💪💵 The USD is STRONG
Happy Hump Day everyone,
Currently in New York City! Visiting some friends and taking a break, and taking the time to brainstorm newer ideas for the channel, both for the Out of Office channel and main channel.
If you have any suggestions on what to do, eat, or see in NYC - please send them my way by replying to this email! Given our featured story today, perhaps a better place to vacation would have been Europe, where now the Euro is trading close to 1:1 with the US Dollar.
Last week we saw Goldman forecast a 30% chance the U.S. economy tips into recession in the next year, Elon said Tesla would lay off 3.5% of total workforce, Biden considered a gas tax holiday ahead of the 4th of July, McKinsey predicted metaverse spending to total $5T in 2030, Microsoft shut down Internet Explorer after 27 years, and Russia slashed gas flows to Europe.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
In the Markets
Featured Story
For the first time in two decades, the Euro is set to fall below the one-to-one exchange rate with the U.S. dollar. Reaching parity with the U.S. dollar adds to a long list of problems ailing the eurozone economy. The eurozone is already facing the highest inflation on record, energy insecurity, and increasing whispers about a recession. The weakening of the euro adds to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.
On the other hand, the strength of the U.S. dollar has also reeled in the euro closer to parity as investors looking for a safe haven have chosen the USD. With slowing growth in China because of government lockdowns, recession risks in Europe, rising food prices in emerging markets and worsening crises in East Africa and the Middle East, investors around the world see the grim outlook for the global economy and are flocking to the USD.
The outlook for the Euro is now very tied to the energy risk across the eurozone and risks recently intensified after Russia cut off gas sales to Poland and Bulgaria last month. If the supply of gas is shut off by a self-imposed embargo or by Russia, the region is likely to tip into recession, further adding to the potential currency crisis the European Central Bank has on its hands; either counteract soaring inflation or risk a renewed recession.
One bright spot is that Americans looking to vacation in Europe will see the benefits in the form of a near one-to-one exchange rate since everything will be relatively cheaper (compared to times in the past).
One thing to note however is that the Euro’s drop to parity and below is not assured and banks and economists have not settled on a consensus for their predictions. Earlier this week, the Euro pulled away from its lows after a member of the ECB’s governing council suggested that the bank could raise rates in bigger jumps.
Weekly News Roundup
Euro Set to Hit Parity With Dollar in a Month, Wells Fargo Says (Bloomberg)
The Euro is poised to hit the same level as the U.S. dollar within a month as the widening gap between interest rates and economic growth in the U.S. and Europe drags down common currency. The currency has touched a five-year low in mid-May and has weakened 8% against the dollar this year following the Fed’s aggressive monetary policy.
RH: Impromptu trip to Santorini anyone?
Oil-Supply Growth Expected to Lag Behind Demand Next Year (WSJ)
According to the International Energy Agency (IEA), global demand for oil will rise above pre-pandemic levels next year following three years of Covid-19 lockdowns and the economic shock of the Ukraine war. The IEA expects supply growth to lag behind demand, pushing prices up in an already tight market. U.S. oil producers are expected to underpin the supply increases next year while members of OPEC are seen continuing to struggle to meet output targets.
HY: Biden is proposing a tax-lift on gasoline this week, so we’ll see if that alleviates any pressure in the United States. Although again, that would just be a band-aid to the problem.
TC: Gas tax holiday could actually exacerbate the situation rather than help. If the gas tax holiday increases demand due to a lower price for the consumer and supply stays the same… Econ 101…
Biden Signs Ocean Shipping Bill in Bid to Reduce Export Backlogs (Reuters)
President Joe Biden signed legislation to improve oversight on ocean shipping, which lawmakers say will help curb inflation and ease backlogs. The bill passed in a 369-42 vote and Biden had “promised to crackdown on ocean carriers whose price hikes have hurt American families”. The new law boosts the investigatory authority of the Federal Maritime Commission (FMC) and increases transparency of industry practices.
HY: We’ll see if this helps the supply chain! It’s kind of been a forgotten story (supply chain problems) but it still affects our day-to-day.
Charts of the Week
The Federal Reserve Bank of San Francisco recently found that supply-side constraints are causing about half of U.S. inflation while demand is making up around a third of inflation. The bank wrote in a letter Tuseday, “