There’s a saying among hikers, that “the mountains are calling, and I must go.” I took a little heed to that call, taking a respite from the hustle and bustle, retreating to the serenity of the mountains for a much-needed break. While rejuvenating myself amidst nature’s splendor, I’ve been preparing for the promising weeks ahead.
I recognize that the world of Macro Economics never takes a vacation. As such, this week, we present a condensed yet focused edition of ‘The Week Ahead’ to keep you abreast of the dynamic economic landscape. Though we may not delve as deeply as we usually do, we will surely spotlight the crucial issues and indicators that every informed reader needs to be aware of.
Today, in this abridged version, we will be shedding light on several key topics that could influence the macroeconomic climate in the imminent week. It’s a whirlwind tour of sorts, but one that will keep you tuned into the pulse of the economic world.
Next week, I will be back in my usual place at the desk, with my sleeves rolled up, ready to provide the balanced and thorough views on Macro Economics that you have come to expect from this blog. As I shake off the mountain chill and re-engage with the economic ebb and flow, you can anticipate more comprehensive insights and a detailed exploration of the fiscal world.
Thank you for your understanding during this week’s brevity. Your regular, in-depth dose of economic insights will resume shortly. So let’s buckle up, keep our eyes on the horizon, and explore what the week ahead holds for us!
Stay tuned and enjoy the condensed yet insightful journey of ‘The Week Ahead’!
Here is a snapshot of my Macro Opinion
Growth
Revisions have been made to our projections for the slowdown in the U.S. economy. The anticipated deceleration has been deferred by two quarters. Presently, our estimates suggest a 1.5% increase in real GDP on a 4Q/4Q basis this year, a significant change from our previous expectation of a decrease of -0.2%. For 2024, our updated forecast reveals a flat growth rate on a 4Q/4Q basis, down from the previously projected growth of 0.9%. We predict that growth will dip into negative territory for two quarters in the first half of 2024, with rates of -1.0% and -0.5% q/q saar for 1Q and 2Q, respectively. However, this downturn is still expected to be relatively mild by historical standards.
Inflation
The June CPI data fuels optimism that disinflation can be achieved without any significant weakening in labor markets. My updated forecasts suggest that core personal consumption expenditure (PCE) inflation will stand at 3.5% on a 4Q/4Q basis at the end of the current year and 2.4% 4Q/4Q next year. I believe price stability will be restored by 2025, at a much higher level than before.
Federal Reserve
I project that the Federal Reserve will implement 25 basis point rate hikes at the September meetings, guiding us to a terminal rate of between 5.75% and 6.0%. The Federal Reserve may consider finalizing the last hike in November. We have also updated our expectations regarding the end of quantitative tightening (QT) and the initiation of the first rate cut, which we now believe will happen in May 2024 as opposed to our previous prediction of March 2024. I anticipate a growing debate within the Fed about whether QT should continue beyond the first rate cut, especially in a scenario of a soft landing.
Last Weeks SP500 Chart
The S&P 500 has once again ended the week on a positive note, marking it as the second consecutive week with gains. This past week saw an increase of 0.69% compared to the previous Friday. So far, the index has risen 18.62% for the year. However, it still stands 5.43% below its all-time high, which was achieved on January 3, 2022.
Here’s a brief look at the index’s trajectory over the previous five days:
World Happenings
ECOWAS Mulls Over Response to Niger’s Coup Amidst French Sanction Threats
In the wake of the July 26 coup in Niger, the Economic Community of West African States (ECOWAS) prepares to respond, with a potential extraordinary summit set for July 30. The political upheaval threatens France’s counterterrorism initiatives in the Western Sahel and the G5-Sahel force, prompting the French administration to consider sanctions. In a parallel move to three previous regional instances, ECOWAS might impose sanctions to push for the reestablishment of civilian rule in Niger. These pressures could compel Niger’s new ruling junta to strengthen alliances with Russia and foster domestic support with an anti-French narrative. This may set the stage for a gradual French military withdrawal from Niger, reminiscent of previous exits from Burkina Faso and Mali.
Tension Rises at Lebanon’s Central Bank Following Salameh’s Departure
Lebanon’s central bank plunges deeper into chaos as its head, Riad Salameh, implicated in a French corruption indictment, steps down on July 31, leaving no apparent successor. Salameh, often associated with shaping Lebanon’s monetary policy post-civil war, has been blamed for the nation’s economic woes due to alleged mishandling of central bank funds. As Hezbollah and its allies stall the appointment of a new central bank chief, advocating for a presidential appointment first, potential successors threaten to resign, avoiding the daunting task of managing the troubled central bank in a governmental void. The lack of a central bank leader presents a conundrum for the nation’s already dysfunctional monetary policy.
**China Tightens Export Regulations on Key Tech Ingredients**
Starting August 1, China introduces a stringent licensing process for exports of gallium and germanium, vital components in semiconductor and solar panel production. The policy necessitates exporters to apply for a license and disclose buyer’s details, including their nationality. Countries like Japan, Germany, and the Netherlands, accounting for 86% of China’s gallium compound exports, have all hinted at or imposed trade restrictions on China’s semiconductor sector within the past year. The new Chinese export policy will serve as a litmus test of Beijing’s willingness to retaliate against increasing international trade restrictions, and the potential disruption to high-tech supply chains.
Colombia Witnesses Key Step Towards Peace with Guerrilla Cease-fire
A six-month cease-fire between the Colombian government and the National Liberation Army (ELN) guerrilla group is slated to commence on August 3. This pivotal development paves the way for peace negotiations, allowing discussions around rural reforms, prison sentences, and job prospects for former guerrilla fighters. The cease-fire bodes well for President Gustavo Petro’s administration, which has staked its reputation on successful peace talks with armed factions.
