US Industrial Production Increased 3.0 Percent in Jul and 5.7 Percent in Jun But Still 8.4 Percent Below The Level Before the Global Recession, with Output in the US Reaching a High in Feb 2020 (https://www.nber.org/cycles.html), in the Lockdown of Economic Activity in the COVID-19 Event, United States Manufacturing Underperforming in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, United States Economic Indicators Continuing Recovery, Dollar Devaluation and Yuan Revaluation, Fluctuating Yields of Sovereign Securities, Increase in Prices Worldwide, World Cyclical Slow Growth, and Government Intervention in Globalization: Part V

 

Carlos M. Pelaez

 

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.

 

I United States Industrial Production

IIB Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates

III World Financial Turbulence

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

 

The carry trade from zero interest rates to leveraged positions in risk financial assets had proved strongest for commodity exposures but US equities have regained leadership. The DJIA has increased 188.3 percent since the trough of the sovereign debt crisis in Europe on Jul 16, 2010 to Aug 21, 2020; S&P 500 has gained 232.2 percent and DAX 125.1 percent. Before the current round of risk aversion, almost all assets in the column “∆% Trough to 08/21/20” in Table VI-4 had double digit gains relative to the trough around Jul 2, 2010 followed by negative performance but now some valuations of equity indexes show varying behavior. China’s Shanghai Composite is 41.9 percent above the trough.  Japan’s Nikkei Average is 159.7 percent above the trough. Dow Global is 77.8 percent above the trough. STOXX 50 of 50 blue-chip European equities (https://www.stoxx.com/index-details?symbol=sx5E) is 28.8 percent above the trough. NYSE Financial Index is 64.3 percent above the trough. DAX index of German equities (http://www.bloomberg.com/quote/DAX:IND) is 125.1 percent above the trough. Japan’s Nikkei Average is 159.7 percent above the trough on Aug 31, 2010 and 101.2 percent above the peak on Apr 5, 2010. The Nikkei Average closed at 22,920.30 on Aug 21, 2020 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 123.5 percent higher than 10,254.43 on Mar 11, 2011, on the date of the Tōhoku or Great East Japan Earthquake/tsunami. Global risk aversion erased the earlier gains of the Nikkei. The dollar appreciated 1.0 percent relative to the euro. The dollar devalued before the new bout of sovereign risk issues in Europe. The column “∆% week to 08/21/20” in Table VI-4 shows increase of 0.6 percent for China’s Shanghai Composite. The Nikkei decreased 1.6 percent. NYSE Financial decreased 1.9 percent in the week. Dow Global decreased 0.7 percent in the week of Aug 21, 2020. The DJIA changed 0.0 percent and S&P 500 increased 0.7 percent. DAX of Germany decreased 1.1 percent. STOXX 50 decreased 0.7 percent. The USD appreciated 0.4 percent. There are still high uncertainties on European sovereign risks and banking soundness, US and world growth slowdown and China’s growth tradeoffs. Sovereign problems in the “periphery” of Europe and fears of slower growth in Asia and the US cause risk aversion with trading caution instead of more aggressive risk exposures. There is a fundamental change in Table VI-4 from the relatively upward trend with oscillations since the sovereign risk event of Apr-Jul 2010. Performance is best assessed in the column “∆% Peak to 08/21/20” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Aug 21, 2020. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 08/21/20” but also relative to the peak in column “∆% Peak to 08/21/20.” There are now several equity indexes above the peak in Table VI-4: DJIA 149.3 percent, S&P 500 179.1 percent, DAX 101.6 percent, Dow Global 45.0 percent, NYSE Financial Index (https://www.nyse.com/quote/index/NYK.ID) 30.9 percent and Nikkei Average 101.2 percent. STOXX 50 is 9.1 percent above the peak. Shanghai Composite is 6.8 percent above the peak. The Shanghai Composite increased 71.2 percent from March 12, 2014, to Aug 22, 2020. The US dollar strengthened 22.0 percent relative to the peak. The factors of risk aversion have adversely affected the performance of risk financial assets. The performance relative to the peak in Apr 2010 is more important than the performance relative to the trough around early Jul 2010 because improvement could signal that conditions have returned to normal levels before European sovereign doubts in Apr 2010.

Table VI-4, Stock Indexes, Commodities, Dollar and Ten-Year Treasury  

	Peak	Trough	∆% to Trough	∆% Peak to 08/21/ /20	∆% Week 08/21/20	∆% Trough to 08/21/ 20
DJIA	4/26/ 10	7/2/10	-13.6	149.3	0.0	188.3
S&P 500	4/23/ 10	7/20/ 10	-16.0	179.1	0.7	232.2
NYSE Finance	4/15/ 10	7/2/10	-20.3	30.9	-1.9	64.3
Dow Global	4/15/ 10	7/2/10	-18.4	45.0	-0.7	77.8
Asia Pacific	4/15/ 10	7/2/10	-12.5	NA	NA	NA
Japan Nikkei Aver.	4/05/ 10	8/31/ 10	-22.5	101.2	-1.6	159.7
China Shang.	4/15/ 10	7/02 /10	-24.7	6.8	0.6	41.9
STOXX 50	4/15/10	7/2/10	-15.3	9.1	-0.7	28.8
DAX	4/26/ 10	5/25/ 10	-10.5	101.6	-1.1	125.1
Dollar Euro	11/25 2009	6/7 2010	21.2	22.0	0.4	1.0
DJ UBS Comm.	1/6/ 10	7/2/10	-14.5	NA	NA	NA
10-Year T Note	4/5/ 10	4/6/10	3.986	2.784	2.658	0.633

T: trough; Dollar: positive sign appreciation relative to euro (less dollars paid per euro), negative sign depreciation relative to euro (more dollars paid per euro)

Source: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata

 

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.