Hello everyone, welcome to “Finance Talk”.
As the US election approaches, concerns about the US fiscal situation are growing. This Tuesday, one of the three major credit rating agencies, Moody’s, pessimistically stated that regardless of who enters the White House in the future, the US fiscal health will further deteriorate.
In focus today: Why did the US rate cut ease global concerns? Moody’s: Regardless of who takes over the White House, US finances will worsen! Key inflation indicators will be released on Friday, will there be another rate cut? China’s divorce rate surges, business for destroying wedding photos booms! Mainland Chinese parents firmly believe that iPhones will explode, demanding their children to switch phones!
Moody’s stated in a report that the new US government will face a deteriorating fiscal outlook because the declining debt capacity will gradually weaken the US fiscal strength. The report believes that if effective policies to prevent further deterioration of the fiscal deficit are not implemented, it will put pressure on the US sovereign credit status.
Moody’s downgraded the US credit outlook from “stable” to “negative” in November 2023, but remains the only institution among the three major credit rating agencies to give the US sovereign credit the highest rating of AAA. Another rating agency, Fitch, downgraded the US sovereign credit rating from AAA to AA+ in August 2023, while Standard & Poor’s has maintained a rating of AA+ since 2011.
Moody’s also warned that if meaningful policy measures are not taken to reduce the fiscal deficit, control the increasing new borrowing, and slow down interest expenditures, the US fiscal strength will significantly weaken.
Fitch stated last month that regardless of who wins in November, the US fiscal situation may remain largely the same.
This Friday, an important inflation indicator, the August “PCE Price Index”, will be released, providing a key basis for the Federal Reserve’s decision on further significant interest rate cuts.
The market generally expects that the inflation rate of the PCE Price Index in August will fall to 2.3%, the lowest level since 2021. If this expectation is met, the Federal Reserve will further cut interest rates.
Some predict a rise while others predict a fall; some experts believe that the core PCE Price Index for August will increase, from 2.6% to 2.7%. Economists explain that the likely reason for the rise in inflation is the unexpectedly rapid increase in housing costs last month, which is likely to lead to a higher inflation rate.
However, some Federal Reserve officials, including Federal Reserve Chairman Powell, believe that the housing index exaggerates the inflation rate in the United States, so it should not be a concern. Additionally, apart from housing, inflation in most areas has begun to ease.
Lately, the debate surrounding whether the Federal Reserve will cut interest rates in November and by how much has intensified.
Financial market traders’ reactions are interesting; they are increasing bets on relevant futures. Data shows that the market expects the Federal Reserve to cut interest rates by 50 basis points by the end of this year, and traders are preparing for this wave of rate cuts. This can be seen from the significant increase in open interest in US Treasury futures contracts. From this, it is evident that traders generally believe that the Federal Reserve will make further rate cuts and are preparing accordingly. It appears that the financial market has entered an era of low interest rates due to rate cuts.
Now let’s take a look at some business and economic news.
Tech giant Google is facing a final warning from the European Union; if it does not adjust its search engine business promptly, it may face hefty fines. Based on the “Digital Markets Act,” EU officials are preparing to formally charge Google, mainly regarding the display of competitor products in its search services. If Google continues to violate the regulations, it could face fines of up to 10% of its global annual revenue. The final decision is expected to be made by the end of March next year. Recently, Google has been holding closed-door meetings with European Commission officials to seek a solution.
According to Politico, the US Department of Justice is preparing to sue Visa for monopolistic practices under the antitrust laws.
The report states that the Department of Justice intends to accuse Visa of using its market dominance to suppress competitors and exert undue pressure on merchants and consumers. The Department of Justice believes that Visa is hindering other payment and financial technology companies from entering the credit payment field. The Department of Justice plans to file a lawsuit within this week.
According to The Wall Street Journal, the investigation also includes whether Visa uses its network technology to block other credit card companies in the “network payment field” competition.
Recently, The Wall Street Journal released a list of the “2025 Best Universities in the United States,” listing the top 50 US universities with the highest average graduate salaries.
Ranked first is the Massachusetts Institute of Technology (MIT). Following are the prestigious private universities Stanford University and Princeton University in the second and third positions. Overall, private universities dominate the top positions in the list, occupying 36 out of the top 50 spots.
Aside from the aforementioned institutions, other colleges with strong STEM disciplines also performed well. STEM stands for Science, Technology, Engineering, and Mathematics.
The Boeing Company has faced a series of challenges this year, with several issues arising in its models, particularly the “737 MAX 8,” along with struggles in its aerospace business, painting a bleak future. Moreover, it recently faced a major strike.
On the 13th of this month, 33,000 mechanics at Boeing, led by the largest union, the International Association of Machinists and Aerospace Workers (IAM), began a major strike demanding a raise. This strike halted the production of the 737 MAX and other models, estimated to cause losses of billions of dollars.
After 10 days of striking, on September 23, Boeing finally conceded to the labor union, proposing a 30% overall raise within the next four years. They deemed this proposal as the “best and final” offer to the workers, pushing for a decision by midnight on the 27th.
The 30% raise proposed was higher than the previously suggested 25%; however, it was still lower than the union’s proposed 40%, leading to a firm rejection of the offer by the workers.
