From the worst week in cryptocurrency’s history to the sudden joy of a 7.7% annual inflation rate, it has been quite the wild week in the world of economics, especially when all eyes were on the 2022 midterm election. So, what happened while millions of Americans headed to the polls this past week? The usual suspects: economic data, political developments, and the threat of a tripledemic.
We Need the Eggs
That was some inflation report, huh? For the first time since February, the consumer price index (CPI) came in below 8%. Hallelujah! Prices are now 7.7% higher than they were a year ago, according to the Bureau of Labor Statistics (BLS). Praise the heavens and bless our wallets. The financial markets celebrated, the Democrats emulated Howard Dean’s famous 2004 scream, and Republicans wept. But were the latest inflation numbers something to cheer? Maybe – or maybe not. The food index surged 10.9%, while grocery store prices spiked 12.4%. On a month-over-month basis, energy costs increased at a substantial pace, such as fuel oil (+19.8%), gasoline (+4%), and motor fuel (+4%). In addition, the cost of shelter climbed to a record high of +6.9%, although this is considered a lagging inflation indicator. Overall, this was one of those cautious optimism cost-of-living updates, considering that eggs soared 43% year-over-year and 10.1% from September to October. Think about that.
The Crypto Crash
It is the dot-com bubble burst again. Over the last week, Bitcoin crashed by 21%, Ethereum tanked by 23%, and Dogecoin plunged by 33%. Put simply, the entire cryptocurrency market experienced a meltdown due to some good old-fashioned drama regarding the crypto exchange FTX. CEO Sam Bankman-Fried, who had been considered the next Warren Buffett, saw his net worth crash from $16 billion to around $990 million – and falling – in a 24-hour span! This comes as FTX announced that it would be seeking bankruptcy protection, and the FTX Token (FTT) lost 90% of its value. But this is the start of the downfall for anyone, and anything exposed to the FTX ecosystem, warns Changpen Zhao, the CEO of Binance, which seems like the only company that has held steady throughout the chaos in 2022. We bid farewell to the FTX patches on MLB umpires’ uniforms next season.
Consumer Sentiment Crashes
After four consecutive monthly gains, optimism is evaporating. The University of Michigan’s Consumer Sentiment Index declined to 54.7 in November, down from 59.9 in October and below the market estimate of 59.5. The Current Economic Conditions Index plunged to 57.8, while the Consumer Expectations Index tumbled to 52.7. Moreover, the Federal Reserve’s preferred measure of consumers’ inflation projections unexpectedly climbed, as the one- and five-year horizons jumped to 5.1% and 3%, respectively. “All components of the index declined from last month, but buying conditions for durables, which had markedly improved last month, decreased most sharply in November, falling back 21% on the basis of high interest rates as well as continued high prices. Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election,” said Surveys of Consumers Director Joanne Hsu in a statement.
This comes after the October National Federation of Independent Business’ (NFIB) Business Optimism Index slumped to 91.3, and the November IBD/TIPP Economic Optimism reading worsened in contraction territory by touching 40.4.
Beware the Tripledemic
For the most part, this is the first winter in a couple of years in the United States where pandemic-related public health measures have been abandoned. After being locked up for more than two years and forced to wear masks during this time, everyone is now being exposed to germs, viruses, and illnesses that they had not experienced for quite some time, creating debt immunity for millions of people. As a result, the United States, Canada, and many other parts of the world are experiencing a tripledemic, comprised of influenza, COVID-19, and RSV (respiratory syncytial virus). The situation is mostly affecting the kids, as many children’s hospitals nationwide are running at full capacity. But while this is a healthcare issue, the economics of the present situation cannot be understated since the flu alone typically costs the US economy approximately $11 billion a year, be it direct or indirect medical costs. A triple threat could likely result in a much higher figure
Will China Trigger Inflation?
Is China finally abandoning its COVID Zero strategy? Not yet, but Beijing appears to be making significant changes to this policy. The National Health Commission (NHC) announced a series of alterations to the program that has caused nothing but dread and misery for the world’s second-largest economy. These include a shortened quarantine length and removing penalties for airlines that bring infected passengers.
“This certainly does not mean we can slacken in our response or even simply end Covid restrictions and [give up]. China has improved and adjusted its containment measures in response to the way the virus mutates,” said Chinese foreign ministry spokesperson Zhao Lijian in a press briefing.
The commodities market popped on the news, with investors anticipating greater imports now that the economy could reopen faster. During the final two sessions of the trading week, soybeans surged nearly 5%, wheat rallied 2.5%, corn jumped close to 1%, copper soared 7%, nickel swelled more than 5%, and cotton inched 1.4% higher. Even the Chinese yuan picked up a 1% gain against the US dollar. Could this add to inflationary pressures as domestic demand outpaces international supply due to one of the world’s biggest importers devouring stockpiles?
UK Braces for a Recession
The United Kingdom might be kicking off its worst recession since record-keeping began, according to forecasts from the Bank of England. Data from the Office of National Statistics (ONS) revealed that the UK economy contracted 0.2% in the third quarter, although it was slightly better than the -0.5% the market expected. The GDP report highlighted a stalling services sector, sliding household spending, and falling business investment. But exports jumped 8%, and imports slid 3.2%. So, after a year of devastating inflation, 2023 might be a year of a destructive recession. Keep calm and carry on and all that, as the top-hat-wearing and pint-drinking Britons say.
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