Financial Times: A buying strike threatens global markets

History shows that consumers cutting back on discretionary spending poses a serious risk to markets. US inflation is at its highest level in 40 years, but household incomes, with prices rising, have fallen at a rate not seen since the government began collecting data. 1959.

In an article published in the British Financial Times, writer Rana Forohar says that this is due to the high cost of food, fuel and housing, as commodity prices do not show any sign of dropping much anytime soon, due to the ongoing war. They have played out in Ukraine, while prices in the tightly restricted US housing market may remain higher than normal for the next few years, even as interest rates rise.

buy strike

The writer shows that, according to a recent report issued by Currency Research Associates (a US-based financial strategy firm), there is strong evidence of the emergence of a global “purchase strike”, as consumers around the world began to reduce their spending on the things that they They don't need it.

The writer points out that this phenomenon is evident in developing countries, where the sharp rise in the prices of basic materials (which are more expensive when priced in currencies that witness sharply devaluation) have led to power outages and food insecurity, and what amounts to “removing” hundreds of millions of people from the global consumer economy.

Rich countries suffer the same phenomenon, as New York and New Jersey residents owe more than $2.4 billion to public service companies, and some cities warn of power outages if bills are not paid, and companies have begun to adjust their own spending forecasts, car prices have soared. Most used cars have been new in the US for quite some time.

And in late March, Apple announced its plans to reduce its production of the “iPhone SE” by 20%, because the war in Ukraine and high inflation led to a reduction in consumer spending around the world, and also decreased. Airpods special orders.

According to the writer, “Netflix” announced last week that it lost more streaming customers than it recorded in the first quarter, which is the company’s first decline in a decade. The Standard & Poor's (S&P) index fell.

global concern

What's worrying is that anything people can give up, from eating out to summer vacation, to new clothes, appliances, cars or gadgets, could be damaged if food, fuel, and housing costs (in places like the United States) remain high.

While 60% of Americans live on salaries to pay their expenses, there are indications that the richest people are becoming concerned about overspending, with one recent survey showing that more than half of those who earn $100,000 or more annually They are eating out less, and nearly a third of them have cut back on delivery, travel and monthly subscriptions.

The author wondered if this case could be described as a domino effect if lower consumer spending, higher costs of raw inputs and lower stock prices collided with higher interest rates and more indebted companies than ever before. Investors are wise to look at past periods of low income and production growth, particularly between September 1937 and June 1938.

At that time, after prices reached peak levels on two occasions, stock prices fell by 40% in 3 months, and this period was studied by economist Kenneth de Rose in detail in his book entitled "The Economics of Recession and Renaissance", where he explained that while it was difficult Extracting the exact causes of the crash, wholesale prices rose at a time when consumers were still closely watching the recession and increasingly concerned about the impact of the global geopolitical landscape.

renewed resentment

It is clear that there are frustrating parallels with the global economic and geopolitical picture today, as the world is witnessing declining consumption, rising wages and inflation rates, not to mention the outbreak of war in Ukraine and soaring interest rates, and real US 10-year Treasury yields. It is about to turn positive for the first time since the pandemic, giving consumers another reason to save more and spend less, it will also make corporate debt more expensive, and put the fate of many businesses at risk.

The writer concluded by saying that it is as if we are approaching a major turning point in the markets, as supply chains are shifting, conflicts are increasing and currency systems are undergoing changes, and all this is happening at a time when monetary policy is about to cross the point of no return with high interest rates and quantitative tightening.