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Economy

The Economy And Stocks: Betwixt And Between – Forbes

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The May jobs report on Friday continued to reflect a robust job market, but with hints that the best days of the labor market are behind us for now. Despite the overall good news of the economy adding 390,000 jobs in May, this was the slowest pace of growth in a year, and we have yet to recover all the jobs lost during the covid lockdowns. Separately, job openings remain at an elevated level but shrank for the first time this year. Initial claims for unemployment benefits, while still low, have begun to inch higher.

Frankly, despite its mandate for full employment, the Federal Reserve (Fed) would welcome some slack in the job market to help in the battle against raging inflation. The markets are still pricing in 199 basis points (1.99%) of rate hikes from the Fed over the next eighteen months. Half of those increases will likely come over the next two months, with a 50 basis point (0.50%) increase in short-term interest rates in June and July. After July, the path will depend more on inflation levels and the economy’s health. May consumer inflation (CPI) readings are released this week. While the headline year-over-year rate could decline versus last month, the increase is almost sure to be above 8%. These inflation levels leave the Fed with a Hobson’s choice regarding rate hikes at the next two meetings at a minimum.

As further evidence beyond the labor market that the economy remains a distance away from recession, the May Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) has historically been a reliable real-time indicator of recession. The May manufacturing component was reported last week at 56.1, and the U.S. has never begun a recession at that level. An ISM PMI reading below 50 is typically a good rule of thumb that the recession warning lights are flashing red.

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Despite the inflationary challenges to the consumer, households have accumulated significant savings that can be used to supplement income to support consumption. Lower-income families, in particular, feel the pinch from the increase in food and fuel prices, though, and are forced to forego spending on other items due to the price increases. As continued proof of the growing pressure, gasoline prices hit a new high again last week.

After being down 19% from the peak, the S&P 500 has rebounded to almost 14% below the peak. In the last twelve recessions, stocks have declined by 24%. The markets have priced in an economic slowdown but not yet a recession. Given the current data, this is reasonable since a recession is not likely until late-2022 or 2023.

History would indicate low odds of the Federal Reserve avoiding recession once they begin to raise rates. The need to battle high inflation would suggest a higher probability than usual that an economic downturn will result from this tightening cycle. Markets may have moved a little too early to price in an impending recession but still reflect an economic slowdown. Investors focus on quality companies that can survive the probable economic downturn on the horizon and thrive in its wake.

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Economy

China Wants Everyone to Trade In Their Old Cars, Fridges to Help Save Its Economy

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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.

That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.

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German Business Outlook Hits One-Year High as Economy Heals

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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.

An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.

“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”

A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.

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There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.

Even so, the start of the year “didn’t go great,” according to Fuest.

“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”

Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.

“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”

Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.

–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.

(Updates with more comments from Fuest starting in sixth paragraph.)

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Parallel economy: How Russia is defying the West’s boycott

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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.

Officially, Apple does not sell its products in Russia.

The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.

But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.

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Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.

Zoya bought the watch without a moment’s delay.

The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.

“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.

“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”

Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.

But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.

Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.

The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.

 

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