The ECB raised interest rates by 25 points and signalled clearly that it would continue to raise rates for some time.
There is only one problem here. Germany is already in recession and several nations are already faltering. Also, is it really appropriate to be raising rates against inflation when consumer and business activity is already slowing due to caution surrounding the war on the EU’s doorstep.
As has been the case in recent years, across several western economies, consumers appear to be reading the economic tea leaves more accurately than their respective central banks. Of course, if all central banks were really designed to do was fight inflation, I guess their current actions could be deemed appropriate. They are, however, supposed to deliver economic stability.
This cannot end well. How could it when Germany is already in recession and you are raising interest rates with more to come?
The equity market seems as detached as the ECB. The German stock market just hit record highs while in recession, and with interest rates continuing to climb. One can only begin to be just a little circumspect about whether the current equity market euphoria is really justified, or is it indeed a liquidity splurge that will end in more than just a few tears?
Data in the USA yesterday could be best characterised as flatlining.
Retail sales seemed good on the month up 0.3%. However, as with all data of late being quite volatile, it is necessary to remain aware of the trend rather than an individual data point.
Over the past 3 months retail sales are still down 0.2%. Over the previous four months since the spike due to weather, retail sales are still down 0.9%. Which makes it clear that it will take more than the latest 0.3% gain to encourage us to see anything other than a flat outlook.
Manufacturing output similarly managed a small rise of 0.1%, but treading water in a manufacturing recession is not really that exciting either. Then there was Industrial production which fell 0.2%. Capacity utilisation and inventories were actually good results. No boom, but quite reasonable numbers.
Overall though, I suggest the evident slowdown in the US economy may only quicken in coming months.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities.
