Important Economic Updates:
* The US regulator is contemplating the breakup of Google.
* Strategists predict that the unwinding of “carry trades” is still in progress.
* US consumers are falling behind in debt payments as the wealth accrued during the pandemic diminishes.
* The world’s largest sovereign wealth fund reports impressive tech-driven profits of $138 billion for the first half of the year.
* Home Depot lowers its earnings forecast as consumer sentiment grows cautious.
* US wholesale inflation experienced a minor decrease in July, as evidenced here:
Initial evaluations of third-quarter economic activity in the US suggest a slowdown compared to Q2, according to the median nowcast estimates compiled by CapitalSpectator.com. While the decline is notable, the analysis maintains a low risk of recession.
* There is a potential for Iranian retaliation against Israel this week, according to the White House.
* A significant number of Americans mistakenly believe the US is in a recession.
* Investor interest in bonds is recovering amid increasing recession fears.
* Fund managers are boosting cash reserves in August, as reported by a BofA survey indicates.
* German economic sentiment has sharply decreased in August.
* The electricity consumption of Big Tech rivals that of entire nations.
* GM is reducing its workforce in China as it reevaluates its strategy for the market.
* Small business optimism increases for the fourth consecutive month in July:
Though recent weeks have presented challenges, trend data suggests there is still ongoing debate regarding the sustainability of bullish investments. A review of major asset classes shows that most are generating positive results for 2024, leading up to the close on August 9.
* The US is deploying additional military resources to the Middle East in response to escalating tensions.
* Will the recent increase in market volatility subside? Experts do not think so just yet.
* More price-conscious consumers are expected to contribute to a declining inflation rate.
* Nouriel Roubini, known as “Dr. Doom,” does not anticipate a hard landing for the US economy in the near future.
* US inflation is likely to remain stable in July, according to predictions from RBC forecasts.
* Even amidst market fluctuations, US large-cap stocks (SPY) continue to outperform small-cap stocks (IJR) this year:
● Making Sense of Chaos: A Better Economics for a Better World
J. Doyne Farmer
Summary via publisher (Yale U. Press)
We find ourselves in a time of increasing complexity, marked by rapid technological advancement and global connectivity that presents both opportunities and challenges unlike any in history. The fossil fuels that once fueled our economic growth now pose a threat to the foundations they helped establish. Automation and digitalization create benefits for some while leading to unemployment for others. Financial crises deepen inequality and political division, undermining democracy’s stability. Many of these issues stem from economic roots, yet traditional economic models often fall short. Now, with big data and advanced computational power, we can leverage complex systems science in economic modeling, constructing more accurate representations of the global economy. The simulations and behaviors observed from these models establish the framework of complexity economics, allowing for better predictions and solutions to pressing global issues.
The CNN Fear and Greed Index as a Predictor of US Equity Index Returns
Hugh Farrell and Fergal A. O’Connor (University College Cork)
July 2024
This study examines whether the CNN “Fear and Greed” Index can predict returns on equity indices and gold, utilizing hand-collected data. The findings indicate that the Fear and Greed Index Granger-causes returns on the S&P 500, Nasdaq Composite, and Russell 3000 from the initial sample period (2011-2020), though not for gold. Analysis from 2021 to 2024 suggests a continued Granger-causation for S&P 500 and Russell 3000 returns, albeit with a weaker connection. No significant relationship was observed between the VIX and stock indices, indicating the superiority of the Fear and Greed Index as a predictor for equity returns.
* JP Morgan increases its odds of a US recession to a moderate 35% for this year.
* US mortgage rates drop to the lowest level observed in over a year.
* The US government is set to provide a loan to a South Korean firm for the construction of a solar facility in Georgia.
* While inflation in China rises, it remains low at just 0.5% compared to the previous year.
* US jobless claims decrease more than anticipated, indicating positive news for the labor market:
From the perspective of the past week’s trading, there is a strong case to interpret the recent market volatility as indicative of a risk-off shift. However, if one considers a longer time frame, the discussion remains open, as evidenced by various ETF pairs tracking broad trends through August 7.
* Consumers scaled back their borrowing in June, according to Federal Reserve data.
* The post-pandemic travel boom seems to be waning.
* Jamie Dimon, CEO of JPMorgan Chase, states that the US is not in recession at present.
* ‘Covered call’ ETFs were unable to provide safeguards against volatility during the recent sell-off.
* The US 10-year to 2-year Treasury yield curve has flattened for the first time in two years:
Conclusion: As the economy navigates through shifting dynamics, various trends signal caution among consumers and investors alike. With indicators pointing to a slowing economy and evolving market sentiments, the key will be how businesses adapt to these changes amidst ongoing uncertainties.
