The unfortunate reality of inflation 🥺

Happy Wednesday! 😊

No, not that Wednesday. Did you know Wednesday Addams wasn’t even named after the week day?

She was named after some nursery rhyme called Monday’s Child.

Who knew? 🤷‍♀️

Only have a minute? ⏱

Trade Of The Day 📈

RBA Does It Again 👀

I’m not going to say I told you so but.. told you so. 👀

The value of the Australian Dollar took off when the RBA hiked the interest rate by 25 basis points for the second time in a row.

The consensus was no change but we figured that was hard to believe due to the spike in inflation; almost 7% now in Australia. 😳

The interest rate now sits at 4.1%.

If these interest rate hikes work the way they’re supposed to, Australians will have more savings, more cash to spend, and more money to invest in their businesses. 💰

We’re just not quite there yet.

The Unfortunate Reality Of Inflation 📈

In comparing April 2023 to April 2022, the EU saw a 2.6% decline in retail sales.

Meaning EU consumers were spending less this past year. 🛍

No wonder - with costs of living on the rise and wages staying stagnant, what else can you do?

Inflation is now at 7% in the Euro area. Which means that people are paying 7% more for the exact same items they were buying before.

So let's take a look at where we're headed:

While there has been an increase in spending on non-food items, food, drinks, tobacco and automobile sales have seen a decrease.

And across the board? No changes whatsoever in retail sales for the Euro area over the last month. 🙅🏻‍♀️

It looks like things are stable for now.

Australian Households Dip Into Their Savings 💰

GDP in Australia is down 0.2% in the first quarter. Only missed the consensus by 0.1%.

 The growth (if you can call it that):

• Australian consumers only added 0.5% to the economy. 🛍

• Business investments added 0.4%. 🏦

• Households and government were both on the low-end with their combined efforts only amounting to 0.1%. 🏡

The decline:

• Overall trade took 0.2% from the GDP. This means less goods are being exchanged between Australia and other countries. 🤜🏼🤛🏾

• Inventory changes had a build-up of $2.4 billion – this figure exactly matching that of last quarter. This indicates that businesses may be cautious about increasing their stock of unsold items. 📚

• Household savings also decreased significantly, dropping down to 3.7% from 4.4%, the lowest it’s been since June 2008 - more people having to dip into their savings to cover expenses as prices rise. 🙍🏼

But we should give it to them - with less consumer spending, less savings, and less businesses investing, a 0.2% decline in GDP is not bad all things considered. 🤷‍♀️

Thursday News

Early morning and late night news with nothing in-between. It’s going to be a long Thursday. 🥱

Here’s what you’re in for:
(All times in EST)

• 05:00 — Euro Area Bouncing Back 🪃

  • Event: EUR: Gross Domestic Product (Q1)
    Quarter-over-quarter & Year-over-year

  • Major pairs to watch: EURUSD

• 21:30 — China’s Slow Rebound From The Pandemic 😷

  • Event: China: Consumer Price Index (YoY)(May) 

  • Major pairs to watch: USDJPY

Euro Area Bouncing Back 🪃

The Euro Area is resilient. I'll give them that.

Apparently it takes more than an international war to keep Europe down. 💪🏻

Why does the Russian war against Ukraine come up every time we talk about the European economy?

Well, it has a significant impact on the EU's Gross Domestic Product (GDP).

The European economy suffered a massive blow after choosing to impose import and export restrictions on Russia.

Exports to Russia went from 4.0% to 1.8% in a year. Want to put a value on that?

More than €18.4 BILLION 🤯

Imports from Russia decreased drastically from 9.5% to 1.9%.

From €22.0B to €3.8B.

This means less goods in and less goods out and a huge economic decline followed. 📉

Fortunately, there's been some rebound. Last quarter we saw a 0.1% increase in GDP and the outlook is a 0% change in tomorrow's report.

YoY showed a 1.3% increase and tomorrow's outlook shows a 1.2% increase.

Expect EUR/USD ↑

Plus predicted GDP growth for 2023 is now 1.1% overall and 1.6% for 2024.

China’s Slow Rebound From The Pandemic 😷

Probably faster to watch paint dry than to wait for the Chinese CPI to rise.

Remember, this value measures prices paid by customers in China. 🔖

But as China only opened up from the pandemic in December 2022, it doesn't come as a shock that prices aren't really moving yet.

We are seeing a slow and steading rebound of economic activities that should bring inflation up to 2% by the end of the year.

April gave us a rate of 0.1% and the consensus for May is still 0.1%. Still a ways to go.

Expect USD/JPY ↑

So what gives? 🤷‍♀️

Chinese consumers aren’t shopping as much which means less demand. Less demand means businesses have to lower prices.

The growth in the economy comes mostly from food and service items. 🍳

Although the CPI is rising slowly (very slowly), it is not declining. The core CPI excluding food and energy rose 0.7% year-on-year in April.

What can China do about this? 🇨🇳

The central bank has been lowering deposit rates at commercial banks which could lead to more money circulating in the economy. 💸

Plus they're promoting employment.

More jobs means consumers have more money to spend and businesses can start to generate more revenue.

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