<div class="entry-content">Last week, many major asset classes experienced declines as the markets evaluated the risk of continued interest rate hikes and the potential for a recession, according to several ETFs through Friday, Dec. 16. The one exception was US bonds, which saw an increase driven by a stronger demand for safe havens.
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<p>* NATO chief <a href="https://www.ibtimes.com/putin-planning-long-war-ukraine-nato-chief-3648203">predicts</a> that Putin intends to maintain a prolonged conflict in Ukraine.<br/>* US border cities <a href="https://apnews.com/article/texas-pandemics-public-health-el-paso-150179513b09e15b79f15f34eea24f50">gear up</a> for an anticipated surge in migrants.<br/>* Tech companies are <a href="https://www.wsj.com/articles/tech-companies-make-final-push-to-head-off-tougher-regulation-11671401283?mod=hp_lead_pos2">actively working</a> to avoid stricter regulations.<br/>* According to a Morgan Stanley analyst, a decline in US corporate profits <a href="https://www.bloomberg.com/news/articles/2022-12-19/morgan-stanley-s-wilson-says-us-profit-drop-could-rival-2008-era?srnd=premium&leadSource=uverify%20wall">may resemble</a> levels seen during the 2008 crisis.<br/>* Goldman Sachs is <a href="https://www.bbc.com/news/business-64004299">planning</a> significant job reductions in response to a sharp downturn in business.<br/>* The chair of the US Senate banking committee is <a href="https://thehill.com/homenews/sunday-talk-shows/">considering</a> a ban on cryptocurrency.<br/>* Germany's business climate sentiment has <a href="https://tradingeconomics.com/germany/business-confidence">improved</a> for the third consecutive month in December.<br/>* Federal Reserve officials <a href="https://www.bnnbloomberg.ca/fed-officials-reinforce-hawkish-message-on-need-for-higher-rates-1.1860435">reaffirm</a> their commitment to maintaining a hawkish stance to control inflation.<br/>* The housing market appears <a href="https://www.wsj.com/articles/why-this-housing-downturn-isnt-like-the-last-one-11671273004?mod=economy_lead_story">relatively insulated</a> from the current economic downturn:</p>
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<p><a href="https://www.amazon.com/Leveraged-Economics-Debt-Financial-Fragility/dp/0226816931?crid=1RNYEXA9OXTR9&keywords=Leveraged%3A+The+New+Economics+of+Debt+and+Financial+Fragility&qid=1671202079&sprefix=leveraged+the+new+economics+of+debt+and+financial+fragility%2Caps%2C593&sr=8-1&linkCode=li2&tag=thecapitalspe-20&linkId=25fc76913c3f90c5a1da43547e0a6fa7&language=en_US&ref_=as_li_ss_il" target="_blank" rel="noopener"><img decoding="async" class="alignleft" src="https://ws-na.amazon-adsystem.com/widgets/q?_encoding=UTF8&ASIN=0226816931&Format=_SL160_&ID=AsinImage&MarketPlace=US&ServiceVersion=20070822&WS=1&tag=thecapitalspe-20&language=en_US" border="0"/></a><img decoding="async" style="border: none !important; margin: 0px !important;" src="https://ir-na.amazon-adsystem.com/e/ir?t=thecapitalspe-20&language=en_US&l=li2&o=1&a=0226816931" alt="" width="1" height="1" border="0"/>● <a href="https://amzn.to/3W34tmr">Leveraged: The New Economics of Debt and Financial Fragility</a><br/>Moritz Schularick (editor)<br/><strong><a href="https://press.uchicago.edu/ucp/books/book/chicago/L/bo154076466.html">Summary</a> via publisher (U. of Chicago Press)</strong><br/>The 2008 financial crisis revealed significant vulnerabilities within the financial system that can inflict severe damage on economies and societies. Similarly, the COVID-19 pandemic in early 2020 necessitated major interventions by central banks to avert a financial collapse. This leads to a vital question: what makes our financial system so fragile that it frequently requires government assistance? For a generation of economists who gained prominence post-2008, these events have profoundly influenced their perspectives on financial instability and markets at large. "Leveraged" consolidates the insights of these experts, examining the causes and costs associated with financial fragility and providing a new framework for understanding these issues. Their conclusion emphasizes that the roots of financial instability in modern economies extend beyond technical discussions surrounding banking regulation and capital reserves.</p>
<div class="entry-content">Warnings of a recession have intensified this year, but the US economy has so far sustained itself, buoyed by increases in consumer spending and job growth. However, the unexpectedly weak retail sales data from November indicates that consumer confidence may be faltering. If this trend continues, the labor market could become the last line of defense safeguarding the economic landscape.
