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U.S Economy Outlook 2020

Topic: 

Corporates

Event Summary

US MACRO – ECONOMY MAY GO UNDER RECESSION AS OF OVERHEATING ECONOMY
* Inflation soaring back, first sign revealed, next would be a surprise –It start with February report of higher than expected wage pay (+2.9% MoM) – highest increase since 2009 that triggered the sell off in the stock market on Feb 2nd . Then the CPI report came out, with worse than expected: 0.5% MoM (forecast: 0.2%) and CPI YoY reach 2.1% (forecast: 1.9%), highest since 1 year. This question the expectation for continous growth of the U.S economy and the stability of the goods market in the following year.

1)   US MACRO – ECONOMY MAY GO UNDER STAGFLATION & RECESSION AS OF OVERHEATING ECONOMY

* Inflation soaring back, first sign revealed, next would be a surprise –It start with February report of higher than expected wage pay (+2.9% MoM) – highest increase since 2009 that triggered the sell off in the stock market on Feb 2nd . Then the CPI report came out, with worse than expected: 0.5% MoM (forecast: 0.2%) and CPI YoY reach 2.1% (forecast: 1.9%), highest since 1 year. This question the expectation for continous growth of the U.S economy and the stability of the goods market in the following year.

* FED may raise rates faster than expected – Three years since 2015, Fed has raised the interest rate 5 times and is starting to pick up the pace in 2017 with 3 times rate hike, increase the FED Fund Rate up to 1.5%. Recently, US investor concern about inflation shows sign of trending up and the economy is over-heating which may make the FED increase rate up to 4 times. Although FED’s Chairman Jerome Powell still provide no clear sign about their decision, I believe that 4 times would be his appropriate strategy with above prediction that inflation would push even further than forecast which will be showed on March CPI report.

* Oil price rapid increase would put big pressure on the economy – Oil price has surged up to 50% in just half – year of 2017 with tension in OPEC countries & their agreement with Russia to maintain low oil supply. In the future market, WTI Crude Oil Futures recently peaked at $66.14/barrell (+ 54.75% from one-year lowest point) while Brent Oil Futures peaked at $70.52/barrell (+ 57.34% from one-year lowest point). I predict that the oil market would further bullish as of extend in oil supply cut between OPEC and Russia in 2018, a lower-than-expected U.S supply and the launch of China’s Oil Futures on March 26th. The cost of manufacturing will significantly rise in first two quarters of this year.

* Anti trade deficit policy and the trade war may cause more harm than benefit  - Since Trump administration of the White House, U.S has applied “close-border poicy” which to reduce trade deficit, increase internal employment, support domestic businesses. In only over a year, U.S has withdrawn from many international agreement including TPP, Paris, UNESCO, etc. , impose significant tariff on China’s & many countries goods and is about to withdrawn from many other free-trade agreement including NAFTA, WTO, etc. Also since 2017, the “weak dollar effect” has further strengthen the anti-deficit policy and caused the U.S Dollar to lost value significantly (13% since its 16-years high of 102.29 and now trading at 89.95). Normaly it would be a good thing, but since U.S has long been country who selling ideas and management rather than a manufacturer, U.S goods price may stir-up dramatically along with the cost of manufacturing, which would drag slower economy and high inflation (stagflation – which is even danger).

* Debt balance reach record high, lending still ease – In 2017, U.S bank industry witness total debt balance reach record high - highest since 2008 with total non-housing debt of $3.76 trillion and housing debt of $9.19 trillion. Credit card debt at highest level in the world with $0.81 trillion. Auto-loan debt is the worst, set a 6 year continous uptrend with 23 millions people buying under subprime mortage (aacount for 20% of new buying). Student loan, also have huge accumulation in total debt, The situation raise an alarm for an alike 2008 financial crisis seranio which is not noticed by much people. Bank lending still ease, with prime lending rate only increase 1.2%, while FED fund rate has up to 1.5% till recently, which could further worsen the debt situation.