The Number 9
If you are familiar with Chinese horoscopes, this is the “Year of the Pig”. It is also a year ending in the number 9 and historically the Chinese tends to not like these years. One example is what happened in 1989 with Tiananmen Square. Hong Kong is currently experiencing a lot of disruption in their airport with protestors. Considered to be one of the top 8th busiest airports in the world, they have shut down departing flights for the remainder of the day. We have a strong market with a lot of volatility and believe this could continue through August and September.
There are a lot of people that will look at how this will affect our U.S. economy as well as our markets. The Chinese own a little over one trillion dollars of our debt. Some people are concerned that they will turn around and start selling that debt. However, chances are very slim this would occur. The reasons being are because the U.S. is paying very good rates on their U.S. debt, China would take a huge loss and we have a lot of trading partners that are far stronger such as Canada, Mexico and even Brazil. Also Europe could be a player depending on how Brexit goes. While August and September could be volatile, we still have a lot of positive news occurring in our country.
Germany and the Global Economy
The German economy, that we have had our eye on the last few weeks, contracted about 5.2% year over year (June 2018 – June 2019). It’s not just Germany that has contracted but also the U.K., around 0.8%. If you look at France they have made a lot of labor union progress but they have still flat lined in terms of growth. Italy has had a tremendous fall off in their manufacturing sector. The fall for Europe could be very difficult in combination with what’s occurring in the economy along with elections coming up. In the fall Europe could become a real problem area. Also, as we have been discussing in previous weeks, the German bond is negative. Cash is going to flow into U.S. markets regardless of the trade war because as of right now you can’t earn anything in a German bank. In Asia, people are still willing to buy U.S. government debt because of the all of the controversy in the Far East.
Importance of the Consumer
One thing that has really been our saving grace in terms of the U.S. economy is the consumer. We have been pointing this out for several weeks now. Some economists even believe that the consumer is preventing bond yields from going negative. According to CNBC all of the top 25 banks are seeing around a 12% year-over-year advance in consumer credit. This still points to a strong consumer in the U.S. economy. This week we have a plethora of consumer reports coming out. On Tuesday the CPI will be announced, which is what the Fed looks at from an inflation standpoint. Other items that will be reported on this week include household debt, consumer price index, weekly jobless claims, retail sales and consumer sentiment index. These are things we have been tracking over the last several weeks and will continue to do so to see if this strong consumer trend will continue.
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