We saw some further rather alarming data out of China yesterday with exports declining a whopping 14.5% year-on-year in July.
This is the sharpest decline in the past three years and speaks far more to the state of the global economy than it does of China itself. Global demand is falling precipitously.
It is now very likely we will all be surprised by just how intense this global economic slowdown becomes. The three major economies of the world – US, China and the EU, are leading the downward charge.
Outside of the big three, several economies in Asia and elsewhere have been fairing somewhat better. However, there is a question as to how long satellite growth can last, given the intensity of the big three slow-down.
In the US on the day, we saw a further decline into deep recession territory in terms of the state of mind of US consumers. The IBD/TIPP Economic Optimism Index fell to just 40.3. These are extreme economic downturn levels for this data series.
At the same time, we saw US Household Debt made a new record high. Of significant concern is that Credit Card Delinquencies hit an 11 year high. This is approaching GFC levels.
There is also a crunch period coming for a large proportion of apartment buildings debt. The commercial property collapse is clear to all, and now apartment building owner stress is about to spike as well. Which is a part of the picture to why Moody’s just downgraded several regional banks and said downward credit reviews are being considered for several of the nation’s biggest banks.
No wonder businesses are being cautious. Recent Inventory contraction was lower than first thought. Down 0.5% in July. Businesses are being cautious about stock levels. And for good reason.
Our forecast of a further slowing in both the US and global economies is, unfortunately, exactly on track. The situation could even be described as dire. Particularly given the heads in the sand approach of European and US leaders. Preferring to trot out the mis-direct that their economies are strong for voter retention only. This is extremely dangerous as it suggests no policy responses will be made in time to save the day. There will similarly be no monetary policy rescue response. Rates are sticky where they are or even headed higher if inflation re-accelerates.
US markets were under heavy selling pressure on the day, but are trying to hold on in the hope of a positive Inflation print Thursday. Disappointment is likely, and given this current fundamental backdrop could be quite damaging.
Traders and investors need to be aware that this is about as bad as it ever gets on the economics front.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities
