Spoiled Milk And A ‘New World Order’ Reality Check

One mainstream media outlet described the global mood as “sour” on Monday. I don’t particularly like that adjective. It conjures spoiled milk.

I like “dour” better. Especially given the ease of conversion — “sour” to “dour” is just a one letter fix. So, we’ll call it dour, although I’ve leaned on that descriptor too much lately. I too need to find another adjective. “Morose” might work.

The same outlet blamed a familiar list of sentiment dampeners including central bank tightening, poor PMI data out of China and the prospect of a Russian oil ban in Europe. In addition to the Fed joining the 50bps club Wednesday, the BoE will likely deliver a fourth consecutive rate hike and the RBA could move too, marking the culmination of a begrudging about-face from Philip Lowe.

If the RBA does hike on Tuesday, it’d be the first increase since 2010 (figure below), and it’d thrust the bank into the political fray three weeks before an election.

10-year Aussie yields rose to the highest since 2014 on Monday. If Lowe doesn’t hike this week, the chances of a 40bps move next month would increase materially.

Meanwhile, in the EU, confidence dropped to a one-year low. At 105, the European Commission’s index missed consensus by a mile and nearly matched the lowest guess from 28 economists.

The EC’s consumer confidence gauge hit a two-year low (figure below).

“The decline in consumer confidence resulted from marked decreases in households’ assessments of their own past financial situation and their intentions to make major purchases, while consumers’ expectations about their future financial situation edged up slightly after the steep fall in March,” the accompanying color said. “Consumers’ expectations on the general economic situation in their country remained broadly unchanged” at a “very low level,” the EC added.

The final read on S&P Global’s manufacturing PMI for the eurozone, also released on Monday, was mostly unchanged. The headline, while still in expansion territory, was the lowest since January of last year, and the new orders gauge was the lowest since June of 2020.

As is custom in the post-Ukraine invasion era (which entered its third full month on Sunday), a glance across finance-focused social media revealed more banter about a purported “new world monetary order” and a glorious bipolarity.

Amusingly, those sorts of narratives are often pushed hardest by Westerners from the comfort of Western cities where i) annual inflation, despite sitting at multi-decade highs, is still less than half what it was in Russia late last month (almost 18% according to the central bank) and where ii) you can still perpetuate pro-Moscow/pro-Beijing narratives freely, without fear of imprisonment, precisely because you’re not in Moscow or Beijing.

On that note, I’ll leave you with two excerpts, the first from an article in The New Yorker by Timothy Snyder (I cited the same linked piece last week), and the second from Monday’s daily by Rabobank’s Michael Every.

From Snyder’s “The War In Ukraine Is A Colonial War“:

Ukraine does have a history, of course, and Ukrainians do constitute a nation. But empire enforces objectification on the periphery and amnesia at the center. Thus modern Russian imperialism includes memory laws that forbid serious discussion of the Soviet past. It is illegal for Russians to apply the word “war” to the invasion of Ukraine. It is also illegal to say that Stalin began the Second World War as Hitler’s ally, and used much the same justification to attack Poland as Putin is using to attack Ukraine. When the invasion began, in February, Russian publishers were ordered to purge mentions of Ukraine from textbooks.

From Every’s “Is ‘Mayday’ One Word Or Two?”:

There is not a lot to laugh about anywhere at the moment. However, one recent very black humor meme that does was one I saw a few days ago: Putin looks at Defense Minister Shoigu and says, “Tell me how the war is going in one word.” Shoigu replies, “Good.” Putin follows up, “Tell me in two words.” Shoigu says, “Not good.”

Russia is creating an economic basket-case in a breadbasket and calling it ‘peace,’ with global repercussions, yet it is doing the same to itself. A Russian friend tells me he went to his Moscow department store Saturday and took the escalator to the underground level to find the retailer he wanted. The retailer was gone, and the entire level replaced with a vegetable market. I told him to worry when there aren’t any vegetables either. RUB is trading well vs. EUR due to high energy prices, capital controls, and a collapse in imports – but nobody is trading it or wants to hold it. Russian officials talk about a new financial and currency system and RUB pegged to gold or commodities, as if it isn’t already a commodity currency – but isn’t gold priced in US dollars? Weren’t South African Krugerrands literally gold money the West banned anyway? Moreover, Russian central bank governor Nabiullina says pegging RUB to gold is “not being discussed at all.”

[Russia’s] ‘we can do it alone’ policy either fails now, or Russia has to permanently decouple via a step down the industrial technology ladder, which its labor force is not set for. Even worse, the US is allegedly planning to offer Russia’s hi-tech work force special visas to deliberately try to brain-drain it. Or China fills the technology gap, and the West does to them what it is doing to Russia.