Asian shares mixed, oil steady ahead of July 4 holiday in U.S.


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The most optimistic scenario, a “Goldilocks outcome . . . is a tall order that is far from guaranteed at this point."

Not an understatement.

For those unaccustomed to the phrase usage in economics, economist David Shulman is widely considered to have coined the phrase in his 1992 study, "The Goldilocks Economy: Keeping the Bears at Bay." The U.S. economy in the middle to the late 1990s was considered a Goldilocks economy because it was "not too hot, not too cold, but just right."

This term describes an idealistic state for an economic system to be in, where there is full employment (the Fed believes a normal rate U2 to fall somewhere between 5% and 6.7%), economic stability, and stable GDP growth to prevent a recession, but not so hot as to push it into an inflationary status. The U.S. economy typically goes through five phases as part of the business cycle: growth or expansion, peak, recession or contraction, trough, and recovery. A Goldilocks economy may happen during the recovery and growth phases.

Most economists agree that central banks must use monetary policy tools to bring on and maintain a Goldilocks economy (welcome to Japan, Janet Yellen). They may raise interest rates to try to cool down the economy, but too much or too soon breaks one of the key pillars of the Goldilocks economy, and usually acts as a precursor to its end.

Because stubborn housing and energy inflation promises to continue to rise for the forseeable future, central banks will feel pressure to continue tightening to combat the biggest stressor seen on household incomes in generations. Consumer sentiment continues to plunge, jobless claims have surged since bottoming in late 1Q, leaving little doubt that recession is a reality. The only questions that remain is the length and depth.

Goldilocks must wait.

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Brent crude, the pricing basis for international trading, advanced 40 cents to $112.03 per barrel.

Go ahead . . . tell them why.

Reuters reported over the weekend that output by OPEC+ members fell by 100K bpd to 28.52 million bpd in June, well off their pledged increase of about 275K bpd. Add to that, Libya's exports have dropped down about 865K bpd compared to normal levels, and about 130K bpd of Norway’s daily oil output will soon be lost due to a planned strike by Norwegian energy sector workers. Overall, oil prices are up almost 50% this year, with the only relief being seen by reduced demand typically seen at the start of a recession. Brent crude is currently trading at 113.08 USD/bbl, up 1.30% for the day, and 1.92% WoW.

Other big news today is gold. Gold edged down to below $1,810 an ounce, close to levels not seen in 5 months, pressured by a strong dollar, as the Federal Reserve leads a global wave of aggressive interest rate hikes by central banks to combat rising prices. It is currently trading at 1806.73, down -0.19% for the day and -0.87% WoW.

Have a good day.

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