Macro Economy Weekly | Bitmidas
2023–08–21
Economic Data Strengthened; US banks’ chain reaction widens…
Economic data is resilient. GDPNOW predicts 23Q3GDP accelerate; Fitch warns that it may lower the ratings of dozens of U.S. banks including JPMorgan Chase. The recession is expected to settle in Q4~24Q1…
Important Data of the Week
U.S. July retail sales recorded a monthly rate of 0.7%, higher than the previous value of 0.3% (0.2% before revision) and the market forecast of 0.4%, the largest increase since January 2023 and the fourth month of a consecutive growth, suggesting the economy remains resilient.
The monthly rate of industrial output in the United States recorded 1% in July, far exceeding the previous value of -0.8%, and the market forecast of 0.3%, the largest increase since the beginning of the year.
According to the Atlanta Fed’s GDPNow model, the 2023 Q3GDP forecast is raised for 2 consecutive days from 4.1% to at least 5%, and then further up to 5.8%. The survey forecast data is optimistic about the economy.
Since the Fed raised interest rates, the flexible CPI has continued to decline, and the sticky CPI has shown signs of a turning point, verifying the effectiveness of the current restrictive interest rate.
Based on the estimated path of the federal funds rate in March in multiple markets, it is likely that the interest rate will remain unchanged in the second half of 2023 and will begin to decline by early 2024.
The number of initial jobless claims in the United States recorded 239k people in the week ended August 12, lower than the previous value of 250k people and market forecasts of 240k people, indicating that the labor market is still tight.
Chain Reaction of Bank Ratings
After Moody announced that it would downgrade the credit ratings of 10 small and medium-sized banks in the United States by one level, Fitch also issued a downgrade warning, or “forced” to downgrade the ratings of more than 70 banks, including large banks such as JPMorgan Chase and Bank of America. Though not determined, this announcement triggered anxiety in the market and formed potential risks. Bank of America stocks were affected.
Federal Reserve Balance Sheet
In this period, the Fed ended its nine-consecutive contraction, with a slight increase of US$1.477 billion.
Recession indicator-U.S. Bond Yield Inversion
Economic data rebounded, GDPNOW predicted that Q3GDP will grow sharply, and the Fed no longer believes that there will be a recession by the end of 23. But the market seems not agree — as of the time of this report, the 2/10 inversion has converged to 67.97bp, still deeply inverted.
Market Performance
The minutes of the Fed meeting were generally hawkish. The economic data is resilient and can withstand higher interest rates. The U.S. dollar index broke through 103, showing strong performance.
Strong dollar leaves Gold under pressure.Gold continues to run weakly this week.
After Moody’s downgraded US banks and Fitch also issued a warning, bank stocks fell one after another, dragging down the index. The S&P 500 continued to pull back, and many institutions have turned bearish.
Affected by macro data and the overall hawkish environment this week, the dollar rose, U.S. stocks fell, and SpaceX sold off, BTC fell, breaking down the capital-intensive zone of the last two months, entering a bearish movement.
Summary
Economic data such as retail sales rebounded more than expected. GDPNOW successively raised the 23Q3GDP growth rate from 4.1% to 5.8%.Fed officials no longer see a recession by the end of 2023. However, Fitch warns that US banks’ performance may continue to face challenges. The high lending costs will prolong the sluggish performance period of banks. The total amount of interest-free deposits in the second quarter of 2023 will drop by 18.3% year-on-year. Fitch, in agreement with the US Consultative Conference, predicts that there will be a mild recession in Q3, 2024.
The CPI rebounded moderately to 3.3% in the previous period, but the sticky CPI loosened.The overall trend is still downward, and the current restrictiveness of interest rates is valid. It is still highly probable that interest rates will remain unchanged in September. Based on the expected average path of the federal funds rate in March in multiple markets, the interest rate will remain unchanged in the second half of 23 years and will start to decline at the beginning of 2024.
Currently it’s the peak of the monetary tightening cycle. The Fed is observing and evaluating all indicators and data. The inflection point of interest rate cuts is not far from the plot and the comprehensive forecast of multiple markets. The follow-up CPI and economic data will determine the path forward. The current stage is the most tormented for many markets.
Completion of this report: 2023–0818–16:40 (UTC+8)
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