As of now, the US dollar has declined by over 10% this year, marking its weakest start since 1973. Factors such as tariffs, inflation anxieties, and increasing national debt are contributing to this downturn. The depreciation of the dollar is raising costs for foreign investments in the US. “The trend of a weaker dollar has gained traction, but I believe the pace of its decline will soon diminish,” noted Guy Miller, chief market strategist at Zurich Insurance Group.
For a brief period, it appeared that the market was on the verge of collapse. However, as sentiment improved, the selling pressure has largely dissipated. A review of select proxy ETFs indicates that risk-on sentiment is re-emerging from a high-level global asset allocation perspective, particularly based on prices up to Friday’s close (June 27).
US consumer spending and income saw a decline in May, as reported by the Bureau of Economic Analysis on Friday. Additionally, inflation rose slightly, indicated by the core PCE measure, which is the Federal Reserve’s preferred gauge of prices, edging up to a year-over-year rate of 2.7%. “This report is neutral for the Fed and is unlikely to change its cautious approach,” commented Sal Guatieri, senior economist at BMO Capital Markets. “The downturn in spending in May reflects a partial correction from earlier anticipatory buying ahead of tariffs, while the slight uptick in core prices does not clarify the impact of tariffs on inflation.”
● The Collapse of Global Liberalism: And the Emergence of the Post Liberal World Order
Philip Pilkington
Summary via publisher (Wiley)
In the 1990s, a vision emerged of a seamless globalized world where the West would continually prosper due to a technology-driven service economy, all grounded in a liberal international order governed by rules. This ideology underpinned mainstream politics across the political spectrum. Philip Pilkington contends that this vision was fundamentally flawed and is now failing. It relied on a rigid and unrealistic interpretation of liberalism that has led to hollowed-out economies and crumbling societies unable to sustain their populations or meet their energy requirements. The US and UK now face challenges in competing against China and other non-liberal nations within an emerging post-liberal context where industrial capability, realpolitik, and military strength are paramount. The only way for the West to thrive is to relinquish its liberal illusions and adopt a pragmatic, post-liberal approach.
The Federal Reserve’s cautious approach to monetary policy is showing signs of strain, as reflected in market movements. While the central bank is expected to maintain current interest rates at the upcoming FOMC meeting in July, recent developments have diminished confidence in this no-change forecast. Meanwhile, the likelihood of an interest rate cut in September is gaining traction.
Initial jobless claims in the US decreased last week, even as continuing claims rose. The number of Americans receiving unemployment insurance on an ongoing basis surged to its highest in three and a half years, indicating potential strain on the labor market. “This data signals a softening in labor market conditions, especially on the hiring front,” commented Nancy Vanden Houten, lead economist at Oxford Economics. “At present, we don’t anticipate that labor market weakness will compel the Fed to lower rates before December; however, there’s increasing risk that once rate cuts commence, the Fed may need to catch up quickly.”
Consistent with the strong performance of foreign equities so far this year, bond markets outside of the US are also achieving notable gains, as evidenced by a range of ETFs up to Wednesday’s close (June 25).
US crude oil prices dropped on Wednesday, falling below levels from June 13, marking the beginning of the Israel-Iran conflict. “Though there may be bumps ahead, the market suggests that this (conflict) is likely coming to an end,” stated Robert Yawger, a commodities expert at Mizuho Securities, in a recent CNN interview. “While markets reacted positively to Trump’s ceasefire announcement, the optimism could be fleeting,” cautioned Lukman Otunuga, a senior market analyst at FXTM, in a note to investors. “If tensions escalate again or the ceasefire breaks down, we may observe a swift return to risk aversion, benefiting safe havens like gold and pressuring global equities.”
Despite ongoing conflicts, tariffs, and various economic threats that cast doubt on the global outlook, the international equity premium over US stocks remains robust this year, according to a selection of ETFs validated up to Tuesday’s close (June 24).
The US Consumer Confidence Index showed a decline in June. “Consumer confidence dropped in June, reversing almost half of the significant gains made in May,” reported Stephanie Guichard, Senior Economist at The Conference Board. “The decline was widespread across all components, with consumers’ evaluations of current circumstances and future expectations both negatively impacted. Compared to May, consumers expressed less optimism about present business conditions. Their perception of job availability deteriorated for the sixth month in a row, although it remains positive, consistent with a still-strong labor market.
In summary, the current economic landscape reflects significant challenges, including a declining US dollar, softening consumer spending, and evolving labor market conditions. Despite these hurdles, certain sectors are demonstrating resilience and adaptation. The next steps for policymakers and investors will be crucial in navigating these turbulent waters.
