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SPI Management Newsletter 30.06.23

U.S. Economy Demonstrates Resilience in 2023's First Half

The U.S. economy has exhibited unanticipated vigor in the first half of 2023, despite increasing interest rates. With a decrease in layoffs, stronger than expected growth, and a rise in consumer confidence, the U.S. economic landscape paints a picture of broad-based momentum. These indicators underpin the Federal Reserve's expectation of two more interest rate hikes this year.

Contrary to earlier recession predictions, the economy has continued to expand, with the housing market being a noteworthy example. Limited availability of existing homes for sale has amplified new home sales, far outperforming expectations.

The Gross Domestic Product (GDP) has shown an upward trend. S&P Global Market Intelligence expects it to grow at an annual rate of 1.7% in the second quarter, a rise from the 0.8% predicted earlier this month. This growth is attributed to robust consumer spending, especially on durable goods such as automobiles, which saw a significant rise in the first three months of the year.

The labor market also remains resilient. Jobless claims fell by 26,000 last week, suggesting a historically tight labor market. The number of individuals seeking ongoing unemployment benefits has also decreased, indicating rapid reemployment. Despite the Federal Reserve's measures, job openings significantly outnumber job seekers, reinforcing a robust employment landscape.

However, some cooling is observed, especially in the white-collar job sector, with companies becoming more selective in their hiring process. Despite these factors, economists believe the economy's overall health and momentum remain strong.

The buoyant consumer spending and stable jobs market continue to fortify the U.S. economy. While a mild recession is still expected, experts now believe it may arrive later than initially predicted.

New Phase of Instability Hits China's Real Estate Market

China's real estate market, accounting for nearly a quarter of the country's economic activity, is showing alarming signs of instability, with increasing supply and declining demand. While the property market enjoyed a brief surge at the start of 2023, sales have recently been falling in major cities, and prices have been dropping in most markets.

The worrying trend is the sudden influx of apartments being put up for sale, pushing new listings to multiyear highs. In May, the number of listings for existing homes in 13 major cities increased by 25% from December, with listings in Shanghai and Wuhan surging by 82% and 72% respectively. While some of this is due to life resuming normalcy after years of pandemic-induced pause, many sellers report financial stress and loss of confidence in the market as the reasons for selling. This simultaneous unloading could lead to oversupply, adding downward pressure on home prices, thereby undermining the economy's fragile confidence.

The silver lining is the market may rebound if lower prices draw more buyers, and a drop in new projects by developers could limit new supply in the coming year. Nevertheless, current trends suggest that the Chinese real estate market's instability may persist.

Global Investors Flock to Flourishing Japanese Stocks

Japanese stocks are attracting worldwide investors, recording their best start to a year in a decade. The Nikkei 225, focused on exporters, is up 27%, while the broader Topix has risen 21%, making them among the top performers globally. The positive trajectory led BlackRock to reconsider its cautious stance on Japanese stocks. This shift, coupled with the Tokyo Stock Exchange's emphasis on share value over assets, marks a potential turning point for Japan's market.

Another crucial element is the Bank of Japan's governor, Kazuo Ueda's commitment to the ultra-low interest rate policy and higher inflation tolerance. Overseas investors have engaged in a 12-week streak of net buying in Japanese stocks, accumulating around ¥6.17tn ($43bn). The rally appears driven by a rotation of Asia-focused investors from China to other regional markets, and is expected to continue, possibly driving domestic investors to join in.

Adapted from WSJ, FT, NYT, Reuters, The Japan Times

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