💡Quote of the week
“Why am I worried about a recession? It’s not that I know something the president of the Chicago Fed doesn’t. (In fact, I’m pretty sure I don’t.) It’s that the economy is clearly more exposed now to whatever shocks await us. Even if we are on a golden path, a more vulnerable economy is no great victory.” - Bloomberg Opinion columnists Allison Schrager
⭐️ Precious metals rally. Precious metals experienced a rally as the U.S. inflation rate dropped to 3%. Gold surpassed the $1950 mark while the dollar reached new lows, resulting in a 4% surge in silver. Platinum also climbed above the $950 level.
The declining U.S. dollar, along with lower Treasury yields, provided support to the gold market. Silver's rally was attributed to a decrease in the gold/silver ratio. With continued momentum, platinum is expected to gain further upside potential in the upcoming trading sessions.
📈 Stocks are up. On Thursday, stocks rose for the fourth day as inflation data came in lower than expected. The S&P 500 and Nasdaq Composite reached their highest levels in over a year. (CNBC)
The S&P 500 climbed 0.85% to 4,510.04, while the Dow Jones Industrial Average added 0.14%. The Nasdaq Composite advanced 1.58%. Palo Alto Networks, MGM Resorts, and Alphabet saw gains.
June's producer price index rose less than anticipated, confirming the cooling inflation trend. As the Federal Reserve prepares to raise interest rates, attention now turns to corporate earnings.
“The PPI confirmed the cooling inflation shown in yesterday’s CPI, but the lower-than-expected weekly jobless claims number was a reminder of continued labor market tightness,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
🇺🇸 US Inflation Slows: Fed's Farewell! The US inflation rate drops to a two-year low of 3%, marking a significant step towards resolving the cost-of-living crisis. Although challenges remain, the Federal Reserve's monetary tightening may be nearing its end. (Bloomberg)
Market reactions indicate expectations of easing measures. Ryan Sweet, chief US economist at Oxford Economics, suggests that "This tightening cycle by the Fed is likely coming to an end." Despite remaining above the 2% target, high prices continue to burden Americans, potentially impacting President Joe Biden's re-election prospects.
With a resilient labour market and robust wage gains, the economy maintains strength. A glimmer of "breathing room" emerges for the Fed, pending consistent trends in future inflation reports.
🏢 Real Estate Distress in Europe. Real estate emerges as the most distressed sector in Europe during Q2 due to liquidity pressures, weakened investment metrics, and squeezed profitability. Rising interest rates, elevated debt servicing costs, and reduced demand for office space intensify the market's challenges. (Bloomberg)
The Weil European Distress Index report highlights the impact of these factors on more than 3,750 listed European firms. Housing affordability is also affected by higher interest rates, dampening the outlook for house prices. The retail and consumer goods sector follows closely as the second most distressed, impacted by the ongoing cost-of-living crisis. Financial services firms experience their highest distress levels since October 2020.
The UK stands out as the most distressed region, with stubbornly high inflation and slower-than-expected progress towards the Bank of England's target rate. German corporates also face heightened distress, reflecting a weaker economic recovery, while France benefits from government support but expects challenges ahead. Restructurings are anticipated to arise from upcoming debt maturities rather than liquidity issues.
🇬🇧💰🥪 Expensive food. UK food price inflation is projected to decline gradually throughout the remainder of 2023, reaching approximately 9% by December, warns the Institute of Grocery Distribution (IGD). The IGD cautions that sales volume is not expected to recover significantly until next year. (Reuters)
The persistently high food inflation poses a challenge to Prime Minister Rishi Sunak's target of halving overall inflation by 2023, potentially impacting household budgets already strained by interest rate increases.
Labour shortages in the food and consumer goods industry are driving up costs and undermining capacity. Lower-income individuals are particularly affected, with a significant percentage reducing their consumption of food and drink at home compared to those with higher incomes.
🤖 Musk back on the AI horse. Elon Musk has launched xAI, a new company aiming to explore the mysteries of the universe and create an alternative to the popular ChatGPT AI chatbot. (Bloomberg)
Led by Musk and supported by experts from Google's DeepMind, Microsoft, Tesla, and the University of Toronto, xAI seeks to understand the true nature of artificial intelligence. Despite Musk's reservations about AI, his startup will dive into AI research.
The founding team includes former Google employees and academic scholars. xAI is actively recruiting engineers and researchers in the Bay Area, with Musk expanding his empire of companies, including Tesla and SpaceX.
🚔 The heat is on for Celsius. Former Celsius CEO, Alex Mashinsky, has been arrested on federal securities fraud charges, while the bankrupt crypto exchange has agreed to a $4.7 billion settlement with government regulators. (CNBC)
Mashinsky and a co-defendant, Roni Cohen-Pavon, face multiple charges, including fraud and securities manipulation. The settlement, announced by the FTC, will be paid once customer assets are returned in bankruptcy proceedings. The SEC has also charged Mashinsky and Celsius, alleging misleading investors and fraudulent manipulation of Celsius' exchange token.
Mashinsky denies the allegations and plans to defend himself in court. Earlier this year, Mashinsky was accused of orchestrating a $20 billion fraud.
