As we near the end of the first quarter, this is why global markets will only get more volatile in 2025.
March 11 (King World News) – Peter Boockvar: To a question on Friday about why the US economy has done so well over the past few years compared to its international peers, Jay Powell mentioned everything except the exceptional amount of fiscal government spending. He cited the pick up in productivity, our structural benefits of a rule of law, culture of innovation and deep capital markets. He also talked about the influx of immigrants in 2022 and 2023.
All true but either he forgot to mention the fiscal largess or didn’t want to wade into that but either way, it’s got to be a topic of monetary policy discussion next week and thereafter because if we lose that fiscal juice, the US economy is going to lose a key pillar of economic support. Again, trimming the size of the government footprint in the economy is a good thing to the benefit of the private sector long term but in the short term, no lunch is free.
Tariff Wars
It’s not just the US farmer that today is getting hit with Chinese tariffs on beef, chicken, grains and other things, China decided to slap tariffs on some Canadian ag imports including a 100% one on rapeseed oil/meal and peas along with 25% on pork and others. That is in retaliation to the Canadian tariffs put on Chinese EVs and steel and aluminum that Canada announced late last year. Will there really be a long-term gain from all of this as we are told with the sacrifice of some short-term pain?
Back to Jay Powell, I know some think that rate cuts will save the economic day as they did in 2019 when the Fed was cutting in response to the manufacturing recession brought on by tariffs but what if long term rates don’t fall and rise instead with more rate cuts as they did after the September cuts and have clearly done in Europe last week after another ECB rate cut.
The BoJ meets next week again and those always secretive ‘people familiar with the matter’ said “Bank of Japan officials are leaning toward keeping interest rates unchanged this month after their hike in January and as growing uncertainties in the global economy require close attention” according to a Bloomberg story on Friday.
That didn’t stop the 10 yr JGB yield from rising by another 6 bps overnight to 1.58%, the highest since October 2008.
This move comes after base pay in Japan in January rose 3.1% y/o/y, up from 2.6% in December and that is the quickest pace of gain since 1992.
The 10 yr Japanese inflation breakeven also rose 4.4 bps in response to 1.70%, a new high since the introduction of inflation linkers in Japan.
Used Car Prices
US used car prices have been flattening out after the drop following the price spike. Seasonally adjusted though, prices fell .7% m/o/m in February according to Manheim after a .4% rise in January. Versus last year, prices are flat, up .1%. They said, “With gray days and winter storms, it’s not uncommon to see some volatility in wholesale trends relative to long term run rates in February, and that’s what we experienced over the course of the last four weeks.”
Also, “Tax refund season drives the ‘spring bounce’ in wholesale markets, and it looks to have started off a bit slower this year, before ramping up at the end of February. The retail supply of used units is tighter than it was at this time last year, and tax refunds are motivating consumers to purchase used units, resulting in stronger dealer demand at Manheim in the last week of the month.” Tight supply continues because of below trend new car sales over the past 5 years as I’ve talked about for a while now.
While we see the drop in crude prices and the average drop in gasoline prices at the pump approaching $3.00, natural gas prices are now nearing $5 per Btu at $4.58, the highest since September 2022. Luckily the weather is about to become a bit warmer until the AC’s turn on in a few months.
China’s inflation stats are getting headlines because of the negative sign in front of both CPI and PPI. Conventional wisdom is always that deflation is bad with people forgetting the history of pricing in technology. And does the Chinese consumer really need a higher cost of living right now with the value of their biggest asset, that being their home, continuing to fall, albeit at a slowing pace?
The main reason for the .7% y/o/y drop in February CPI in China was the 3.3% decline in food prices. Ex food and energy saw prices lower by one tenth y/o/y, essentially unchanged, aka price stability.
The 2.2% decline in producer prices is more a symptom of the manufacturing challenges that China is having, along with the rest of the world. That said, we know in certain areas like EVs, China is dominating but not without pain for those EV makers who can’t compete on price. The Hang Seng took a breather after its blazing start. It fell 1.9% overnight but still up 18.6% ytd. The Shanghai comp is flat though ytd.
Gold Has Been The Light In This Volatility Storm
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WILD TRADING!
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