These days, when I look at the economic indicators being announced, my mind becomes very complicated.
I have listed the indicators that are making me feel this way.
1. 2-Year/10-Year Treasury Bond Yield Spread
Both the 2-year and 10-year Treasury bond yields are at high levels. The market seems to be anticipating the possibility of a prolonged period of high interest rates. (The yellow dotted line represents the average value from 2016 to today.)
WTI Crude Oil Price
WTI futures prices are remaining at high levels due to the prolonged conflict between the US and Iran, and this is now starting to put a burden on overall living costs. (The yellow dotted line represents the average value from 2016 to today.)
PMI Manufacturing Index
The US manufacturing index and the NEW ORDERS index are still showing expansionary territory. This means that the manufacturing economy is sending a signal of strength.
Therefore, if we look at these three signals, it seems likely that the Fed will “hold / raise” interest rates at the September FOMC meeting. It appears to be difficult for the Fed to lower interest rates hastily in the current situation.
However, some other indicators are showing a slightly different picture.
4. Gold & Bitcoin Indicators
Gold and Bitcoin prices have recently broken out of their downtrend and are showing strength again. Last July, when interest rate hike expectations weakened, these two assets also rose.
Reference article : https://www.yna.co.kr/view/AKR20260703011800009
Won-Dollar Exchange Rate
The Korean won has been strengthening recently. I wonder if Korea's exports and a weakening of expectations for a Fed interest rate hike in September are influencing the dollar.
US Personal Savings Rate / Loans / Retail Sales
The personal savings rate is decreasing, while personal loans are increasing, and retail sales are also declining. If consumption is weakening even as savings are reduced and borrowing increases, it makes me wonder if there's a problem with the spending power of US households.
New Housing Starts
The number of new housing starts was calculated using a 12-month moving average to minimize noise.
High mortgage rates and weak housing demand are putting pressure on the construction industry. New housing starts are one of the key leading indicators that I consider when looking at the future of the economy.
Let me summarize again.
Due to rising crude oil prices, overall prices are high. (Crude oil futures rising as a result of the Iran-U.S. conflict)
Fortunately, manufacturing indicators show expansion, weakening the Fed's rationale for rate cuts.
The government bond yield appears to reflect the bond market's consideration of prolonged high rates.
However,
Gold and cryptocurrencies have recently risen, showing dollar weakness.
Additionally, the Korean won is also showing strength. (It seems to be an effect of Korean exports combined with dollar weakness.) American individuals' savings situation is worsening, while conversely, borrowing is increasing. I suspect whether this is not a signal that the consumption capacity of American households is gradually diminishing. Due to the U.S.-Iran conflict, crude oil prices have surged, and this is now a time that will impact overall price increases.
Additionally, the number of new housing starts, which is a precursor to economic recession, has decreased.
In November, the United States has midterm elections.
The FOMC is an independent institution, but it is never truly independent.
Personally, I believe this interest rate direction will be "hold or rate cut."
If rates are held, the U.S. government appears likely to try to fill individuals' wallets through "tax cuts" or other methods before the November elections. (Liquidity provision)
Ultimately, I believe this will boomerang back in 2027.
Therefore, until November, the stock market also appears not to be bad. However, rather than aggressive additional purchases, if prices fall closer to principal, a cash preservation strategy or short-term investment strategy appears effective. From next year, at some point, there appears to be a high likelihood of things moving in unexpected directions.
