All Eyes on Jackson Hole
Good morning 🌅, and welcome to this week's edition of Kalshi Kit. Last week was a blast from the past for investors, with meme stock mania briefly returning to the markets. Bed, Bath & Beyond surged over 70% last Tuesday, only to come crashing back down to end the week at $11.03 a share.
The Federal Reserve is slated to hold its annual symposium in Jackson Hole later this week. Investors are highly anticipating a speech from Fed chair Jerome Powell, who is expected provide clues on the Fed's plans next month during the conference.
Following the release of a lackluster July economic report, China's central bank unexpectedly cut interest rates last week. Oil tumbled in response to the disappointing data.
President Biden is expected to release his decision on federal student loan forgiveness by the end of the week.
Let's see what the Kalshi markets are saying in anticipation of the big week ahead:
Market Watch 👀
Fed Interest Rates 🏦
>3.00% Yes: 51¢ No: 49¢
Kalshi markets are forecasting a 51% chance that the Federal Reserve will hike rates by at least 75 bps come September. On the flip side, markets are predicting a 49% chance that the Federal Reserve will hike rates by less than 75 bps in September.
James Bullard, president of the St. Louis Federal Reserve, said in a recent interview that he "would lean toward 75 basis points" when deciding the size of September's rate hike. Bullard stated he would opt for a more aggressive hike next month to prevent "dragging out interest rate increases into next year."
Esther George, president of the Kansas City Federal Reserve, stated in a recent interview that the pace of future rate hikes is still under debate and a 75 bps hike is far from guaranteed. George has historically advocated for a dovish stance by the Fed and wrote a dissent against June's 75 bps rate hike. In the dissent, George argued a 50 bps hike would have been more appropriate.
U.S. August Unemployment 💼
>3.4%? Yes: 68¢ No: 32¢
Kalshi markets are predicting a 68% chance that U.S. unemployment will exceed 3.4% this month. On the other hand, markets are forecasting a 32% chance that U.S. unemployment will be below 3.4% in August.
In a recent interview, former Treasury Secretary Larry Summers said his "worst fear would be that the Fed will continue to be suggesting that it can have it all in terms of low inflation, low unemployment and a healthy economy.” Summers said he projects unemployment to "punch through 5%" by 2024, well above the Fed's forecast of 3.5%.
In the face of back-to-back rate hikes of 75 bps, the U.S. jobs market remained resilient in July and added over 528,000 new non-farm payrolls. Minutes from the Fed's July meeting also underscored that it would still "take some time" before past hikes kicked in enough to have a meaningful impact on the economy. This suggests the jobs market may still be insulated from the full effects of past rate hikes.
NYC Monthly Rent Increase 🌃
>1.0% Yes: 52¢ No: 48¢
Kalshi markets are predicting a 52% chance that the monthly average rent in NYC will grow by more than 1% in August. Markets are predicting a 48% chance that the monthly average rent in NYC will grow by 1% or less in August.
According to recent data from Miller Samuel and Douglas Elliman, average monthly rent for an apartment in Manhattan surged to an all-time high of $4,100 in July. Data also showed 1 in 5 rentals in NYC have been subjected to bidding wars, leading to average leases being signed at over 13% of their listing price.
Recent data from Axios shows apartment construction in American cities has reached a 50-year high in 2022, with an estimated 420,000 apartments slated to be finished by end of year. A large increase in the supply of apartments, coupled with recent rate hikes from the Fed, suggests the NYC housing market could begin to cool in the coming months.
Hedge Against a Global Recession 🌎
Last week, China's central bank unexpectedly cut one and seven-year lending rates by 10 bps each. This was in response to a bleak economic report, which showed the country will massively miss its yearly growth target of 5.5%.
The report showed that all aspects of the Chinese economy faltered in July. Retail sales, industrial output, and investment all missed estimates. The surveyed unemployment rate for citizens aged 16-24 also surged to 19.9%, an all-time high.
Possibly the most alarming takeaway from the data was the decline in Chinese domestic demand for manufactured goods and commodities. China's imports for mechanical and electrical goods fell 8% in July. Monthly steel production in China also hit its lowest point since 2018, a drop that has been fueled by China's deepening property crisis and strict "zero-COVID" lockdowns.
The pessimistic outlook is not only grave news for Xi Jinping, who is seeking a record third term at the upcoming Chinese Communist Party congress, but the rest of the world.
As the world's second largest economy, China's slowdown heightens the risk of a global recession. A decline in Chinese domestic demand would restrict growth for the rest of the world, who rely on China as a key customer for their exports. This would cause a drop in production for economies across the globe, leading to higher unemployment and decreased GDP.
Many countries have already begun to feel the downstream impacts, with Germany and South Korea posting trade deficits with China for the first time in decades last month.
With Kalshi's 2022 China GDP growth market, members can trade directly on the outlook of China's economy. Members can use this market to hedge against the risk of China's economy continuing to falter, and the risk of the slowdown triggering a global recession.
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