As we have announced in these same columns since last fall and as we emphasized at the start of 2022 in our annual forecasts, 2022 is truly the year of the end of financial excesses and a return to reality. Indeed, after a first warning shot last January in the wake of the confirmation of persistent high inflation and the first phase of rising interest rates on bonds, and then a second storm at the start of the war in Ukraine, financial markets are once again heading into a new phase of a severe correction. And this, in particular, on the stock markets, and on the euro / dollar and cryptocurrencies. The numbers speak for themselves: in 17 days, bitcoin has fallen by 30%. Since November 2021, it has collapsed by 57.9%, reaching its lowest level since December 2020.
Other cryptocurrencies are not excluded: -60% for Ethereum since November 2021, -79% for XRP since April 2021, -84% for Litecoin since May 2021, -89% for Doge also since May 2021… Even StableCoins supposed to remain Stable against the dollar, it has lost value over the past few days. Obviously, for those who thought cryptocurrencies were “safe havens,” the shower is cold. But they wouldn’t be able to say we didn’t warn them…
>> Read also – The 10 Most Frequently Asked Questions About Bitcoin
In the wake of that descent into hell, the leading index of growth stocks, in this case the Nasdaq, is also experiencing a particularly devastating storm. Thus, in six days, the Nasdaq Composite Index is down 12.3%. Since November 2021, it has fallen by 29.2%, reaching its lowest level since November 2020.
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As for the more traditional stock indices, a sharp decline is also on the agenda. Between the peak in early January 2022 and the low point of the past few days, the S&P 500 is down 18.1%, the Dow Jones is down 13.8%, and the CAC 40 is down 17.9%. In addition to being justified by a logical corrective move after the over-extension in 2021, as well as by the continuation of the war in Ukraine, these extreme declines are also supported by the economic statistics of the past few days.
Thus, in China, in the wake of the country’s lockdown, the Caixin PMIs for April fell well below the 50 mark, which marks the boundary between growth and a decline in activity: 46.0 in industry, 36.2 in services, and 37.2 for all. sectors. This confirms that the Chinese economy is on the verge of recession. However, this disappointment did not prevent the Middle Kingdom from breaking records after another in terms of trade balance. Thus, the Chinese trade surplus in April amounted to 51.12 billion dollars in one month, and reached a new historical high of 743.93 billion dollars in one year.
>> Our Service – Currency Comparison
What confirms that the permanent blockage of the Chinese economy will greatly affect the supplies of many countries around the world, exacerbating shortages and thus inflationary pressures. In this regard, it is worth noting that despite the appreciation of the dollar which translates into a decrease in imported inflation, the annual shift in consumer prices remained very high in April in the United States. It thus reached 8.3% after 8.5% in March and has remained at its peak since December 1981.
As for inflation excluding energy and food products, it also decreased by 0.2 points in April, but at the level of 6.3%, it has remained at its maximum since August 1982. The primary positive effect, which is the annual increase in producer prices, which is a leading indicator of consumer prices, by 0.2 pips in April, but it’s still very high at 11.0%. This persistent producer price tension suggests that year-on-year consumer prices may rise further over the coming months, or at best stabilize at high levels.
In other words, the Fed will have to increase its key interest rates by at least one point to 2% by the end of this summer. However, the more the ECB continues to deny reality and refuses to respond quickly and intensively to rising inflation, the interest rate differential in the Fed money market and the ECB will grow even more.
A development that obviously will not fail to devalue the EUR/USD a little more. The latter just dropped to $1.0379, the lowest level since January 2, 2003. As we explained here in our column last week, this drop in the value of the EUR/USD is largely justified, but nonetheless beginning to become dangerous to the stability and credibility of the union economic and monetary.
In fact, the lower the euro, the more rampant inflation in the European Monetary Union (due to the mechanical increase in the cost of imported goods, editor’s note), breaking the purchasing power of households and economic growth with it. But this, it is clear that the ECB will not be able to understand and prefer to wait, perhaps in July, for a response. Amazing isn’t it?!
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Marc Touati, Economist, President of ACDEFI
His new book RESET – What new world for tomorrow? Budget articles have topped the list of bestsellers since its release on September 2, 2020
Find all his videos on his site YouTube channel. The last of which is the fall of the euro: why, to what extent, and what are the consequences?