BOOM Finance and Economics May 14th 2023
WEEKLY REVIEW -- Sunday 14th May 2023 -- All Editorials are available at LinkedIn and at https://boomfinanceandeconomics.wordpress.com/
This week’s subject matter —
(1) The current status of CPI inflation in the United States
(2) CPI inflation in China and Russia
(3) The economic outlook in New Zealand – a nation left badly damaged by its former Prime Minister, Jacinda Ardern, a WEF operative. Then we look at ...
(4) Ardern’s latest job, where we find her, unsurprisingly, on the Board of Prince William’s new “environmental” venture which appears closely aligned to the WEF. Then we turn our attention to ...
(5) the US housing market and
(6) Binance Crypto Exchange ceasing operations in Canada
US CPI INFLATION CONTINUES TO FALL
Relatively good economic news in the United States continues to provide stability to the financial markets and confidence to investors. The annual inflation rate in the US unexpectedly edged lower to 4.9% in April, the lowest since April 2021, below forecasts of 5%. Food prices grew at a slower rate (7.7% vs 8.5% in March) and energy costs fell (-5.1% vs -6.4%) but especially gasoline (-12.2%) and fuel oil (-20.2%). Prices for used cars and trucks declined again (-6.6% vs -11.6%).
On 16th October last year, BOOM wrote -- "the inflation statistics and retail sales figures were a good result, offering some firm evidence that the peak of CPI inflation may be in the past. If we are past the peak, then the prices of stocks and bonds should start to rise from here". US stock prices started rising 2 days later and US bond prices started rising 5 days later.
US ENERGY INFLATION AND SERVICES INFLATION -- BOTH FALLING
Falling services inflation in particular is actually critical to look for in our current situation. Why? Because the US is predominantly a services based economy; so any slowing of inflation in this sector is hugely significant and boosts hopes for a lower inflation outlook for the future. Services inflation in the United States eased to 6.8% year-on-year in April, the lowest in nine months, from 7.3% in the prior month.
In regard to energy inflation, the Bureau of Labor Statistics in the United States released this statement on Wednesday -- “The cost of energy in the US fell by 5.1% year-on-year in April 2023, following a 6.4% decline in the prior month. It was the second consecutive drop in energy prices since January 2021. Prices fell for fuel oil (-20.2% vs -14.2% in March), gasoline (-12.2% vs -17.4%) and natural gas (-2.1% vs 5.5%). In the meantime, electricity prices slowed down (8.4% vs 10.2%).”
These falls in energy inflation are very significant indeed. BOOM is of the opinion that the US economy has begun to slow significantly and that this slowing has reduced demand for energy. Subsequently, that reduction in demand has caused energy prices to drop.
This is good news potentially for investors. They will expect the Federal Reserve to soon back off on its hawkish interest rate policies.
This graph of energy inflation clearly shows what has happened to energy inflation over the last 5 years. The Peak of energy inflation occurred in Mid 2022 and by October was falling consistently. Over the last 2 months it has become a dis-inflationary situation with prices no longer growing but falling. The Fed would be wise to notice this and check for indications of further slowing in demand.
The chart for the Continual Contract price of Natural Gas in the USA over the last 5 years illustrates this even more dramatically – chart from Stockcharts.
CPI INFLATION FALLING IN CHINA AND RUSSIA
In contrast to the inflationary pressures in the advanced Western economies, China’s CPI inflation rate is very flat indeed. China's annual inflation rate fell to 0.1% in April from 0.7% in the previous month, missing market estimates of 0.4%. Core consumer prices have been flat for 12 months with no inflation evident. Food inflation is falling towards zero. In fact, food prices rose by only 0.4 % Year-on-Year in April. In Russia, it is the same story. The annual inflation rate in Russia fell sharply to 3.5 percent in March, the lowest since July of 2020 and compared to 11 percent in the previous month. The latest data for the Month-on-Month inflation rate is 0.4 %. The Core inflation rate is collapsing and so is the Food inflation rate.
