In his podcast addressing the markets today, Louis Navellier offered the following commentary.
A Wider Chip Ban On China
There has been a major development on the AI front this week. Nvidia gets about 20% of its revenue from China. Due to the Biden Administration’s restrictions on AI chips to China and Russia, Nvidia designed a special AI chip with a smaller bus, so the data travels slower.
However, the Biden Administration is now evaluating a wider chip ban on China, so NVIDIA Corp (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), and other semiconductor stocks got hit with profit-taking this week.
Robert Lea, an analyst at Bloomberg Intelligence, said “Chinese AI firms may also be able to source dedicated AI chips from third-party countries. So I think it will be hard for the U.S. to enforce the regulations.”
What is interesting about the Biden Administration is that they never removed the trade tariffs on China and are now boosting trade restrictions.
Infuriating European Union
Furthermore, the Biden Administration infuriated the European Union with the Inflation Protection Act, which caused Tesla to move its battery manufacturing from its Berlin, Germany plant to Austin, Texas.
To appease European allies, the Biden Administration has extended the $7,500 electric vehicle (EV) tax credit to European manufacturers, as long as the EV is financed with a U.S. financial institution.
This anomaly actually caused me to lease an Audi e-tron GT, versus buying the EV, since the $7,500 tax credit was not available on an outright purpose. I have never leased a vehicle before, but I found it interesting that the lease terms were more attractive than the outright purchase terms due to the $7,500 EV tax credit.
Eurozone Infighting
Speaking of Europe, the infighting within the eurozone is increasingly focused on the European Central Bank (ECB). Specifically, two Italian deputy prime ministers, Matteo Salvini and Antonio Tajani, both criticized ECB President Christine Lagarde after she signaled another key interest rates hike at its upcoming meeting in July.
Specifically, Salvini and Tajani called ECB policy as “nonsense and dangerous.” Tajani added that “with rates that are too high, you risk a recession.” Under Italian Prime Minister, Giorgia Meloni, Italy has been very vocal against French President Macon and now appears to be launching a full frontal assault on the ECB.
Bloomberg reported that the oil at sea being stored is now at the highest level in two and a half years because Saudi Arabia is now storing crude oil in tankers. Approximately 129 million barrels of crude oil were stationary in oil tankers as of June 23, which is the most since October 2020. Interestingly, crude oil being transported at sea is actually falling, which may be a sign that Russia’s oil shipments to India and China may be waning.
Declining PMIs
Purchasing Managers Indices (PMIs) are now declining around the world. Japan and the US have the strongest PMIs, but have lost some momentum in recent months. China and Europe are now contracting as trade collapses, so economic activity is sputtering.
The Labor Department report U.S. import prices in May for goods from Hong Kong, Singapore, Taiwan and South Korea have fallen 6.3% in the past year, so this deflation should show in the inflation data. This economic weakness should also help bond yields meander lower, especially as evidence of inflation fizzling emerges.
Durable Goods Orders Surge
The Commerce Department on Tuesday announced that durable goods orders surged 1.7% in May to $288.2 billion. This surge follows a 1.2% increase in durable goods orders in April. The strength in May durable goods was a big surprise since economists were expecting a decline of -0.9%. The details of the May durable goods report were very encouraging.
Specifically, excluding transportation, new orders increased 0.6% and excluding defense, new orders rose an impressive 3%. Automotive orders surged 2.2% in May. Interestingly, defense orders plunged 35% in May, but a 33% surge in passenger planes offset the big drop in defense orders.
Core business orders rose 0.7% in May and have now risen 2% in the past 12 months. Overall, durable goods have risen for three consecutive months and are indicative of improving business confidence and a resurging manufacturing sector.
Consumer Confidence Index Surges
The Conference Board on Tuesday announced that its Consumer Confidence Index for June surged to 109.7, up from 102.5 in May. The present situation component rose to 155.3 in June, up from 148.9 in May, while the expectations component rose to 79.3 in June, up from 71.5 in May.
This consumer confidence report is simply stunning and indicative that a robust consumer recovery is underway. In the wake of both surging durable goods orders and consumer confidence, I am now expecting a very healthy June retail sales report.
The Commerce Department on Tuesday also reported that new home sales in May surged 12.2% to an annual pace of 763,000. Even more impressive is that new home sales are now 20% higher than a year ago.
Economists were expecting that new home sales would rise only 0.5%, so this was a massive surprise. Median home prices in May were 416,300, down 7.6% from $450,700 in May 2022. So between lower home prices and consumers getting used to current mortgage rates, the housing market appears to be in the midst of a robust recovery.
