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Tags: economy | melt | heat | europe

Is US Economy Melting Up or Down?

Is US Economy Melting Up or Down?
(Dollar Photo Club)

Dr. Edward Yardeni By Saturday, 09 July 2016 12:15 PM Current | Bio | Archive

The US is in the midst of a heat wave. That’s not unusual during the dog days of summer.

Neither is a European financial crisis. The region’s latest summertime upheaval was triggered by the Brexit vote on June 23.

It immediately hit the UK’s commercial real estate market. Six property funds, so far, have been forced to block investors from withdrawing their money to prevent the need to quickly sell off illiquid assets to pay investors, which would depress prices.

It already seems to be a financial contagion that is spreading to Italy’s banking sector, though that’s more coincidence than causality. Italy’s banks have been piling up over €300 billion in bad loans for several years.

Brexit was probably just a convenient excuse for the Italian government to request that the EU postpone some tough new rules limiting bank bailouts by requiring “bail-ins” of private-sector creditors. In addition, the government would like to bail out the banks with €40 billion in rescue funds. As we discussed yesterday, EU leaders have nixed both requests.

The ancient Greeks saw a correlation between the summer’s heat and the appearance of the star Sirius in the morning skies of late July and early August. Sirius resides in the constellation that the Romans named “Canis Major,” or the “greater dog” constellation to them. Homer, describing in the Illiad the approach of Achilles toward Troy, suggested a sense of foreboding associated with the appearance of the star:

“Sirius rises late in the dark, liquid sky
On summer nights, star of stars,
Orion’s Dog they call it, brightest
Of all, but an evil portent, bringing heat
And fevers to suffering humanity.”


The Europeans most likely will muddle along with their latest financial crisis the way they did the previous ones since 2010. They all tend to go on vacation in August, so they should patch something together before the end of the month to keep Italian banks on life support.

The meltdown in bond yields has heightened fears of a global recession and a meltdown in stocks, which has certainly been underway among European bank stocks. Italy’s bank sector index has fallen 30% since the Brexit vote, bringing its losses so far this year to 57%. The Eurozone bank stocks index has dropped 22% and 37%, respectively, over those same two periods.

Joe and I expect that the meltdown in bond yields will continue to fuel a melt-up in the S&P 500’s interest-rate-sensitive sectors. Cyclical sectors should follow the lead of the interest-rate-sensitive ones, as long as there is no recession.

In the US, the plunge in mortgage rates is reviving mortgage refinancing activity, boosting consumers’ purchasing power.

Another encouraging development is that the NM-PMI has rebounded from a 27-month low of 52.9 during May to 56.5 last month, led by its new orders component.

Move along, there’s no recession to see here — at least in the US, so far.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.

© 2022 Newsmax Finance. All rights reserved.


EdwardYardeni
The US is in the midst of a heat wave. That's not unusual during the dog days of summer. Neither is a European financial crisis. The region's latest summertime upheaval was triggered by the Brexit vote on June 23.
economy, melt, heat, europe
510
2016-15-09
Saturday, 09 July 2016 12:15 PM
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