FOOD INFLATION AND DEATH IN NEW ZEALAND
After having suffered through countless Covid jabs and all the adverse consequences of medical fascism, New Zealanders must now face a moribund, flat economy along with horrendous food inflation. GDP growth is flat to negative while the cost of Food in New Zealand jumped 12.5 percent year-on-year in April, the biggest annual growth since September of 1987, accelerating from a 12.1 percent increase in March. Grocery food prices soared by 14 percent, the main contributor to the rise in Food inflation.
Excess Deaths also continue to rise each year. So far, during the first 15 weeks of 2023, they are approximately 16.6 % above average (expected) numbers and that is before the onset of Winter.
Jacinda Ardern has left the sinking ship. She is apparently now working alongside Prince William on a climate change charity he founded called Earthshot Prize, aimed at saving the environment. It has Klaus Schwab’s privately funded, unelected World Economic Forum as a global alliance partner and Microsoft as a global alliance member. Many other usual suspects have signed on as partners and/or members. Having “saved” New Zealand, Jacinda obviously has bigger fish to fry.
US HOUSING
BOOM has indicated previously that housing prices may already be on the rise in the US. On 16th April, BOOM wrote -- “This suggests that US house prices may soon begin to rise in price”.
The Philadelphia Stock Exchange PHLX Housing Sector Index (Code: HGX or $HGX) continues in strong uptrend. The total market value of the US housing market is around $ 36 - 40 Trillion and mortgage rates on offer in the US are continuing to fall. This chart shows the last 6 months of daily price action in HGX.
Mortgage applications in the US jumped 6.3% in the first week of May, the biggest rise in nearly two months and rebounding from a 1.2% fall in the previous period. Applications to refinance a home loan surged 10% and those to buy a home 4.8%.
The average interest rate for 30-year fixed-rate mortgages with loan balances $726,200 or less dropped by 2 basis points to 6.48%, the lowest in three weeks.
The Zillow Home Value Index (ZHVI) captures home values across a wide variety of geographies and housing types in the United States. After falling from its peak in August, it is now rising again since February, according to the latest March figures.
MAJOR CRYPTO EXCHANGE CEASES OPERATIONS IN CANADA
Binance is the largest Crypto exchange operating globally. On Friday, it announced via Twitter that it is ceasing operations in Canada. The Tweet stated -- “Unfortunately, new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time. We put off this decision as long as we could to explore other reasonable avenues to protect our Canadian users, but it has become apparent that there are none.”
The Canadian Securities Administrators (CSA) stated objective is to improve, coordinate, and harmonize regulation of the Canadian capital markets. The CSA co-ordinates initiatives on a cross-Canada basis with the 10 provinces and 3 territories responsible for securities regulations and their enforcement.
In February, the CSA unveiled new guidance demanding “enhanced investor protection commitments” from Crypto asset trading platforms amid “insolvencies involving several Crypto platforms.” It set investor limits and mandatory registrations for Crypto exchanges, and prohibited them from allowing customers to buy or deposit Stablecoins within the country without the CSA’s permission.
In last week’s editorial, BOOM wrote about a draft Bill to the US Congress which is aimed at regulating Stablecoins -- “BOOM thinks that this Bill will simply drive Stablecoin issuance offshore into other national jurisdictions – out of the reach of US regulators and US depository institutions. Perhaps that is its true, unrevealed purpose because driving the Crypto world away from US shores will have the effect of reducing any negative impact it may have upon US financial institutions. In other words, they can have their cake and eat it.”
So Canada has already had this exact effect on Binance. This will make it much harder for Canadian Crypto investors to repatriate their funds back to Canadian financial institutions. The effect will be to discourage Canadian residents from engaging in the world of Crypto. However, some will see it as an advantage in clearly separating their funds from the Canadian banking system. The problem, however, will come when or if they have to pay Canadian taxes levied on their Crypto trading or investing capital profits while any capital losses made on their Crypto holdings may not be recognised.
Over the last week, the Bitcoin price in US Dollars has dropped by 6.22%. Over the last month, it has fallen by over 11 %. BOOM expects other Western nations to follow in the footsteps of Canada and the United States in regard to Stablecoin regulation very soon. The net effect of that on the prices of all Cryptos will probably be a negative impact.
In economics, things work until they don’t. Until next week, make your own conclusions, do your own research. BOOM does not offer investment advice.
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