US - Better CPI, but more is needed!
Fed Governor Waller spoke at the Peterson Institute for International Economics – as labor market remains strong, more positive inflation numbers are needed to begin interest rate cuts.
- US April CPI* figures were reassuring that price pressures are not accelerating – suggest progress towards 2% inflation target – further rate increases are not necessary!
- Holding rates steady for 3 or 4 months will not damage the economy
- In the meanwhile Canadian April CPI* also eased
- The market is currently pricing 40bps of cuts by the Fed in 2024
Reality and perception
- A gap is emerging between what shows up in hard data and what is reflected in surveys
- Hard data is showing that the global economy is holding up and corporate profitability is solid
- The disinflationary process is under way, albeit at a slower pace than central banks would like to see
- Yet, confidence surveys do not convey the same level of optimism
- Also, the Conference Board US Leading Indicator points down: a recession normally follows, but the lead time is extremely variable
- This disconnect is likely to continue for sometime
China news : some good some bad
- Industrial productions surprises to the upside, with an y-o-y* print of +6.70% against an expectation of +5.5% • At the same time, retail sales disappoint: +3.7% was expected y-o-y, but only +2.3% was delivered
- Inevitably, the excess production will find its way into exports, fueling more pushback from the US and, now, also the Eurozone
- Prices of new homes were -0.58% on the month, while residential sales were -31.1% y-o-y*
- Grappling with work uncertainty, limited public health services and poor pension cover, it is no surprise that consumers are holding back
- The equity market has recovered some, but supply side economics are not the answer
Gold - the best is yet to come ...
- Mainly Emerging Market Central banks increased their gold positions significantly in the past 12 month.
- Historically speaking, gold has seen some of its best rallies during the 24 months after the last Fed rate hike (right chart). But what happens once rate cuts start?
- Profitability of gold companies should clearly improve.
- Gold to S&P500 ratio (left chart) shows upside potential for gold: the shiny metal has been a terrible investment compared with global equities for quite a while.
More on metals
Due to numerous strong trends that will cause demand for selected metals to rise sharply in the coming years, we are positive for copper, uranium, nickel, silver and gold in the medium term. Two examples stand out:
- Copper: inventories remain tight for some industrial metals due to supply disruptions from mine closures
- The use of copper in electrification trends and global grid renewals argues for a positive structural outlook
- In 2050 copper demand will be greater than all copper consumed from 1900 – 2022 (26mln t in 2022 to 52mln t)
- Uranium: second pillar of clean energy source after hydro: Nuclear power is now experiencing a renaissance as a key part of a comprehensive clean energy strategy
- Uranium enrichment is currently the bottleneck, which speaks for higher prices
- Uranium is one of a sustained supply/demand gap created by many years of mining underinvestment
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