At Muzinich, we believe it is critical to monitor how the global consumer is responding to this extraordinary period of policy adjustment, rising costs of living and geopolitical tensions.
This week started with the release of the FOMC minutes, and it’s fair to say that although financial conditions have tightened since the June meeting, board reports confirm that a 75 basis point increase in July is the preferred option. The ECB, by comparison, appears to be pursuing a 25 bps increase strategy out of deference to the impact of gas supply problems on inflation and economic growth. This has caused the US government bond curve to flatten out, with 2-year yields now higher than 10-year yields. US interest rates are expected to go into effect by the end of the year, followed by two cuts of 25 basis points each in 2023. US risk assets seem to appreciate this development. The US was the top high-yielding credit asset class for the week and the only credit asset class to gain inflows.one, with US stocks also outperforming expectations. In contrast, Germany’s sovereign debt curve steepened and yields on seed papers fell over the week as investors continued to fear that if the ECB stays on the sidelines, it could increase inflationary pressures. The big beneficiary of this diverging policy has been the US dollar, which continues to strengthen against the euro. It is up over 10% year to date and over 2% this week. We believe that a stronger dollar will help tighten monetary policy and ease inflationary pressures imported into the US, but will have the opposite effect on the eurozone economies.
On the contrary, China continued to advance its growth policy. This week, Premier Li Keqiang urged local government officials in five coastal regions to take more growth-promoting measures, and China’s finance ministry plans to allow local governments to sell 1.5 trillion yuan ($220 billion) in special bonds in the second half of this year. an unprecedented acceleration in the financing of the infrastructure of the economy.
At Muzinich, we believe it is critical to monitor how the global consumer is responding to this extraordinary period of policy adjustment, rising costs of living and geopolitical tensions. As an ascendant loan officer, we believe we are well positioned to respond to what we see. First, the demand for electronic products? This week, the world’s largest chip maker, Taiwan Semiconductor Manufacturing Co, reported second-quarter revenue of NT$534.1 billion, up from estimates of NT$519 billion, and Samsung Electronics announced revenue up 21%. exceed ratings. In terms of basic consumption, Costco released sales figures for June, which were up 20.4% year-over-year, reflecting an increase in both traffic and the average amount spent compared to last year. Finally, the Chinese consumer buys real estate; cumulative sales in the 36 major cities grew by 78% over the previous year and are now only -9.1% over the previous year (see weekly chart).
The macroeconomic scenario remains bearish, but this week there was no new macroeconomic information that would fuel a bearish fire. While investors have begun to look for more attractive valuations, microeconomic consumer data does not confirm macroeconomic concerns.
36 cities affected:
- 4 Tier 1 cities: Beijing, Shanghai, Shenzhen, Guangzhou
- 15 Tier 2 cities: Chongqing, Hangzhou, Nanjing, Wuhan, Chengdu, Suzhou, Dalian, Xi’an, Changsha, Fuzhou, Shenyang, Qingdao, Jinan, Changchun, Nanning
- 17 Tier 3/4 cities: Wenzhou, Dongguan, Zhenjiang, Yangzhou, Lianyungang, Shantou, Jilin, Shaoguan, Zhoushan, Tai’an, Jianyin, Huai’an, Wuhu, Shaoxing, Zhaoqing, Suzhou (Anhui), Haimen