Recently, the macroeconomic situation has shown an accelerated downward trend, and even the most fundamentally strong crude oil can't hold on anymore. The aftermath of high interest rates is becoming apparent, and the United States may be heading towards a recession!
The latest data shows that the number of initial jobless claims in the United States for the week ending October 21 was 210,000, with an expected 208,000 and a previous value of 198,000. Over the past 10 weeks, this data has been below market expectations, and this time it is above market expectations.
The rise in unemployment numbers means that high interest rates are taking effect on the economy. Business operations are becoming difficult, and reducing recruitment or increasing layoffs have become options for businesses.
Despite the data from the US Department of Commerce showing that the US third-quarter GDP annualized rate was 4.9%, the fastest growth rate since the fourth quarter of 2021, showing a very strong posture. However, if we consider the huge deficit of the United States, it is not difficult to doubt its sustainability. A few quarters before the 2008 economic crisis, the US economy was also very good.
However, while the United States is shrinking its balance sheet, it is also vigorously issuing debt, drawing on the limited liquidity in the market, forcing interest rates to continue to rise by more than 75 basis points without raising interest rates, equivalent to three interest rate hikes. Moreover, the long-term interest rate rises faster than the short-term interest rate, which means that higher risk compensation is needed (the risk of continued interest rate hikes and the risk of US dollar devaluation).
Obviously, the growth of the United States is not without cost, and the growth of American residents is also not without cost. The result is that the cost of living for residents continues to rise, debt begins to accumulate, asset prices begin to fall, and the balance sheet deteriorates.
As the interest rate on US Treasury bonds continues to soar, the aftermath of high interest rates has begun to appear. The global stock market has begun to decline gradually, and US stocks and A-shares are falling rapidly. The most demand-dependent and supply-side strong crude oil has recently seen WTI crude oil drop from $95 to $83. The cotton price, which is closely related to the macro, has also experienced a sharp decline recently.
The situation in Europe has already shown a very weak state. The October Eurozone Composite Purchasing Managers' Index (PMI) released by S&P Global fell from 47.2 in September to 46.5, significantly below the boom-bust line of 50, and hit a new low in 35 months, showing that economic activity is accelerating downward.
The preliminary value of the Eurozone's October manufacturing PMI was 43, lower than the expected 43.7 and the previous value of 43.4. This is the 16th consecutive month that the index is below the boom-bust line of 50, and it is also the lowest level since May 2020.
High interest rates are even more of a double blow to emerging economies. Originally, there was a lack of capital, and after the withdrawal of US dollar liquidity, the economy slumped significantly. In order to counteract the interest rate hikes of the US dollar, it is necessary to raise interest rates, further increasing costs. Now, there are very few economies globally that can lower interest rates. Among them, the number of residential sales in Vietnam in the third quarter of this year fell by 42% year-on-year. The decline in asset prices further reduces the consumption capacity of residents.The domestic situation is not very optimistic either. Despite the introduction of some policies, on one hand, the cyclicality of the real estate market is too strong, and on the other hand, under global tightening, there is insufficient external demand.
The situation in the United States is not much better. Just two years ago, the average level of the U.S. 30-year fixed mortgage rate was only 3%. As mortgage rates approach 8%, data from Redfin shows that the monthly mortgage payments for Americans have reached the highest level in history, averaging over $2,800 (approximately 20,500 yuan) per month.
On one side, there is a decline in income and asset prices, and on the other side, there is an increase in expenditures due to rising interest rates, with a continuous situation of overspending.
The average price of a new car has reached a record high of $49,000, with the average new car loan interest rate reaching a record high of 9.9%, and the average payment amount reaching a record high of $730 per month (loan); the used car loan interest rate has reached a historical high of 13.9%, and the car loan delinquency rate has reached a record high of 6.1%. The credit card balance has exceeded $1 trillion, the credit card interest rate has reached a record high of 21%, and the credit card delinquency rate has also reached a high point in more than a decade.
The U.S. government's deficit is the engine of U.S. economic growth today, but as debt interest rates rise, more and more debt is rolled over, demand increases, U.S. debt supply exceeds demand, interest rates continue to rise, which in turn will curb the economy. Once fiscal deficit expansion stops, economic growth is difficult to maintain, and the economy cannot support it. Therefore, it is now in a dilemma.
Once interest rate hikes stop, or U.S. debt interest rates stop rising, the dollar will depreciate, and in turn, imported inflation will occur again. From June to now, in just over three months, the scale of U.S. debt has increased by $2 trillion.
It will be very interesting, with the Federal Reserve playing the red face and the U.S. government playing the white face, playing with others.
Anyway, it is a natural law to repay debts, and people are willing to lend money to the United States because they believe in the United States. However, when interest rates become higher and higher, the United States will only face depreciation, otherwise it cannot be repaid. When the dollar begins to depreciate, capital can turn its back on people.
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