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The upcoming stagflation might be less severe than in the 1970s. So is the Fed’s reaction, which could mean good news for gold. There are many terrifying statements you can hear from another person. One example is: “Honey, we need to talk!” Another is: “I’m from the government and I’m here to help.” However, the scariest English word, especially nowadays, is “stagflation.” Brrr! I’ve explained it many times, but let me remind you that stagflation is a combination of economic stagnation and high inflation. This is why it’s a nightmare for central bankers as they should ease monetary policy to stimulate the economy and simultaneously tighten it to curb inflation. Although we haven’t fallen into recession yet, the pace of GDP growth has slowed down recently. According to the World Bank’s report Global Economic Prospects from June 2022, “the global economy is in the midst of a sharp growth slowdown” and “growth over the next decade is expected to be considerably weaker than over the past two decades.” The U.S. growth is expected to slow to 2.5 percent in 2022, 1.2 percentage points lower than previously projected and 3.2 percentage points below growth in 2021. This is why more and… Read More »Stagflation with Powell could make gold happy

We have expanded our Executive Briefing to also give a high level update on Nordic Economies and financial markets. We hope you find it useful. Fear of inflation is increasingly supplemented by fear of recession as a market theme, not least in credit markets where spreads have widened very substantially. However, there were also large parts of June where markets moved in the other direction, and uncertainty and volatility is high in many markets. Both Sweden and Norway had 50bp rate hikes in June. Rate hikes look set to continue this year. Read the article here

We have expanded our Executive Briefing to also give a high level update on Nordic Economies and financial markets. We hope you find it useful. Fear of inflation is increasingly supplemented by fear of recession as a market theme, not least in credit markets where spreads have widened very substantially. However, there were also large parts of June where markets moved in the other direction, and uncertainty and volatility is high in many markets. Both Sweden and Norway had 50bp rate hikes in June. Rate hikes look set to continue this year. Read the article here

As trading kicks off for the month of July and the second half of the year, investors are hoping for a third quarter rebound.  It’s been a brutal year so far in financial markets. The S&P 500 is down over 20%. Bitcoin has crashed by 60%. Bonds have provided no safe haven amid hot inflation. And spiking mortgage rates point to a potential calamity in the housing market.  As for gold, the monetary metal is essentially flat for the year. It may not be cause for celebration, but gold holders have at least obtained some shelter from broader market volatility.  Metals markets are caught between the forces of inflation and the threat of recession.  Signs point to an economic downturn already being underway. It could be accelerated by another outsized Federal Reserve rate hike later this month.  The Fed continues to feel pressure to do something about inflation.  The central bank’s preferred core Personal Consumption Expenditures index came in this week at 4.7%.  That represents a decrease for the third consecutive month, although the annual rate remains well above the Fed’s 2% target. The core rate also excludes food and energy costs. Factoring those critical costs of living back in… Read More »New signs economic turmoil will prompt Fed to lose its nerve

As trading kicks off for the month of July and the second half of the year, investors are hoping for a third quarter rebound.  It’s been a brutal year so far in financial markets. The S&P 500 is down over 20%. Bitcoin has crashed by 60%. Bonds have provided no safe haven amid hot inflation. And spiking mortgage rates point to a potential calamity in the housing market.  As for gold, the monetary metal is essentially flat for the year. It may not be cause for celebration, but gold holders have at least obtained some shelter from broader market volatility.  Metals markets are caught between the forces of inflation and the threat of recession.  Signs point to an economic downturn already being underway. It could be accelerated by another outsized Federal Reserve rate hike later this month.  The Fed continues to feel pressure to do something about inflation.  The central bank’s preferred core Personal Consumption Expenditures index came in this week at 4.7%.  That represents a decrease for the third consecutive month, although the annual rate remains well above the Fed’s 2% target. The core rate also excludes food and energy costs. Factoring those critical costs of living back in… Read More »New signs economic turmoil will prompt Fed to lose its nerve

The EURUSD survived the “End of Month/Quarter/H1” flows today as the market was widely expecting strong US Dollar buying into today. The EURUSD reversed course from the 1.0400 probe below and by the end session ended near the highs of the session. The EURUSD continues to compress in a wedge as the descending trend line is at 1.0570 and remains key resistance for the bears to hold. A Dips below the 1.0400 level are finding eager buyers. Considering the pair has not broken down following the move lower in risk assets sets up the risk of a reversal higher in the coming days. RSI is mid-range and also compressing. 

