This past Sunday the Bank for International Settlements held their 87th Annual General Meeting in Basel, Switzerland. During the conference they communicated four potential triggers for an economic downturn over the next twelve months – an upsurge in inflation, ‘serious financial stress’, weakening consumption and a rise in ‘protectionism’.
Consumption across the world is already stagnating, with further figures released today showing that in America demand for durable goods has started to decrease. This comes as Italy announced it was bailing out two of its banks in the Venice region, at a cost of €5.2 billion. Italy also announced last week a contraction in sales and orders.
The price of oil has also been in decline over the past four weeks. It’s high point so far this year came in January at $54. Today crude oil is down to $43.
As negative data mounts, stock markets continue to rise. As I have said before, when the Federal Reserve’s tightening of monetary policy begins to feed into the economy (a process that takes time), stocks will no longer be immune. Markets are routinely a ‘lagging indicator’ – when they enter a sustained decline it will be a culmination of years of central bank stimulus which globalists have now started to reign in.
Donald Trump and Brexit remain perfectly placed as scapegoats to disguise the malevolent intent of the financial elite. Just today The Conservatives announced a confidence and supply deal with the Democratic Unionist Party (DUP), which Sinn Fein’s Jerry Adams said would give a ‘blank cheque for TORY BREXIT which threatens the (Irish) peace agreement‘. Also today Theresa May announced how the three million EU citizens currently living in the UK ‘will have to apply for inclusion on a “settled status” register if they want to stay in the country after Brexit under Home Office proposals.’
Meanwhile, the US Supreme Court have partially lifted the block on Donald Trump’s ‘travel ban‘, a move which will likely inflame Geo-Political tensions eleven days before the G20 meeting in Germany.
- Orders for durable goods such as planes and computers fell in May for the second month in a row and registered the biggest drop in six months, suggesting that an early-year surge has faded.
- Durable-goods orders slipped 1.1% last month following a similar decline in April, the government reported Monday.
- The softness in orders for long-lasting goods comes halfway through the first year of a Trump administration that’s struggling to enact a pro-business agenda amid intense partisan in-fighting in Washington.
- If airplanes and autos are stripped out, orders minus transportation rose 0.1%. A key measure of business investment known as core capital-goods orders, meanwhile, fell 0.2% to mark the first decline of 2017.
- The Chicago Federal Reserve said on Monday its barometer on U.S. economic activity retreated in May from its highest level since early 2014 due to a sharp deceleration in production, employment and housing activities.
- The regional central bank’s national activity index dropped to -0.26 last month from an upwardly revised +0.57 in April, which was the strongest since +0.59 in March 2014.
- The April reading was originally reported at +0.49.
- A negative reading shows national economy is running below its historical average, while a positive reading suggests the economy is expanding faster than its historical average.
- First, a significant rise in inflation could choke the expansion by forcing central banks to tighten policy more than expected. This typical postwar scenario moved into focus last year, even in the absence of any evidence of a resurgence of inflation.
- Second, and less appreciated, serious financial stress could materialise as financial cycles mature if their contraction phase were to turn into a more serious bust. This is what happened most spectacularly with the Great Financial Crisis (GFC).
- Third, short of serious financial stress, consumption might weaken under the weight of debt, and investment might fail to take over as the main growth engine. There is evidence that consumption-led growth is less durable, not least because it fails to generate sufficient increases in productive capital.
- Fourth, a rise in protectionism could challenge the open global economic order. History shows that trade tensions can sap the global economy’s strength.
- Data on Friday confirmed Italian industry entered the second quarter on a down note with contractions in sales and orders to go along with an earlier production slide.
- It stood in sharp contrast to the general improvement across the euro zone.
- New orders contracted 0.7 percent in April, a better month-on-month showing from minus 4.3 percent in March, but still in the red. Sales slid to minus 0.5 percent from a 0.4 percent increase.
- Both numbers gelled with earlier industrial production data, which showed a 0.4 percent contraction in April compared with a 0.4 percent rise in March.
- The International Monetary Fund said of Italy this month: “Weak productivity and low aggregate investment remain key challenges for faster growth, held back by structural weaknesses, high public debt, and impaired bank balance sheets.”
- Italy’s government is bailing out two banks in the Venice region at a cost of 5.2bn euros (£4.6bn; $5.8bn).
- The move comes two days after the European Central Bank warned that Banca Popolare di Vicenza and Veneto Banca were failing or likely to fail.
- The banks’ “good” assets will be taken on by Intesa Sanpaolo banking group.
- Italian Prime Minister Paolo Gentiloni said the rescue was needed to protect savers and ensure “the good health of our banking system”.
- Intesa, Italy’s biggest retail bank, has paid a symbolic one euro for the two banks’ good assets.
- “Without Intesa Sanpaolo’s offer – the only significant one submitted at the auction held by the government – the crisis of the two banks would have had a serious impact on the whole Italian banking system,” financial analysts at Messina said.
- Federal Reserve Chair Janet Yellen’s candidacy for another term is encountering resistance from some Trump administration advisers who want a new leader at the U.S. central bank, according to two administration officials, even as the Treasury secretary indicated she may still be in the running.
- While White House officials are aware that Fed chiefs in the past have been asked to stay regardless of party affiliation, some advisers are keen to install their own pick in the coveted seat, two officials said on the condition of anonymity to discuss private deliberations. The selection process is in the early stages.
- Publicly, Yellen hasn’t been ruled out.
- The euro-area economy recorded its fastest expansion in six years in the second quarter even as momentum eased in June due to weakening services activity.
- A composite Purchasing Managers’ Index dropped to a five-month low of 55.7, IHS Markit said on Friday. Manufacturing grew at its steepest pace since 2011, while a gauge for services slipped to a five-month low.
- The report comes two weeks after the European Central Bank said risks to the economic outlook were broadly balanced and no longer tilted to the downside.
- There’s a reason this week’s EIA survey showing gasoline and oil supplies declining has failed to stop RBOB prices from collapsing to 7-month lows: The start of the summer has done nothing to revive sluggish demand. That’s because despite what the EIA survey said, little has been done to reduce record fuel inventories.
- The squeeze has gotten so bad, Northeast Colonial Pipeline Co., the operator of the biggest US fuel pipeline system, said that demand to transport gasoline to the country’s populous northeast is the weakest in six years, the latest symptom of a global oil market grappling with oversupply.
- It is becoming increasing important — in our current age of “non-traditional” monetary policy — to take note of the fact that central banks, and especially the Federal Reserve, are essentially unrestrained by law.
- Economists themselves often defend this total unmooring from legal or political accountability, saying it is necessary for the Fed to have “independence” from elected officials.
- In reality, however, this “independence” is best described as “total lack of accountability.”