This Week in The Economy

Tuesday August 7:

Foreign exchange reserves in Japan. Not too much attention generally paid to this one, but Japan is the second biggest foreign holder of US treasuries. Let’s see if the recent increase in supply has had the Japanese sell some on net.

Wednesday August 8:

Chinese inflation, last month reported in at 1.9%.

US 30-year mortgage rate. Are rising rates having an outsized impact on mortgage rates, which could be responsible for the recent downturn in real estate prices? Probably.

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Thursday August 9:

Producer Price Index. This could be significant. Last month the PPI, representing prices producers pay for materials in order to make finished goods, hit its highest level since 2011 at 3.4% annual inflation. The same is expected this month. The number hit 10% just prior to the last financial crisis, and hit a high of 20% back in 1975.

Friday August 10:

Consumer Price Index. The classic measure of consumer price inflation, due at 8:30 am eastern. CPI is expected to come in this month at 2.9%, and core CPI minus food and energy at 2.3%. 3% for the CPI would be a big psychological barrier breakthrough.

Fed’s Bullard: Remove All Tariffs and Non-Tariff Trade Barriers

James Bullard, head of the Federal Reserve Bank of St. Louis but not currently a voting member of the Federal Open Market Committee, was quoted by CNBC advising all other countries to remove all trade barriers and tariffs. “That would be a better outcome for the whole world.” When one of the CNBC talking heads responded, “That’s not going to happen,” Bullard challenged, “Why is that not going to happen? Because they’re protecting their industries. They’re protectionist!” Bullard was mum on whether instituting tariffs was the way to go for the purpose of encouraging other countries to tear down their own tariffs, but it is clear that he believes free trade is better than protectionism.

Asian Stocks Up, Except China

Pretty much all Asian indices were up today, except China’s Shanghai Index, which lost 1% on the day. China has been tightening its monetary policy by instituting higher reserve balance requirements and discouraging selling of the Yuan on foreign exchange markets in order to stem the currency’s fall against the US Dollar of late. Really, all they would have to do is sell Treasuries in order to prop up the Yuan against the Dollar, but they haven’t seemed to figure that out yet. Meanwhile, Beijing instituted tariffs on $60 billion more of US goods, in a signal that this trade war is just getting started. Which is great, if you love high prices and other goodies.

Related Tickers: (NYSEARCA:UUP) (NYSEARCA:FXI) (CNY-USD)

Iranian Sanctions Start Tuesday

Watch the price of oil (NYSEARCA:USO) on Tuesday. Simple logic would dictate that the price of oil will go up as sanctions against Iran go into effect on Tuesday at midnight, unless the effect of these sanctions is already priced in. It will also be interesting to see what Iran does when the sanctions go into effect, especially whether or not there will be a disturbance in the Straits of Hormuz, where nearly the biggest percentage by far of all the world’s oil supply is shipped through. Things could get tense.

JPMorgan Chief Jamie Dimon Warns of 5% Interest Rates

The head of the biggest bank in the United States, JPMorgan Chase (NYSE:JPM) is warning of much higher interest rates. “I think rates should be 4 percent today,” JPM CEO Jamie Dimon said on Saturday. “You better be prepared to deal with rates 5 percent or higher – it’s a higher probability than most people think.” Rates at 5% would bring the hammer to US treasury prices, especially at the long end.

Related Tickers: (NYSEARCA:TLT) (NYSEARCA:BND)