The Latest On The Global Economy: Slow And Increasingly Unsteady As America Tries To Be The Last Domino Standing

The economic newsflow has started to mirror politics as one nasty development leads straightforwardly to another, with all roads leading to the American consumer of last resort. As currencies fall and commodities start to roll over the key to the global economy is whether Americans keep spending, and that putsg the US equity market in the spotlight. A further drop in equities can only depress the affluent and wealthy consumer, with dire consequences for the global economy. But on this score the prospects are poor, as the volatility risk premium points to a market fall over the next few days, while my technical reading of key stocks in the S&P 500 is bearish. There is one negative factor across global asset classes. The US yield curve is rising and in the current context that is bearish. Expect the S&P 500 to fall over the next few days.

The global economy is getting increasingly perilous, with the slowdown hitting even high-flying India, which today missed estimates for second quarter GDP. And while stagflation is now a reality across Europe and a depressing economic probability for the US it’s also a harrowing possibility for China, with all the grave geopolitical consequences that would engender. China’s manufacturing is suffering from the drought, while the zero-COVID policy and a general confidence decline due to the contradictory policies of the Chinese Communist Party are hurting the consumer. Should Chinese growth fall to zero it would narrow Xi Jinping’s path to re-election as Party Secretary, and occasion the kind of geopolitical brinkmanship that politicians typically resort to when their popularity falls.

Besides the slowdown in Asia the action in Europe is disheartening as inflation has already been worse than expected and the prospects for heatless winter with either high prices or rationing grow more certain. The markets are presently debating whether these nasty external developments will pull down American business confidence, leaving no further dominos to fall. The bulls are relying on resilient diffusion indices and consumer confidence to offset rising interest rates and declining political confidence. But the imprudence of this perspective will be proven shortly as the markets careen back to the June lows as Autumn unfolds.

My current positions are a very large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), and the levered ETF SPXU.