We can ponder as to the economic resilience, together with higher stickier inflation appearing in the American statistics. Most probably, these are carried by past and current extensive US deficits in preparation for an election year.

 

When this ‘resilience’ is pitched against the VOLUME of Japanese and Chinese exports to Uncle Sam’ shores, it tells a different story, that of an economic slow-down. Hardly, the consumer resilience indicated in the US figures we all see.

 

Furthermore, Treasury Secretary Yellen came out, complaining about Chinese over-export supply. Weighed down by domestic problems in its real-estate sector, China is looking to compensate multiple economic issues by juicing up its own manufacturing sector. Encouraging more export led growth would thus help China avoid a recession. (Yellen’s comments need to be looked at in the context of new tariffs on Chinese imports. As the US imposes tariffs, China retaliates by dumping more cheap exports on the US. This situation underscores conditions are not as rosy as they would seem in either country).

 

Confirmation of a weak world economic environment also comes from the Oil market. With an unsettled middle east, a proxy military conflict with the world’s 3^rd largest Oil producer and repeated production cuts, Oil prices are going nowhere. They are even down since the end of March 2024.

 

Back home, TARGET, a large American retailer selling goods mostly imported from China, is warning conditions are becoming difficult. TARGET anticipates it will be struggling to maintain turnover in the coming months.

 

To add to this projection, the yield curve has been inverted for months now. This is starting to have a very toxic effect on new ‘fresh’ bank lending. Credit conditions are getting tighter, and the new loan volume is decreasing. Many smaller banks are under severe balance sheet pressure.

 

So, which one is it. A vibrant US economy reflected by American economic statistics, or a general slowdown as seen in world Trade figures. For investors, the issue is the growing possibility tomorrow’s narrative could be very different from today’s. If that were to be the case, it would significantly impact money flows, asset allocations, investment positioning, etc. 

 

Yellen complaining about Chinese exports seems to be politically preparing the American public for a ‘new’ narrative. One could conclude she is sowing these seeds, thereby confirming all is not well in the US economy. The Chinese Bogeyman would be the ‘fall guy’ taking all the blame for any potential US economic woes. Politicians are very good at this.

 

If tomorrow’s narrative confirms a slowing economy, if world monetary liquidity is further expanded to avoid disorderly markets in an election year (Mike Howell Crossborder Capital argues the Fed. is already increasing certain balance sheet items currently adding to the general financial market liquidity), and if interest rate trends change to the downside with the Europeans going at it first, then money FLOWS back to bond assets could be spectacular (a repeat of Q4 2023). Inflation and Employment statistics would then pale into insignificance as investors position themselves to account for this ‘new’ narrative.