Putting Pressure on, I Think that's Terrible

  • Unprecedented, staggering ear washing of my club
  • NVM reports largest (k-o-k) house price decline ever measured in Q3
  • NEVI reports very strong decline in business confidence
  • CBS measure for inflation comes out at 14.5%
  • German industry continues to struggle
  • US labour market cools according to JOLTs report

Google Translated from Dutch to English. Here is the link to the original article in Dutch. The article was originally published on 07 October 2022.


This is not a football blog. However, the blood creeps where it cannot. On Tuesday, I witnessed the unprecedented and staggering ear washing that the football club of my hometown had to deal with. I don't want to talk about that, but about something else in football. Nowadays it is modern to 'put high pressure', that is, to disrupt the opponent's build-up at an early stage. As a spectator, I don't like that. I sit for my hard-earned money in the Johan Cruijff ArenA watching Pasveer give the ball to Bassey, who gives it to Timber, from there it goes to Rensch who tries to involve Alvarez in the game, but who bounces fiercely on the skin straight back to Rensch, who knows nothing better to do than back on Pasveer. He then tries on the other side at Blind, but he is also immediately chased and goes back to Pasveer. And then back to Bassey, who can't think of anything better than back to Pasveer, who is immediately attacked and then just blindly rams the ball forward like we did in the juniors. Lost the ball, of course. And all that for minutes, at least if they don't already lose the ball in the back from which Napoli score, but I wouldn't talk about that. Anyway, the least gifted footballers who clumsily and half in panic play the ball close to their own goal. Awful.



Biggest drop in house prices in a quarter

The economy is not doing much better than Ajax. The NVM reported that house prices fell 5.8% in the third quarter, the largest quarterly decline ever recorded, but I don't know how long that will be back. It has everything to do with the rise in interest rates and the rise in gas prices and, more broadly, inflation and also inflation uncertainty. The ECB seems determined to raise interest rates further, which does not sound like very good news for the housing market. But that does not mean that mortgage interest rates will continue to rise. After all, the rates for longer fixed-interest periods for mortgages are determined on the capital market. Now that the economy is in danger of slipping into recession, I don't think it is likely that capital market interest rates will rise any further.



Price development existing homes Q3 per region


Finance4Learning | Price development existing homes Q3 per region

Source: NVM



The NEVI reported the results of their monthly confidence survey among their members earlier this week. This PMI (purchasing managers index) fell from 52.6 in August to 49.0 in September. That is a significant drop. The series goes back to 2000 and only four times before there was a bigger monthly drop. The absolute level, below 50, actually indicates contraction in the sector, albeit narrowly. According to this survey, production decreased, fewer new orders were booked and less exported. The sub-indices for these components posted the worst performance since June 2020.


I've been saying for some time that we're going to end up in a recession and not such a nice one. Actually, I suspect we're already in it. Our GDP has already contracted in the third quarter, I think, but we'll see. The erosion of purchasing power is enormous. Aid packages and the ceiling on energy prices are greatly reducing the pressure, but not completely. Moreover, there remains a lot of uncertainty and these support packages come with a hefty price tag of which no one can make an accurate estimate.


Incidentally, the business confidence index as reported monthly by Statistics Netherlands paints a less negative picture than the NEVI PMI. The NEVI survey is much more detailed and so I think it's a better picture at the moment.


Finance4Learning | NL: Producer confidence

Source: Refinitiv Datastream



14.5% inflation

Last week, Dutch inflation according to the European HICP measure rose to 17.1% in September. Statistics Netherlands has now also published the figures according to its own standard. That figure came in at 14.5% in September, after 12.0% in August. The increased gas price was again a culprit. Gas was 229% more expensive for consumers than a year earlier and the price doubled in the period from July to September. The problem is not only with gas, however, core inflation also rose. Excluding food and energy, inflation rose from 6.0% to 6.5%.



Finance4Learning |  Dutch inflation (% y-o-y)

Source: Refinitiv Datastream



German neighbors don't keep it dry

It is well known that the economy in Germany is not going so well. For a change, this time I have listed the figures published in Germany this week in a table. It speaks for itself, I think. PMI stands for Purchasing Managers Index, the purchasing managers index. On this index, numbers above 50 indicate growth and below 50 indicate contraction.


Finance4Learning | Index

Source: Refinitiv Datastream


Let me pick one more thing. Foreign trade has traditionally been a growth engine of the German economy. "That was one thing." The trade surplus, which has been embarrassingly high for years and for which Germany has often been blamed, is melting like snow in the sun. In fact, foreign trade has been holding back economic growth for a few quarters now.


US housing market and labour market cool down

The rise in interest rates is also hurting the US economy. Capital market interest rates have risen at an unprecedented rate this year and mortgage interest rates have naturally slipped along. This has direct repercussions on the housing market. The following picture, in which I use weekly figures from the Mortgage Bankers Association, shows that the increased mortgage interest rates are severely depressing the demand for mortgages for the purchase of homes.



Finance4Learning | US: Mortgage Rate (%) and MBA Buying Index

Source: Refinitiv Datastream



The monthly JOLTs (Job Openings and Labour Turnover survey) report in the US showed a remarkably sharp drop in the number of job openings in August. The US job market has been tight for a long time, but the number of unfilled vacancies fell by 1.1 million in one month. That is a lot. Only once before has the loss of vacancies been greater: in April 2020. Even in March 2020, the number of vacancies fell less than in August this year. That comparison is of course flawed because we now come from a much higher number of vacancies. Moreover, this series can be quite volatile in the short term. In August there were 167 vacancies for 100 unemployed. A few months ago this was still almost 200. By way of comparison, our CBS reports 133 vacancies per 100 unemployed.



Finance4Learning | US: Vacancies per 100 unemployed

Source: Refinitiv Datastream



China is apparently weak

What has struck me lately is that container prices have been falling sharply for some time now. Freight rates from China to the US west coast in particular are currently falling sharply. Fares on the route from China to Northern Europe are also falling, but less rapidly and fares for transport from Europe to the American Atlantic coast are not falling at all. All of this is not good for our competitive position and probably says a lot about the developments in China.


Finance4Learning | Container Prices China - US West Coast (USD)

Source: Refinitiv Datastream



Finance4Learning | Container Prices China - N Europe (USD)

Source: Refinitiv Datastream



Finance4Learning | Container Prices China - US East Coast (USD)

Source: Refinitiv Datastream



The drop in freight costs from China will be related to disruptions in production processes there due to lockdowns, which may leave fewer goods to transport. The fact that things are not going so well in China is also apparent from figures on construction. The following picture shows that the amount of homes and offices under construction has been falling for some time. And quite hefty too. Construction has been an important growth engine in China for years. So not now.


Finance4Learning | China: Square meters under construction (% y-o-y)

Source: Refinitiv Datastream





The global economic outlook is not improving. In my view, Europe cannot avoid a recession. In the Netherlands we may have already started. The support packages and energy price ceilings help, but cannot prevent a recession. The outlook for the US is less problematic, but a recession seems likely there too. We should not expect much support from China for the time being. They are still struggling with local lockdowns and the problems in the real estate sector are getting bigger rather than smaller.