Written by Shane Balkham.
American families congregated together to celebrate the harvest and give blessings for the year that is passing. Thanksgiving and its subsequent commercialisation being Black Friday, will be an interesting reflection point for 2022. What, if anything, will the American consumer be grateful for? With the cost-of-living crisis continuing to squeeze Middle America and as central banks blindly continue to hike rates, was there any salvation for retailers over the weekend?
Mastercard has forecast that Black Friday will see the American consumer spend 15% more on the equivalent day in 2021. This projection itself seems inflated, however, the forecast represents the strategy that retailers are offering short-term promotions in order to clear inventories that have built up in a slowing economy. Interestingly, it is expected that Black Friday online sales will surpass $9 billion for the first time, according to Adobe Digital Insights. After two years of pandemic-related anxieties, shoppers are expected to return to physical stores this year.
The minutes from the Federal Open Market Committee (FOMC) were published last week and described a desire to slowdown the pace of rate hikes but fell short of signalling an actual pause. These minutes were taken over three weeks ago, and since then we have had several members of the FOMC give speeches that reinforce the growing expectation that the Federal Reserve realise that policy may have gone beyond what is needed.
With the next FOMC meeting a little over two weeks away, there is insufficient time for the data on which the decisions are heavily reliant to show what the market already suspects; that inflation is slowly being tamed and central banks have seemingly delivered adequate rate hikes. This leaves the FOMC with a difficult decision on 14th December, as there is an inherent lag between monetary policy actions and the behaviour in economic activity and inflation. Based on Chairman Jerome Powell’s previous comments on maintaining a firm stance on combating inflation at all costs, it is likely that we will see a fifth successive 0.75% rate hike. Whereas the decision in the September meeting was unanimous amongst the members of the FOMC, it is likely that this next vote will be split.
Across to the opposite side of the world, China reported the first COVID-19 fatalities for over six months. There is widespread expectation that China will ease restrictions, however this is only likely once China has approved its own mRNA vaccine (similar to the Pfizer-BioNTech and Moderna vaccines) and roll out programme. Until then, a continuation of lockdowns and restrictions will remain in place. However, a zero-tolerance towards COVID-19 policy can only work if the population believes that the frequent lockdowns will actually work. It would appear that many do not have that faith with protests held in Shanghai and Beijing over the weekend.
It is unusual to see the Chinese people challenging the authorities, with banners protesting against President Xi Jinping and his policies, reminiscent of the Tiananmen Square protests in 1989. Although the protestors represented a relatively small portion of the population, it does show the need for China to tackle the virus quickly, especially against a slowing and faltering economy.