Previous Research Milton Friedman’s Favorite Plot
A country’s credit impulse is a strong influencer of business cycles and thus directly translates into economic activity and to a certain degree inflation.
For countries that have sizable economies which impact global activity, the credit impulse directly correlates to commodity prices (For eg: China) & performance of financial assets (For eg: US)
In the case of India, the credit impulse has an excellent ability to predict economic activity as well as financial market performance. But beyond that, it has also been useful in predicting the movement of USD-INR exchange rates. An increase in credit impulse is akin to an increase in liquidity which negatively impacts a net importer country’s currency strength and vice versa. This is clearly evident in the case of India, where the credit impulse leads USD-INR changes by 6 to 9 months.
At present, the credit impulse is expected to reduce in 2023 which should lead to a strengthening of INR.
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.