Drop in Transportation Stocks Foreshadows Weakening Economy

 According to a recent article in the Wall Street Journal, a drop in transportation stocks could foreshadow a weakening economy. Transportation stocks are often viewed as an indicator of economic health because they are closely tied to the movement of goods and people. If these stocks begin to falter, it could suggest that demand is slowing down and the economy is weakening.

    The Dow Jones Transportation Average, which tracks the performance of 20 transportation-related companies, has declined by -7.7% since February. This is a significant drop and is especially concerning given that transportation stocks typically perform well when the economy is strong.

    The drop in transportation stocks can be attributed to several factors. For one, rising fuel prices have increased the cost of transportation, which has led to a decrease in demand for goods and services that rely on transportation. Additionally, supply chain disruptions and labor shortages have slowed shipping and transportation operations, further hurting the transportation sector.

    The transportation industry is vital to the economy's overall health, as it is responsible for moving goods and people across the country and worldwide. A slowdown in transportation could lead to decreased consumer spending and a decline in business activity. This could ultimately lead to a recession if the trend continues.

https://www.wsj.com/articles/drop-in-transportation-stocks-foreshadows-weakening-economy-fcf83650?mod=economy_lead_pos3 

De-Dollarization Is Happening at a ‘Stunning’ Pace, Jen Says

    The greenback's share in global reserves slid last year at 10 times the average rate of the past two decades as numerous countries looked for alternative reserve currencies after the U.S. government decided to impose sanctions on Russia for their invasion of Ukraine. The dollar has lost 11% of it's market share since 2016 and 22% since 2008

    Some of the reason for the U.S. seeing a decrease in the market share their dollar has comes from the BRICS (China, India, Russia, etc.) nations trying to internationalize their currency for trading settlements due to the U.S. and Europe cutting Russia off of SWIFT. The U.S. dollar has become politicized in the past year as the Biden administration has used it to pressure smaller countries to enforce sanctions they may not agree with. The controversy is that these small developing countries are not able to ditch the greenback due to the strong financial markets that come with using the greenback.

    The U.S. dollar today represents about 58% of the world's global reserves. Given this, it can be claimed that the U.S. dollar's massive role as a leading global currency will not be taken away any time soon. Because smaller countries cannot switch reserve currencies, the U.S. is still able to be a hegemonic power in the global political economy. 

    Now this is not a guarantee due to more countries trending towards losing faith in the U.S. dollar. for example, the BRICS nations and even some Eastern European countries have admitted that they are not confident in the strength of the dollar. Overall, this situation can either improve or worsen, the main indicators to look for are how much inflation rises or falls, and the emergence and adoption of the new BRICS currency in new countries. 

Link: https://finance.yahoo.com/news/dollarization-happening-stunning-pace-jen-082144378.html

    

UK economy flat in February as strikes and inflation bite

According to an article from CNBC, the UK economy stagnated in February 2023 as a result of strikes and inflation. The article cites data from the Office for National Statistics (ONS), which showed that gross domestic product (GDP) remained unchanged in February after growing 0.5% in January. The UK was hit by several strikes in February, which disrupted economic activity in various sectors, including public transportation, healthcare, and education. The strikes were organized by various unions to protest against the government's proposed changes to pension schemes, working hours, and pay. In addition to the strikes, inflation continued to rise in February, putting pressure on consumer spending and business investment. The ONS reported that the Consumer Prices Index (CPI) increased by 3.1% in February, the highest level since 2012. The rise in inflation was mainly driven by higher fuel and energy prices, as well as the impact of supply chain disruptions caused by the pandemic. The article also notes that the UK's economic growth was weaker than expected in the first quarter of 2023, with some analysts predicting that GDP growth may be revised downwards in the coming months. The ongoing strikes, combined with rising inflation and uncertainty over Brexit, are seen as potential headwinds for the UK economy in the near term.

https://www.cnbc.com/2023/04/13/uk-economy-stagnates-in-february-as-strikes-and-inflation-bite.html

Can the West win?

    The Economist article, "Can the West win?" argues the importance and growing relevance of neutral or non-aligned countries in the greater conflict between Russia and Ukraine (or the West).  The article mentions that over 4 billion people spread amongst more than 100 countries are remaining neutral in the war and continuing to trade with both the US and Russia in many instances.  The US has encouraged countries to join the fight against Russia by limiting trade and giving up their neutral position.  The article, however, acknowledges the economic strength and growth of these countries since the Cold War as being greater than growth in Europe.  This, however, is not surprising given out previous discussions on growth rates being much higher in the first years of industrialization and production than consequential years showing that Europe industrialized before the 100+ neutral countries.  Nonetheless, these countries are also becoming unexpected champions for free trade by not letting the political decision Russia made to invade Ukraine to interfere with trade.  Although morally it may not be supported, these countries are in fact doing well economically because of their decision to stay neutral and the article begs the question that if the West's decision to stop trade and tear down relationship with neutral countries really to their benefit?

Today’s homebuyers have their mortgage rate tipping point, and it’s artificially low

Link to the article: https://www.cnbc.com/2023/04/14/homebuyers-mortgage-rate-tipping-point-is-artificially-low.html

For most homebuyers, price is not as nearly as important as the monthly payment and what determines it is the mortgage rate.

According to a new survey by John Burns Research and Consulting, 71% of potential homebuyers say that they will not accept a 30-year fixed mortgage rate over 5.5%. Interestingly, the average mortgage rate since 1977 is 7.75% with the lowest of 2.65% during 2021, the height of the pandemic but 62% of buyers said that the historically normal rate was below 5.5%. Therefore, without true statistics, consumers' perception might be a bit skewed towards the lower end.

In addition, 63% of homeowners and 83% of renters believed that homes are overpriced, which is quite understandable as mortgage rates have gone up dramatically since the low in 2021. As homebuyers are waiting for the mortgage rates to come lower below 5.5%, unfortunately, it might take a bit more time than expected as rates have been over 6% and do not show any sign of coming down yet. While the Fed's decision to cut rates might in some way influence the mortgage rates to come down, it is still not confirmed yet as inflation is still quite far from the 2% target.