Inflation In Europe Is Running Hotter Than The U.S.

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

Europe In A Mess

The most negative news continues to emanate from Europe, where inflation is running hotter than the U.S., since the euro has declined 8% against the U.S. dollar this year.  Since commodities are priced in U.S. dollars, Europe is in the midst of hideous inflation.  European Central Bank (ECB) President, Christine Lagarde, on Wednesday, said that “the era of ultra-low inflation that preceded the pandemic is unlikely to return.”

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While the Fed is at least raising key interest rates to get more in line with market rates, the ECB is planning to change its key interest rate for the first time in a decade from -0.5% to -0.25% in July and then to 0.25% by September.  Obviously, like the Bank of Japan, if the ECB continues to severely lag the Fed in hiking key interest rates, the euro will remain weak and likely reach parity with the U.S. dollar in the upcoming months.

No Earnings Recession

The stock market remains in a very poor mood and keeps discussing that we may already be in a recession.  The amazing thing is that we are not in an “earnings recession” and the analyst community remains largely positive.  Frankly, the analyst community is smarter than the macro strategists that keep calling for a recession.  The bottom line is fear sells, so negative news continues to overpower positive analyst comments.

The Commerce Department also reported that consumer spending rose 0.2% in May, down from 0.6% in April, so the May retail sales report may be disappointing.  Interestingly, the personal savings rate rose 5.4% in May, up from 5.2% in April, so consumer balance sheets are being shored up, which means that loan default rates may remain low.

The Labor Department on Thursday announced that weekly jobless claims declined slightly to 231,000 in the latest week.  Continuing unemployment claims also declined a bit to 1.328 million in the latest week. Despite rising corporate layoffs, unemployment claims remain low, possibly due to millions of job openings.

Coffee Beans

A survey of EU residents found that 58% and 59%, respectively, aren’t ready to accept rising energy and food prices as a consequence of sanctions against Russia, especially respondents from lower-income EU member states such as Greece and Bulgaria. Source: Statista. See the full story here.