Previous Research S&P500 Liquidity Update: May 28 2023
When it comes to forecasting metal prices, copper stands out as one of the few that can be accurately predicted using macro data. At Airtham, we utilize multiple macro parameters to derive copper price forecasts, with particular emphasis on the credit impulse of manufacturing countries. As China became the leading global manufacturer, the influence of Chinese credit impulse on copper prices surpassed that of any other nation.
The Time Lag Advantage:
One crucial aspect of understanding copper price forecasting is the presence of a six-month lag between changes in Chinese credit impulse and their corresponding impact on copper prices. This time lag provides a valuable window of opportunity to forecast copper prices for up to six months which is significant enough to make effective business decisions relating to inventory, production,
hedging etc
China’s Reopening Story and Stimulus:
Despite expectations of a robust rebound in China’s reopening story, the anticipated effects have yet to materialize. Surprisingly, even with low inflation, China has refrained from implementing significant stimulus measures. It is important to note that stimulus directly leads to an expansion of credit impulse, which, in turn, translates into improved industrial activity and increased copper prices within a six-month timeframe.
Current Credit Impulse Outlook:
Currently, the credit impulse remains muted, indicating that copper prices are expected to remain subdued. Contrary to reports speculating a massive surge in copper prices due to factors such as low production and low inventory, such developments are unlikely to manifest this year. Unless Chinese stimulus measures are evident, one should refrain from making aggressive bullish decisions pertaining to copper for this year.
Can US Skip the Recession?
The most recent labor market data paints a concerning picture of overall weakness. Typically, the effects of changes in interest rates take some time to ripple through the economy. Historically, this lag has been around 18 months. Interestingly, this pattern held true as, precisely 18 months after the initial rate hike in March 2022, we are now witnessing the visible impact this month. The Federal Reserve consistently raised rates throughout 2022, suggesting that the consequences of these consecutive hikes will continue to materialize as the year unfolds.
SP500 & Inflation Update: Aug 2023
Airtham Macro Research: The July headline CPI release followed predictions of a slight increase, yet the actual magnitude was less significant than anticipated. This outcome sparked optimism within the market, leading to a surge in activity and speculation of a potential pause in rate hikes. However, this optimistic rally was short-lived as market participants quickly adjusted their expectations. The weaker-than-expected inflation reading meant a potential decline in economic demand. This perspective gains support from jobless claims data released a few days back, that showed claims rising to a 1.5-year high. Consequently, there's now a debate over whether further inflation reduction is beneficial or detrimental to the markets.
What’s Happening to US Tax Receipts?
One of the most crucial indicators for gauging the health of a country lies in its government tax receipts. When tax receipts rise in tandem with economic growth, it signals a thriving nation. Conversely, economic downturns often witness an accompanying decline in tax receipts. However, what's truly concerning is when tax receipts decline despite a healthy and expanding economy.