Germany China USA to Slow Further

The various economic realities, warnings thereof, we have been speaking of for some time are indeed being confirmed by the run of delayed data series.

Germany achieved zero growth in the latest quarterly GDP data. This, by some, was quite remarkably taken to suggest Germany had emerged from Recession?

German GDP

Sorry to put a dent in that bull spin balloon, but no growth after two negative quarters hardly qualifies as coming out of Recession. Especially, as German Business Morale data on Friday fell for the fourth month in a row to a ten month low. One that is deep back into Covid-lockdowns territory.

German OFO Business Climate Index

German and business and consumers alike remain deeply depressed. This means we should expect a further slow-down in consumer and business activity. It is very likely that Q3 and Q4 GDP data will again be negative. Pushing Germany, not only into prolonged recession, but also well toward Depression.

This is the product of many forces, but in a nutshell inflation and stimulus roller-coasters, combined with energy supply sanctions have and are crippling the German economy. While the ECB keeps mindlessly raising interest rates.

I am sure former good central bankers would be rolling in their graves at the lunacy of the ECB, Fed and RBA actions of our time.

Then we have Chinese data today, confirming that on year Industrial Profits have fallen over 15%. Profits are at least recovering on a monthly basis, but remain well down from their previous levels. Unfortunately, we can be assured that a deeper slow-down is yet to flow through the economy of China as well.

Of course, no one will have missed the Federal Reserve Chairman highlighting, despite significant domestic economic disturbances, that the Fed may indeed have to raise rates further to head off a re-kindling of inflation.

This is exactly the scenario we have been mapping out here for you for many months. While some economic lunatics spoke of ‘pivot’, we always said that was a total fantasy. My own forecast was always for rates to reach these current levels, few believed, and for rates to stay up here in a long plateau. And with a persistent tightening bias for a further 12-18 months. What the Chairman has done is to further emphasise that very risk of yet higher rates.

The equity market had only the smallest of recoveries from recent downside on Friday, and some said this was due to the Chairman also saying rates would be steady at the coming meeting. Well, no one thought or expected a rate hike at the next meeting. This was merely stating the already known obvious. That some choose to spin this as a fresh buying reason just goes to show how desperate the bulls are becoming for justification of their view.

Stocks remain diabolically heavy in a slowing major economies world, with the ECB and Fed still ready to raise rates further.

Is it any wonder I keep advocating caution. Again, it is a Monday and that is usually a buying day across Asia and into the US time zone. Any failure of that pattern would be a powerful signal indeed.

For the moment, expect some mis-placed buying enthusiasm at first, but as with last week, may I suggest the rally, if any, will be short lived.

Get ahead of the crowd and be prepared for a continuing bear market.

Clifford BennettACY Securities Chief Economist

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