Wed. Dec 8th, 2021

As the situation in Afghanistan accelerates from chaos to total mass danger to human lives, the focus is on US President Biden’s impending speech on the situation. But for now, let’s look at Friday’s UMich consumer sentiment survey, which shows the 4th largest decline in 30 years. The report reminds us that we are in an unprecedented era and that predicting economic behavior in the coming months will be dangerous. Today too, the Fed Empire’s manufacturing survey fell from 43 to 18.3 against expectations of 28.5. He the chart below shows the other three times UMich sentiment fell more than last Friday. This should spark a new debate on the timing of the time reduction, as well as upcoming sentiment polls.

Click to enlarge

The Illusion of Certainty - Umich Vs Conf Board August 16, 2021 (chart 1)

So far, this decade has been completely unpredictable, beginning with a global pandemic followed by an unprecedented stimulus that led to a remarkably rapid recovery. Since then, a strong consensus has emerged that the recovery will continue with the main question about the inflation it will have.

Friday’s UMich sentiment poll recalled that consensus can be seriously wrong. The poll fell to 70.2 from 81.2 in a move that no economist was close to predicting. Surprisingly, the sentiment was even worse than in April 2020, at the height of the pandemic.

Many market watchers were simply incredulous, but survey participants pointed to delta risks and the reality that the grand reopening has become a stumbling block in the U.S. as hospitalizations and cases increase. New questions about security and schools have sparked high hopes and the political situation (which, unfortunately, the UMich survey tracks better than consumer spending) remains polarized.

Is optimism out of place? Probably not. Children are threatened by the delta, but the numbers with serious illnesses are incredibly low. In Europe, the Stoxx 600 went up for ten days in a row until Friday. The recovery may develop more slowly and the covid will remain a risk for years, but the balance sheets of consumers and businesses are solid.

The numbers will pause the Fed and this will lessen the chance of a quick September cut or a quick cut once it starts. That’s why selling the dollar was the right reaction for now.

As for Afghanistan, any U.S. military resurgence in the country is unlikely to weigh on markets. But if persistent news emerges from the Delta variant of the increase in U.S. hospitalizations and the closure of schools, this is likely to provide other variables as a valid catalyst for risk, such as the reduction in the Fed and the ‘Afghanistan.

Sometimes we include links to online retail stores. If you click on one and make a purchase we may receive a small commission.

Source link

Leave a Reply