Investment news
The Fed raises interest rates, Powell vows no surrender in inflation battle: The 75-basis-point rate hike, combined with previous actions in March, May, and June, has pushed the central bank's overnight interest rate from near zero to a range of 2.25 percent to 2.50 percent. (Reuters)
Powell stated that, depending on how inflation responds in the coming months, the central bank may be able to begin slowing the pace of rate increases.
⭐ The gold price hit a near three-week high on Thursday after Powell signaled that the central bank may slow the pace of rate hikes in the coming months, dragging down the dollar and Treasury yields.
Here’s how the prices of gold, silver, platinum, and palladium have changed over the past week:
Confidence in the eurozone economy fell to the weakest in 17 months as fears of energy shortages haunt consumers and businesses, and the ECB’s first interest-rate increase in a more than 10 years raises fears of recession. (Bloomberg)
Europe is on edge Moscow has limited natural gas deliveries in response to Western sanctions over its invasion of Ukraine. A complete shutdown risks energy rationing, which could reduce output at industrial companies. Moreover, economic expansion slowed sharply in the second quarter, signaling a nearing recession.
A further escalation of the energy stand-off between Moscow and the European Union: State-run gas giant Gazprom said Monday it would reduce natural gas flows to Europe via a major pipeline to 20%, citing equipment repairs. (Reuters)
In response, European countries agreed on an emergency plan to voluntarily reduce their gas use by 15% from August in the hopes to avoid a much deeper contraction later.
While Moscow blamed the supply cuts on a variety of technical issues, Brussels accused Russia of using energy as a weapon to blackmail the EU and retaliate for Western sanctions imposed in response to its invasion of Ukraine.
Fighting fire with gasoline. Thailand’s cabinet has approved additional support measures worth 27.4 billion baht ($748.23 million) to reduce cost-of-living pressures and maintain consumption in the face of rising inflation. (Reuters)
The measures that will run from September-October, include 21.2 billion baht for 26.5 million people, or 800 baht each, as part of an existing scheme to support consumer purchasing power, the ministry said.
“Edge of a global recession”: The International Monetary Fund cut its global economic forecast once again, predicting significant slowdowns in the world's three largest economies: the United States, China, and Europe. (IMF Blog)
“The world may soon be teetering on the edge of a global recession, only two years after the last one. Multilateral cooperation will be key in many areas, from climate transition and pandemic preparedness to food security and debt distress,” the IMF said in a blog post.
In its forecast, the IMF said global growth could slow from last year’s 6.1% to 3.2% this year and 2.9% next year.
If you want to know more about a recession and its possible effect on your savings and the global economy, read our SPOTLIGHT article.
Opinion
The dollar is strong and getting stronger, reaching 20-year highs against a basket of other currencies. History shows that it’s likely a forerunner of hard times for much of the rest of the world. (Bloomberg Opinion)
“When the dollar appreciates, the cost of servicing debt in other countries, particularly emerging markets, can easily become unsustainable because their debts aren't denominated in their own currencies; instead, they owe in dollars.”
So as the U.S. dollar increases in value, debtors frequently face crisis and collapse, as they have for the past century and a half.
What else is happening
🤔“Arguing with the dictionary”? There has been a big push by the White House to declare that even if the U.S. economy has shrunk in two consecutive quarters, it is not necessarily in recession. (The White House)
A recession has been generally defined as two consecutive quarters of negative economic growth as measured by a country's GDP.
But the White House says two quarters of negative growth don’t necessarily signal a recession. Here’s what its recent blog post says:
“While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle. Instead, both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data—including the labor market, consumer and business spending, industrial production, and incomes. Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession.”
Biden addressed the issue on Monday, saying the U.S. will most likely dodge a downturn and similarly highlighting the rebound in the U.S. labor market as a sign of good economic health.
Grain deal: After brokering an agreement between Kyiv and Moscow that allayed concerns about a global food crisis, Turkey said grain exports from Ukrainian ports could reach 25 million tons by the end of the year. (Bloomberg)
When war broke out, up to 100 grain and agricultural cargo ships were stranded in Ukrainian ports.
The Black Sea blockade by Russia has put a dangerous strain on the world's food supply chain, which was already under pressure from coronavirus disruptions and poor harvests.
Ukraine was the fifth-largest wheat exporter in the world prior to Moscow's invasion in February; it was a crucial supplier to the Middle East and Africa.
Read our SPOTLIGHT to see what the ongoing geopolitical tensions could mean for the global economy and price of gold.
And finally…
A rare pink diamond has been discovered in Angola. According to Australian miner Lucapa Diamond Co., it may be the biggest found in the last 300 years. The 170-carat stone from the Lulo alluvial mine has been named the “Lulo Rose.” (Bloomberg)
It will be sold through an international tender conducted by Angolan diamond trading company Sodiam.
Colored diamonds, which are rarer than colorless ones, have reached record-setting prices in recent years. In April 2022, Sotheby's Hong Kong auctioned off the De Beers Cullinan blue diamond for $57.5 million.
See you next week!
