the next year, with a benchmark survey on Friday showing their one-year inflation outlook dropping to the lowest in 18 months in December. The University of Michigan Surveys of Consumers said the one-year inflation outlook, released alongside its bi-monthly reading of overall consumer sentiment, fell to 4.4% this month from a final reading of 4.9% in November and from a preliminary 4.6% reading two weeks ago.

U.S. consumers' 1-year inflation outlook drops to 18-month low - UMich | Reuters

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Prominent U.S.-listed Chinese companies, including Pinduoduo and Full Truck Alliance, are scrapping plans for a potential listing of their shares in Hong Kong, The Information reported citing people familiar with the matter. The companies reportedly feel that they no longer need to hedge against future regulatory conflicts between China and the U.S. The news comes after an report earlier in December which noted that the U.S. accounting watchdog Public Company Accounting Oversight Board said it had full access to inspect and probe firms in China for the first time ever, brushing aside the risk that about 200 China-based companies could be removed from U.S. stock exchanges amid tough relations between the two countries.

US-listed Chinese companies drop plans to list in Hong Kong (NYSE:YMM) | Seeking Alpha

My thesis is that in Musk’s newfound desire to own the Libs, he’s alienating the very people who have overwhelmingly been buyers of his EVs. How to validate this thesis? Well, let’s look at data for the state of New York from three distinct datasets: Census Bureau gives us population by county, the state gives us a breakdown of 2020 election results (see above), and another state database gives us (as but one of a truly impressive catalog) vehicle registrations (again, see above). The table above contains the top 10 and bottom 10 Trump-voting NY counties in the 2020 election, showing the percentage of Trump voters, the population, the number of TSLA registrations, and critically, TSLA registrations per 10k population. The result:. Adjusted for population, Teslas are ~5x more common in heavily Democratic counties than they are in heavily Republican counties.

Thoughts On Owning the Libs