With central banks shifting towards accepting that monetary tightening is impossible without some economic damage, the market narrative has swung 180 degrees this week – and indeed, that wind direction change has taken place in real-time. Rather than sticky inflation, the market is now panicky about slumping growth. You can roll out various indicators like the weaker PMI and ISM prints, which point to a consumer-driven economic slowdown. Still, the big differentiator is Germany's energy problems. The markets now fear a significant deceleration in Germany against the ECB's intent on raising rates triggering thoughts of a global contagion risk emanating from Europe's industrial powerhouse diving headlong into the economic plunge tank. And with central banks willing to hike into the perfect financial storm, cracks in consumer demand will surely widen and cut deeper worldwide, which could exert significant disinflationary forces if the central banks act too aggressively for too long. In the meantime, central bankers are entirely willing to accept economic damage as the price for slower inflation. US inflation is back in line but at the cost of a scorched consumer demand policy. Powell and company left it too long to chase down inflation, and now growth is slowing… Read More »Slumping growth spooks investors

A combination of factors dragged EUR/USD to a nearly two-week low on Wednesday. Softer German CPI print weighed the shared currency amid broad-based USD strength. Powell’s hawkish remarks and the risk-off impulse provided strong lift to the greenback. The EUR/USD pair extended the previous day's rejection slide from the 50-day SMA – levels just above the 1.0600 mark – and witnessed heavy selling for the second successive day on Wednesday. The downward trajectory dragged spot prices back below mid-1.0400s, or a nearly two-week low, and was sponsored by a combination of factors. The shared currency was undermined by softer German consumer inflation figures, which, along with a strong pickup in the US dollar demand, exerted downward pressure on the major. According to the preliminary estimate, inflation in the euro area's largest economy surprised to the downside and the Harmonised Index of Consumer Prices (HICP) declined to the 8.2% YoY rate in June. This marked a notable deceleration from the 8.7% in May and was also well below expectations for a reading of 8.8%. Adding to this, European Central Bank President Christine Lagarde, speaking at the central bank's annual forum, offered no fresh insight on the rate hike path, which further… Read More »EUR/USD Outlook: Awaits US PCE inflation before the next leg down to YTD low

Another disappointing day for stock markets with US indices ending the day flat after Europe posted decent losses. There was always going to be some nervousness heading into today, with Fed Chair Jerome Powell, ECB President Christine Lagarde and BoE Governor Andrew Bailey all appearing on a panel at the ECB Forum. Under normal circumstances there would be potential for that to put investors a bit on edge so you can imagine what today had the potential to do. Which probably explains the very conservative approach by the above. As is so often the case with events like these, there was a lot of attention in the build-up but the panel discussion itself was a bit of an anticlimax. Nothing we heard was new, there was no interesting fresh insight or hints at impending policy shifts that risked catching investors wrong footed. It was largely a rehash of past comments. So while it didn't send investors into panic mode, it didn't do much to reassure them either. Central banks are clearly concerned about inflation and the economy but ultimately, the former takes precendence. I'm sure there'll be plenty more surprises in the weeks ahead, perhaps starting tomorrow when we get… Read More »Attention turns to inflation data

Outlook: Not to be blasé, but crashing consumer sentiment in the US, UK and Europe should come as no surprise. Consumers are still digesting inflation at 8%+ and not as sure as the financial professionals that the central banks can tame inflation, having admitted supply-driven inflation is mostly immune to monetary policy. Equity markets choose to combine expected earnings shortfalls with consumer gloom to drive equity prices down, but gee, since when does consumer sentiment drive markets? We want deeds, not words, and so far indicators like retail sales point to the consumer not cowed much at all or retreating to the back of the cave. This is one reason why talk is silly of a flip-flopping Fed that will ease up by year-end as recession appears. El-Erian in the FT makes an eloquent case for how bad a return to stop-go policies would be. But throughout all the talk of the Fed chickening out we never see any evidence of a crack in the resolve to tame inflation. Bad forecasts, yes, Delayed admissions, yes. But now the Rubicon has been crossed, where are the signs of turning back? It’s like beating a horse already running as fast as he… Read More »We want deeds, not words