Summary and Comment

The week was marked by the halting of the stock market rally, hawkish J. Powell testimony to the Congress, the visit of India’s prime minister to Washington and a diplomatic visit of Antony Blinken to China, shaking hands with President Xi Jinping.

Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year, Fed Chair Powell reinforced in prepared remarks for the Semiannual Monetary Policy Report to Congress. The Fed will continue to make decisions meeting by meeting. “Earlier in the process, speed was very important,” but “It is not very important now.” Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go. The Fed left the target for the funds rate unchanged at 5%-5.25% in June but signaled rates may go to 5.6% by year-end if the economy and inflation do not slow down more.

On the economic indicator front, housing starts in the US unexpectedly jumped 21.7% month-over-month to a seasonally adjusted annualized rate of 1.631 million in May of 2023. It is the biggest increase in housing starts since October of 2016. On the other hand, building permits in the US rose by 5.2 % to a seasonally adjusted annual rate of 1.491 million in May 2023, according to a preliminary estimate. However, these numbers are “adjusted” and “estimated”, so we might have to wait a couple of months for the actual (revised) numbers!!!

In the United Kingdom, the consumer price inflation held steady at 8.7 % in May 2023, unchanged from the previous month’s 13-month low and above market expectations of 8.4 percent. Retail sales in the UK declined by 2.1 % compared to the previous year in May 2023. This was the 14th consecutive month of trade decline as consumer demand has been negatively affected by the persistent high inflation and rising borrowing costs. The Bank of England raised its policy interest rate by 50 basis points to 5.0% during its June meeting, marking the 13th consecutive hike. This decision surprised market expectations of a smaller 25 basis point rate hike and pushed borrowing costs to their highest level since the 2008 financial crisis. The UK economy will soon be choked by the higher borrowing costs and demand will be killed…

Surprisingly, the International Monetary Fund (IMF) announced they are working hard on a global Central Bank Digital Currency (CBDC) platform concept. It seems that the thin-foil conspiracy theorists were not exaggerating. A centralized monetary system is arriving, for good and bad. Let’s hope surveillance, control and credit scores don’t come with it. An IMF working paper states: “Greater adoption of CBDC will result in greater financial inclusion and formalization, but potentially the disintermediation of banks and card payments.“

For the week, the main stock market indices are down, with the NASDAQ losing 1.3%, the S&P500 down 1.4%, and the RUSSEL 2000 taking a hit of 2.9%. Gold and silver are down 1.9% and 7.3%, respectively. The barrel of WTI lost 3% this week, while natural gas rised 6%. Bitcoin is up 16%!!!

The relative strength of the US dollar rised 0.6%. The US 10-year yield fell slightly to 3.74 %. The US bond yield is peaking at 5.4 % in 6 months from now, and the yield curve remains inverted (a recession indicator).

Sources

https://www.nytimes.com/2023/06/22/world/asia/modi-visit-us-india-biden.html

https://www.cnbc.com/2023/06/20/us-china-relations-takeaways-from-blinkens-beijing-visit.html

https://www.bloomberg.com/news/articles/2023-06-19/imf-working-hard-on-global-cbdc-platform-concept-georgieva-says#xj4y7vzkg

https://www.imf.org/en/Publications/WP/Issues/2023/06/16/Central-Bank-Digital-Currency-Adoption-A-Two-Sided-Model-534325

https://www.tradingeconomics.com

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