Depending on what interests you more, there were two big stories this week for the international finance space.
The first big story is that the US interest rate cut trajectory has once again become the vogue thing to discuss. A surprise US core inflation read of 3.8% has thrown into question whether or not we’ll see three rate cuts from the US Federal Reserve this year.
The CPI read shocked the market, but then the US released its PPI data not long after, which actually came in below expectations, so we saw some recovery in losses initially triggered by the CPI data.
That wasn’t enough to save the ASX from a red Friday. Only two weeks ago, we were all over the moon when the easter bunny delivered a fresh all time high for the bourse down under. That mood has quickly passed.
(Only three weeks ago, the US Fed inferred there’d be 3 rate cuts.)
Some analysts predict the softer PPI implies a softer upcoming PCE read – the second kind of inflation indicator America reports and which the Fed is widely accepted to spend more time analysing – but a core rate close to 4% is quite a way above the 2-3% target band. There’s no way of getting around that.
The second big story was gold.
As I write this, the price of gold is currently US$2,385/oz, and gold hit an all time high of US$2,400/oz earlier on Friday.
Gold prices have smashed multiple records this week as contagion excitement and geopolitical strife have pushed more and more investors into the safe haven metal, notably, central banks around the world.
China, for instance, is buying record amounts of bullion.
There’s also the fact US government debt is approaching US$35 trillion, an all time high. We already know that US government debt has been climbing US$1T every three months YTD (100 days to be exact.)
We also know that the rise in US debt and the price of gold are generally linked, though, one must remember gold also tracks inflation.
Regardless, it seems to me like a lot of people are hedging a US economic crisis, and the reason that story isn’t more popular is because people don’t want to talk about a US economic crisis right now.
After all, we want to see numbers go up, not down.
What kind of ‘US economic crisis’ exactly doesn’t really matter – different investment philosophies and biases will produce different forecasts – but a link between the two can’t be ignored.
Also, I lied about there only being two big stories this week. There’s another one.
The European Central Bank looks as if it really could end up slashing interest rates before the US Fed gets a chance to do it. I wrote about that last week. Now we’re closer to it being a reality.
The ECB even quipped overnight that it is “not Fed dependent.”
What exactly that implies for the ASX depends on how closely Australian traders will be watching European markets in favour of US markets. They say that when America coughs the world catches a cold.
But now everyone’s been caught out by higher-than-expected US core inflation, and so we must ask ourselves a different question.
What happens when Europe coughs?
To be honest – I don’t know. My Nana never had a saying for that.
Have a great weekend! (Don’t forget, US earnings reporting starts next week.)
Australian Economy
- JP Morgan says Australia’s housing market will slow disinflation
- Chinese corporate investment into Australian firms at record lows
- Australian consumer sentiment takes another dive as troubles persist
International Economy
- The last ten months on Earth have been in aggregate the hottest on record
- Fitch downgrades China’s outlook to ‘Negative’; inflation dips to 0.1%
- India set to overtake the Chinese economy by 2028 if China stays subdued
- Russia exported more LNG to Europe than it did Asia in Q1 of 2024
- Desktop PC demand has returned to growth after 2 stifled years
Commodities
- Gold prices break multiple record highs as prices touch US$2,400/oz on Friday
- Morgan Stanley see copper climbing another 13% on the LME by 2025
- Uranium prices on the NYMEX jumped 2% on Friday to US$88.75/lb
- China reportedly orders a slowdown of coal output from Shanxi
Equities
- ASX-listed Elders sinks 25% as climate change threatens WA wheatbelt crops
- The average US retail investor is currently at a net loss: Kobeissi Letter
- Goldman Sachs publicly states its skimming profits off its tech stock holdings
- Energy supermajor Shell is reportedly looking to list on the NYSE