Too Much Stuff

By Matthew Gutierrez and Shawn O'Malley · April 16, 2024

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Now that tax day, the solar eclipse, and the New York-area earthquake are behind us, let’s take a deep breath and review the financial landscape.

Such as:

? Fed chair Jerome Powell dialed back expectations on rate cuts today, citing firm inflation weakening the case for pre-emptive reductions.

? Top U.S. banks are posting better-than-expected quarterly results, buoyed by a resilient economy, strong consumer spending, and a flurry of Wall Street activity.

?? If you continue to be confused by all the mixed signals out there, rest assured that you’re not alone.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• China’s economy grows 5.3%, but there’s trouble beneath the surface
• U.S. Dollar on best run in year, but IMF warns over spending

This, and more, in just 5 minutes to read.

POP QUIZ

Americans aren’t sleeping as well as they used to. What percentage of folks think they actually get enough sleep? (The answer is at the bottom of this newsletter!)

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In The News

?? China’s Economy Is Booming…Or Is It?

At the surface, China’s economy is humming along — new Q1 GDP showed that the country grew at an impressive 5.3% annual rate, well above most forecasts.

Yet, the mini-boom may already be fading. Most of that bounce came in January and February before a dropoff in March, when consumers bought less and manufacturing output fell off, too.

• As the chief China economist at Credit Agricole put it, “Markets may find it hard to be convinced by the strong GDP growth print and difficult to reconcile with the mixed March data.”

Worse: China watchers warn that its outlook will decline further if the strong Q1 data report gives policymakers a false sense of confidence, delaying efforts to address chronic issues underlying China’s economy.

• As the world’s manufacturing hub, China is still cranking out goods, supporting GDP calculations. But prices for these goods have declined for more than a year, inflicting a painful deflation on the country’s factories.

Too much stuff: Bloomberg called Chinese consumers’ demand for the country’s excess manufactured goods “anemic,” pushing more goods onto international markets. Flooding the world with manufactured goods, though, isn’t a winning long-term strategy, particularly if China’s population doesn’t feel confident enough or able to spend more.

• Bloomberg Economics adds that this picture “raises serious doubts about sustainability. The pickup was almost entirely driven by public (government) investment…Under-performance in production and private demand suggest the recovery is on thin ice.”
• Meanwhile, U.S. Treasury Secretary Janet Yellen and German Chancellor Olaf Scholz both traveled to China this month to “scold officials” for the cascade of cheap exports.

Why it matters:

At the heart of China’s problems and lack of faith in the strong Q1 GDP is the country’s slowly deflating property bubble. In March, cement production collapsed 22% — the largest ever recorded monthly drop — highlighting the ongoing housing slump’s impacts.

Restaurant spending and car sales also looked weak, showing that China’s consumers remain hesitant to open their pocketbooks after years of harsh Covid lockdowns and a property downturn that has eaten away at their wealth (up to 70% of Chinese families’ wealth is stored in real estate, compared to about 33% in the U.S.)

• As a result, China is experiencing its worst bout of deflation (the opposite of inflation) in 25 years.

Lasting optimism will remain elusive until China’s real estate spiral is under control. In March, prices for...