The union firmly stated: “This proposal was thrown at us without any discussion. Boeing evaded collective bargaining procedures, showing disrespect to the union.”
The labor strife on the eve of the US presidential election has garnered close attention from Wall Street and the White House. The prolonged strike will further worsen Boeing’s already strained financial situation, with the company now expected to spend an extra $1.3 billion each month. Moreover, the production of Boeing’s “cash cow” 737 Max and other commercial aircraft has also come to a standstill.
In the first half of this year, Boeing had to slow down production to address a series of aircraft quality issues, costing over $8 billion in cash. Since the beginning of the year, Boeing’s stock has plummeted by 40%, making it the second worst-performing stock among the Dow Jones Industrial Average components. The worst-performing stock is Intel as discussed last week.
Recently, the Hezbollah party in Lebanon fell into a trap set by Israeli agents called the “BP Machine Killing Game,” causing a sensation. After being sensationalized by mainland media and self-media, many middle-aged and elderly people in mainland China firmly believe in a ridiculous conclusion: that foreign brand phones and other communication tools will explode under the manipulation of anti-China forces, such as iPhones!
This led to a comical scenario where they continuously text and call their children through WeChat, urging them to quickly dispose of their iPhones and switch to Huawei or other domestic brands.
This situation has left many young people who use iPhones feeling annoyed, to the point where it has even begun to impact family harmony. In recent days, many netizens have shared their chat records with their parents on social platforms, stating how their parents insist on them replacing their iPhones with domestic smartphones, believing that iPhones are time bombs. In the end, the netizens helplessly said: “Please spare the older generation from TikTok! It’s both funny and exasperating.”
Following the Federal Reserve’s interest rate cuts, US mortgage rates have continued to steadily decline, reaching 6.13%, the lowest in two years, leading to a surge in US mortgage refinancing applications.
According to the Mortgage Bankers Association (MBA), after seasonal adjustments, US mortgage refinancing applications increased by 20% last week compared to the previous week, exceeding demand from the same period last year by 175%.
Joel Kan, Vice President of the Mortgage Bankers Association, stated that the 30-year mortgage rate dropped to 6.13% for the eighth consecutive week, while the Federal Housing Authority’s (FHA) loan rate fell to 5.99%, breaking the 6% psychological barrier. This led to a significant increase in applications for both conventional and government refinancing.
Despite the significant surge in mortgage refinancing applications, the overall scale is not considered large compared to previous refinancing volumes, as consumer home buying activity continues to be restricted by high housing prices and limited inventory.
Speaking of US housing prices, they have become an ongoing nightmare for buyers. The latest data shows that in July, US housing prices hit another record high, making it increasingly difficult to find an affordable home.
The “Standard & Poor’s CoreLogic Case-Shiller Home Price Index,” released this Tuesday, continued to rise. In July, the national home price index increased by 4.96% compared to the same period last year, and saw a 0.2% month-over-month increase, marking the 14th consecutive record high.
The “20-City Home Price Index,” which measures major US city home prices, showed a yearly growth rate of 5.92% in July, slightly lower than June’s 6.54% but surpassing the long-term average. Among the cities, New York saw the highest price increase at 8.8%, followed by Las Vegas and Los Angeles at 8.2% and 7.2%, respectively.
Additionally, US egg prices have suddenly risen again. In August, egg prices increased by 28.1% year-over-year, making them the highest among all food items according to the latest data from the US Bureau of Labor Statistics. The unexpected surging price is linked to avian flu.
According to the US Centers for Disease Control and Prevention (CDC), nearly 101 million poultry have been infected with avian flu in 48 states since January 2022. As a result, egg production has decreased due to sick hens, with egg output decreasing by 2.6% compared to last July.
Despite the recent rise in egg prices, they remain significantly lower compared to the record-high prices reached at the end of 2022 and early 2023. The average price for a dozen Grade A large eggs is currently $3.20 in US supermarkets, exceeding $3 for the first time since the pre-COVID era. Data from the market information platform Datasembly indicates that since October 2019, egg prices have surged by 83%.
China’s wedding industry once flourished, but in recent years, with more people getting divorced and fewer getting married, the wedding industry has begun to shrink while a new industry related to divorce has seen significant growth. Let’s look at some statistics.
On August 2, 2024, the Chinese Ministry of Civil Affairs released the “2024 2nd Quarter Civil Affairs Statistics.” In the first half of this year, the national marriage registration number was 3.43 million pairs, a decrease of 498,000 pairs compared to the same period last year, a drop of 12.7%. The marriage number for the second quarter was 1.969 million pairs, a significant decrease of 25.8% from the first quarter.
Since 2013, the number of marriage registrations in China has continuously declined, plunging to 6.835 million pairs in 2022, only half of the number in 2013.
Contrary to the declining trend in marriages, China has seen a steady increase in divorce rates over the years. In 2019, the number of divorces in China reached 4.701 million pairs. In 2020, the divorce-to-marriage ratio in China exceeded 53.3%. This means that the number of divorces surpassed half the number of marriages registered. Notably, Tianjin had the highest divorce-to-marriage ratio, reaching 80.85%, with Shanghai and Beijing also exceeding 70%.
