InfraCap Weekly Commentary, October 2, 2023 ~ The world bond market rallied sharply with Eurozone 10-year bonds up almost a point and the US 10-year up a half point. Notably, the US PCE came in cool with the critical PCE Core coming in at only .1% vs. expectations of .2% driven by cooling medical expenses, and Eurozone CPI came in at .3% for August vs. expectations of .5% and Y/Y coming in at 4.5% vs. expectations of 4.8%.
"Unfortunately, the ECB has cured the cancer of inflation by killing the patient."
Eurozone Numbers Leading to World Bond Market Rally:
German retail sales came in at negative 1.2% vs. expectations of a .5% increase and Y/Y retail sales of -1.9%.
Unemployment also increased by 10,000 which was better than expected but continues to display a trend of consistent increases in unemployment, which is the primary indicator of a recession.
French consumer spending dropped by .5% and 1.9% Y/Y.
Industrial sales in Italy dropped by .4% and 1.6% Y/Y.
This data validates our view that the Eurozone is entering into a major recession. This is not surprising as that is the normal result of very aggressive monetary tightening.
ECB Policy and Actions Leading to current Bond Market Rally:
The ECB has shrunk the monetary base by 14% this calendar year and raised rates by 4.5% over the last 12 months. Europe does not have any of the advantages that the US enjoys such as a resilient housing sector, an 80% cost advantage in natural gas and electricity, and large countercyclical government spending on infrastructure. These advantages are likely to keep the US out of a recession despite the Fed’s aggressive monetary tightening.
What We Expect for October and Beyond
At InfraCap, we remain bullish on both bonds and stocks as we head into earnings season in mid-October. We believe that the global monetary tightening is behind us and that central banks outside of the US will be aggressively easing monetary policy in 2024, which will cause the global monetary base to start growing again, providing liquidity and support to global stock and bond markets.
For more, check out the following from Jay Hatfield, CEO and the InfraCap team:
VIDEO Interview - Jay Hatfield Provides Outlook and Investment Strategies for US Markets as Europe Faces Recession ~ a 6 Min Interview with Bloomberg, Sept 15, 2023
Sept 27 Commentary - The Eurozone is Entering A Major Recession [Updated Sept 27] ~ a 3 Min Read
Sept 17 Commentary - The Economy Does NOT Spontaneously Combust! ~ a 2 Min Read