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<p>* The Senate <a href="https://www.cnn.com/2022/12/15/politics/government-funding-senate-vote/index.html">approved a bill</a> to prevent a government shutdown this week.<br/>* Russia continues to <a href="https://www.wsj.com/articles/russia-targets-infrastructure-across-ukraine-in-latest-barrage-11671181559?mod=hp_lead_pos3">launch missile attacks</a> on Ukraine.<br/>* US jobless claims <a href="https://www.cnn.com/2022/12/15/economy/jobless-claims-december/index.html">dropped</a> to a three-month low, reflecting a tight labor market.<br/>* Eurozone’s economic contraction <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/8981bbecda9d45169de0892277843469">moderated</a> in December according to PMI data.<br/>* The European Central Bank <a href="https://www.cnbc.com/2022/12/15/ecb-hikes-rates-sees-significant-rises-ahead-as-it-announces-plan-to-shrink-balance-sheet.html">increased</a> interest rates and signaled more hikes ahead.<br/>* NY Fed Manufacturing Index <a href="https://www.newyorkfed.org/survey/empire/empiresurvey_overview">fell</a> in December, yet the outlook remains positive.<br/>* Philly Fed Manufacturing Index <a href="https://www.nasdaq.com/articles/philly-fed-index-slumps-to-lowest-level-since-may-2020">plummeted</a> to its lowest since May 2020.<br/>* US industrial output <a href="https://www.nasdaq.com/articles/u.s.-industrial-production-unexpectedly-dips-0.2-in-november">declined</a> in November due to manufacturing pullbacks.<br/>* The Q4 GDP estimate for the US <a href="https://www.atlantafed.org/cqer/research/gdpnow">was revised</a> down to +2.8% based on Atlanta Fed’s model.<br/>* US retail sales <a href="https://www.cnn.com/2022/12/15/economy/us-retail-sales-november/index.html">decreased</a> significantly in November:</p>
<div class="entry-content">The yield on the US 10-year Treasury remains elevated compared to the “fair-value” estimate from CapitalSpectator.com, which is derived from three separate models. Although this doesn’t guarantee a decrease in the benchmark yield, current trends suggest a tendency toward a neutral to downward outlook for this rate.
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<p>* President Biden <a href="https://www.nbcnews.com/politics/joe-biden/biden-touts-us-relations-african-nations-announces-efforts-bolster-tra-rcna61611">announced</a> initiatives to enhance trade between the US and African nations.<br/>* The markets appear <a href="https://www.wsj.com/articles/fed-raises-rate-by-0-5-percentage-point-signals-more-increases-likely-11671044561">more optimistic</a> about inflation trends compared to the Federal Reserve's predictions.<br/>* Fed Chairman Powell stated that regarding rate hikes: <a href="https://finance.yahoo.com/news/fed-downshifts-half-point-hike-190001500.html">“We still have some ways to go.”</a><br/>* A spike in COVID cases in China was noted to have occurred before the end of the zero-tolerance policy, according to <a href="https://www.reuters.com/world/china/chinas-covid-spike-not-due-lifting-restrictions-who-director-2022-12-14/">WHO director</a>.<br/>* China's retail sales <a href="https://www.cnbc.com/2022/12/15/chinas-retail-sales-shrink-far-more-than-expected-while-industrial-production-disappoints.html">decreased</a> sharply, exceeding forecasts in November.<br/>* Business inflation expectations in the Atlanta Fed survey <a href="https://www.atlantafed.org/research/inflationproject/bie">dropped</a> significantly to 3.1%.</br>* US import prices <a href="https://www.reuters.com/markets/us/us-import-prices-fall-fifth-straight-month-november-2022-12-14/">declined</a> for the fifth consecutive month in November.<br/>* The Federal Reserve moderated rate hikes, <a href="https://www.nytimes.com/2022/12/14/business/economy/interest-rates-inflation-fed.html">raising</a> the target rate by half a point:</p>
<div class="entry-content">Although the US equity market has recently begun to recover its losses, when evaluated through a factor-risk perspective, dividend yield stands out as the only factor demonstrating positive performance for 2022, as shown by a range of ETF proxies.
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<p>* The Federal Reserve is anticipated to <a href="https://finance.yahoo.com/news/fed-preview-central-bank-set-to-slow-rate-hikes-at-final-meeting-of-2022-194812853.html">moderate interest rate hikes</a> in an announcement today.<br/>* President Biden’s Africa summit <a href="https://www.wsj.com/articles/bidens-africa-summit-seeks-to-reset-relations-11670935128?mod=hp_listb_pos5">commences</a> with the aim of resetting diplomatic relations.<br/>* Will the $60 price ceiling on Russian oil <a href="https://www.aljazeera.com/opinions/2022/12/13/putins-plan-to-take-on-the-world-economic-order-hits-a-wall">impact</a> Putin’s economic tactics?<br/>* FTX founder Sam Bankman-Fried <a href="https://www.wsj.com/articles/ftxs-sam-bankman-fried-charged-with-criminal-fraud-conspiracy-11670951131">faces charges</a> of criminal fraud and conspiracy.<br/>* Quantitative strategies <a href="https://www.wsj.com/articles/quants-are-headed-for-best-year-in-decades-as-fed-stokes-volatility-11670995957?mod=hp_lead_pos3">are positioned</a> for a robust performance in 2022.<br/>* Eurozone industrial output <a href="https://www.fxstreet.com/news/eurozone-industrial-production-contracts-by-2-in-october-vs-15-expected-202212141008">has contracted</a> more than anticipated in October.<br/>* UK inflation <a href="https://www.cnbc.com/2022/12/14/uk-inflation-falls-from-41-year-high-as-fuel-price-surge-eases.html">has decreased</a> from a 41-year high in November.<br/>* US consumer inflation <a href="https://www.cnbc.com/2022/12/13/cpi-inflation-november-2022-.html">has eased</a> again in November, showing a smaller increase than expected:</p>
<div class="entry-content">The future of interest rates largely hinges on the trajectory of inflation. Signs suggest we may be entering the early stages of a post-peak inflation period. Today’s consumer price inflation report for November will be instrumental in shaping the Federal Reserve’s upcoming monetary policy decisions. Currently, the markets are optimistic that inflation has peaked, though the outlook remains complex.
This article offers a snapshot of various economic indicators and events impacting asset classes and markets. Economic fluctuations raise questions about stability and confidence, highlighting the need for vigilance in an uncertain landscape. As we monitor these developments, the interplay between consumer behavior, employment trends, and monetary policy will be crucial for future growth and stability.