📸 Image of the week
🧐 No recession = build portfolio resilience. Veteran strategist David Roche, who successfully predicted the 2008 and 1997 crisis, predicts we will see no global recession but are heading towards a tough time for investors. (CNBC)
According to David Roche, the global economy is unlikely to enter a recession, and central banks need to reconsider their approach to inflation. Despite rising inflation rates and anticipated interest rate hikes, Roche believes central banks will maintain elevated rates until next year.
He argues that labor markets and disposable income are behaving differently this time, suggesting that a recession won't occur. Roche proposes that central banks change their goals to address inflation, as the global economy faces a period of static growth with high interest rates.
And on Tuesday, JPMorgan Global Market Strategist Hugh Gimber echoed Roche’s opinion: “We think that ultimately total returns on a 12-month forward basis across risk assets could be coming under significant pressure, and therefore this is a time for investors to be focused on portfolio resilience.”
Editor’s note: That sounds pretty close to a “don’t forget to buy gold” to us 😎
What else is happening
🇪🇺🥵 Europe takes the heat. Europe braces for a record-breaking heatwave as temperatures soar across the continent. An intense period of heat is sweeping through Spain, France, Greece, Croatia, and Turkey, with Italy on the verge of surpassing the highest temperature ever recorded in European history. (CNBC)
Meteorologists predict temperatures above 40 degrees Celsius, while Italy's Sardinia and Sicily could reach a scorching 48 degrees Celsius. Climate scientists express deep concern over the increasing frequency of extreme heatwaves, emphasizing the urgent need to address the climate emergency.
Last year's heatwaves resulted in over 61,000 deaths in Europe, prompting calls for accelerated climate action and heightened awareness of the risks posed to the economy and society.
🇹🇷🇸🇪 Erdogan changes is mind. Turkey's President Recep Tayyip Erdogan has agreed to support Sweden's bid to join NATO, according to NATO chief Jens Stoltenberg. Erdogan will forward Sweden's application to the Turkish parliament and ensure ratification. Previously, Turkey had blocked Sweden's application, accusing it of hosting Kurdish militants. (BBC)
As a NATO member, Turkey holds veto power over new entrants.
The announcement has been welcomed by US President Joe Biden, who expressed readiness to work with Turkey on enhancing defense and deterrence.
The agreement was reached during talks between Erdogan and Swedish Prime Minister Ulf Kristersson in Vilnius, Lithuania. However, a specific date for Sweden's NATO membership has not been determined yet, as it depends on the Turkish parliament.
🇪🇺💰🇺🇦 EU’s check to Ukraine. EU member states have pledged over €400 million to the European Investment Bank's fund for Ukraine's recovery. France and Italy each committed €100 million. The fund will support infrastructure projects, including schools, hospitals, transport, and digital capabilities. (Bloomberg)
The fund aims to provide temporary support until long-term EU measures are available. The EIB will also offer technical assistance and support Ukraine's EU accession process. Disbursements are expected to begin in autumn, pending approval from respective parliaments.
🇨🇳📉 China’s exports take a hit. China's exports see the largest decline in over 3 years as global demand weakens. In June, the dollar value of China's exports fell by 12.4%, surpassing expectations and marking the sharpest drop since the start of the Covid-19 pandemic. (CNBC)
Imports also declined by 6.8%, indicating a slowdown in local demand. High inflation in developed markets and geopolitical factors have contributed to the contraction in China's trade. While trade with Southeast Asian economies and Belt and Road partners remains strong, trade with the United States and the European Union has suffered.
China is now relying on domestic demand to drive its economic recovery.
🇹🇭🪧 Thailand’s road to protests? The leader of Thailand's pro-reform party, Pita Limjaroenrat, has been blocked from assuming power as the country's prime minister due to a parliamentary vote that includes military-appointed senators, creating fears of protests in the country. (Guardian)
Pita's Move Forward party, which won the most seats in the May election, required majority support from parliament to take office. Although he formed a coalition with other opposition parties, he fell short of the required threshold. All current senators, who hold the balance of power, were appointed by the military and are seen as part of the conservative establishment. Pita plans to strategize and run again in a repeat of the ballot next week.
The move is likely to provoke street protests, particularly among the youth who strongly support the progressive party's agenda of major reforms and reducing the military's influence in politics.
🌎 Welcome to the Anthropocene. Scientists are suggesting that a new geological epoch called The Anthropocene, which is characterized by the influence of human activities on Earth including human-induced climate change, species loss, and pollution, began between 1950 and 1954. (NPR)
A team of scientists suggests placing a marker at Crawford Lake in Canada to symbolize the start of this epoch. The lake's sediment layers contain evidence of human activities such as burning fossil fuels, nuclear detonations, and pollution.
Geologists measure time in eons, eras, periods, epochs, and ages. The scientific working group is proposing that Anthropocene Epoch followed the Holocene Epoch, which started about 11,700 years ago at the end of an ice age. They are also proposing the start of a new age, called Crawfordian after the lake chosen as its starting point. The proposal is yet to be approved by geologists but could be finalized next year.
The Anthropocene shows the power — and hubris — of humankind, several scientists said.
See you next week!