Against this backdrop, China’s wedding industry has begun to shrink, leading to the emergence of a new and thriving business arising from divorce.
Many couples enjoy taking wedding photos when getting married, especially in China. These couples showcase elegantly framed wedding photos as a testimony to their love, but once love fades and marriages fail, these photos become burdensome memories that they struggle to dispose of. Moreover, due to strict waste classification regulations in cities, wedding photos cannot be discarded like regular waste. This has resulted in the discovery of a business opportunity by some individuals.
In a factory located about 50 kilometers from Beijing in Langfang, Hebei Province, Liu Wei holds a framed wedding photo and uses spray paint to obscure the faces of individuals in the image before feeding the photo into a heavy-duty shredder. The once romantic photos now disappear, much like the failed marriages they represent.
For larger and sturdier wedding photos that cannot fit into the shredder, Liu Wei and his workers use hammers to break them before shredding them.
Liu Wei, the owner of the destruction site, said: “It was actually an idea that came by chance, but it was a business that inevitably arose. Some customers I deal with regularly have the same idea because they’re troubled by not being able to destroy the photos. I also had this idea after seeing others’ pain points.”
Since sensitive information like personal images is involved, Liu Wei records the entire photo destruction process and sends videos to customers, ensuring the satisfaction and peace of mind of the owners of the wedding photos.
Liu Wei further stated: “My role and positioning are those of a worker who regularly witnesses the breakdown of all kinds of relationships. The presence or absence of a marriage isn’t necessarily a bad thing, perhaps divorce is a good thing.”
For individuals like Liu Wei, this business has become a crucial service, with the wedding photo destruction business now constituting over 80% of his company’s operations.
Wedding photo destruction services are available in various packages, with fees ranging from 59 RMB to 199 RMB.
Among Liu Wei’s clients, 80% are women, with customers from all over the country sending cherished wedding photos to Liu Wei’s factory, bidding a final farewell to their past through this method.
Amid the Federal Reserve’s interest rate cuts, US house loan rates have been gradually declining, currently standing at 6.13%, a two-year low point. This development has led to a significant increase in applications for US house loan refinancing.
Based on the data from the Mortgage Banker’s Association, last week’s applications for house loan refinancing experienced a surge of 20% after accounting for seasonal adjustments, marking a 175% increase compared to the same period last year.
Joel Kan, the Vice President of the Mortgage Banker’s Association, pointed out that the 30-year house loan rate has remained at 6.13% for the eighth consecutive week. The Federal Housing Association’s loan rate has even dropped further to 5.99%, breaking the 6% mark psychologically. Consequently, applications for conventional and state refinancing have sharply increased.
Despite the significant rise in house loan refinancing applications, the volume is relatively moderate compared to historical refinancing patterns due to ongoing constraints in house purchase activity caused by high real estate prices and a shortage of available houses.
Talking about the US housing prices, it has become a nightmare for buyers with prices reaching yet another historic high in July. According to the latest data released from the “Standard & Poor’s CoreLogic Case-Shiller House Price Index,” the US housing price index has soared by 4.96% compared to the same month last year, indicating an elevation of 0.2% month-over-month, marking the 14th consecutive record.
The “20-City House Price Index,” measuring primary US city home prices, has seen a 5.92% annual growth rate in July, slightly lower than June’s 6.54%, but still exceeding the long-term average. Notably, New York witnessed the highest price growth at 8.8%, followed by Las Vegas and Los Angeles at 8.2% and 7.2%, respectively.
Furthermore, egg prices in the US have suddenly surged by 28.1% year-over-year in August.
According to the latest food price data from the US Bureau of Labor Statistics, eggs have experienced the most substantial price hike compared to other food items. The rise can be attributed to avian flu.
The avian flu epidemic has infected nearly 101 million birds in 48 US states since January 2022. The reduced egg production resulting from sick hens has led to a 2.6% decrease in total egg yield compared to the same period last year.
However, despite the recent surge in egg prices, they are still significantly lower than the record highs seen at the end of 2022 and the beginning of 2023. The average price for a dozen large Grade A eggs in US supermarkets currently stands at $3.20, surpassing the $3 mark for the first time since the pre-pandemic era. According to market data from Datasembly, egg prices have jumped by 83% since October 2019.
In China, the wedding industry has taken a hit as divorce rates rise and marriage rates decline. This shift has led to the emergence of services aimed at destroying wedding photos, providing relieved individuals a way to move on from past relationships. One individual, Liu Wei, has harnessed this business opportunity by operating a facility where individuals can have their wedding photos destructed, paving the way for new beginnings.
Following the Federal Reserve’s interest rate cuts, which have stabilized house loan rates in the US, the mortgage refinancing market has seen a remarkable uptick in applications, with many homeowners seeking to take advantage of the lower rates.
The interest rate cuts have significantly impacted both the US housing market and the broader economy. Although the housing market has thrived due to the low rates, high housing prices remain a challenge for potential homebuyers. As the market dynamics continue to evolve, it will be interesting to see how these trends shape the future of the US real estate sector.
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