Perception Vs Reality
Biggest news this morning: Japan 's surprise GDP contraction in Q4 - Japan back into recession on weak consumption & investment in 4Q23. Dichotomy between survey outcomes which all along signalled optimistic outlook is striking. Perceptions always understate the gravity of the reality.
It could sound ridiculous, but you have to accept the reality: In modern days, the "best" barometer for an economy is turning out to be stock prices - if they remain firm, then the economy is in recession. See what's happening in Japan - weaker economy with stronger equity markets - Japan has always been a trend setter for the rest of the world in economics in the last three decades.
Something to attribute to the fiscal Deficits as well as public debt - proved again that they are not a tool for growth, they are a burden for the productive economy and a guarantee of stagnation.
CBO’s projections show federal budget deficits total $20 trillion over the 2025–2034 period - federal debt held by public reaches 116 % of GDP - Japanification of US leading to zombification of over-leveraged sectors?
Today Retail Sales & weekly Claims- to show strong economic impulse.
Anyway, for now, Soothing comments from Yellen & Goolsbee - equity markets cheered-
The number of positive weeks in S&P 500 is the most overextended it has been in over 50 years. While this is just a technical metric, the Jeremy Grantham sums up current environment: “Sustainable bull markets don’t start with a Shiller P/E of 33 and full employment.”
Luis de Guindos talked about persistent wage pressures at elevated levels. Now Lagarde to reiterate today - Bounce after 1.07 breach - close below 2023's up TL & 61.8% Fibo- fade this rally for 76.4% of 2023 move 1.0511.
Some positive signals- Chinese traffic flow as a proxy for economic rebound over the holidays: traffic flow at 700 checkpoints along 73 expressways up 7.2%
No substantial divergence between EUR and GBP in the near term - cross action has helped GBPUSD all along - no more.
Megan Greene (voted for a hold) to speak. On the economy and policy today.1.2524 is 38.2% Oct/Dec rise - 1.2501/04 Dec double bottom- close below 1.2500 would test of 1.2431, 50% of the Oct/Dec rise
GDP deflator (an inflation indicator) +3.8% y/y but expectations for BOJ tightening will die down as recession fears lurk - Ueda relieved: Recession amidst inflation - no one will force me to hike - will continue further easing - push USDJPY towards 170s -Kanda to be kept busy talking about rapid moves- 151.93 imminent.