If the economy is shrinking, why is everything going gangbusters?

This is Bloomberg Opinion Today, a fragrant fecundity of Bloomberg Opinion’s opinions. Sign up here. The signal-to-noise ratio in the global [Bloomberg]( Follow Us [Get the newsletter]( This is Bloomberg Opinion Today, a fragrant fecundity of Bloomberg Opinion’s opinions. [Sign up here](. Today’s Agenda - The [signal-to-noise ratio]( in the global economy is currently distorted ... - … but [understanding the dynamics of oil prices]( might prove instructive. - The world needs [an honest broker](. - Hong Kong has [more than just an image problem](. Reading the (Texas) Tea Leaves Jed Clampett, patriarch of “The Beverly Hillbillies” (younger readers should [click here]( for a family snapshot), had a ton of homespun common sense to compensate for his lack of book-learnin’. But it’s his good fortune, as detailed in [the show’s theme tune](, that may have endowed him with better insights into the current economic climate than the statistical models employed by the world’s economists:  Come and listen to my story about a man named Jed A poor mountaineer, barely kept his family fed, And then one day he was shootin’ at some food, And up through the ground come-a-bubblin’ crude. Oil that is. Black gold. Texas tea. A lot of recent data [doesn’t sit well with the prevailing economic narrative](. The US economy has shrunk for two consecutive quarters, yet the labor market is still going gangbusters, inflation looks increasingly subdued and retail sales for July beat expectations. But this is not a conventional business cycle, argues Jared Dillian. The damage wrought on supply chains by the pandemic, unprecedented fiscal stimulus and years of negative real interest rates have made soothsaying particularly troublesome. “But just because the data doesn’t fit Wall Street’s longstanding models that worked in the pre-pandemic era doesn’t mean that it’s ‘noise,’” writes Jared. “It probably means the models are in dire need of updating.” Now, we all know that the stock market isn’t the economy. But it’s a decent proxy for the outlook for growth. And John Authers has a chart that suggests [the price of oil has been driving equities this year](, even though “an information and services-based economy shouldn’t be so dependent on burning fossil fuels.” Equity-market volatility has turned lower when oil prices have dropped. Because a higher oil price currently inflicts more economic damage on Europe than the US, it’s also been responsible for driving the euro lower and the dollar higher, a reversal of the typical relationship. And inflation, as measured by breakeven rates, has also tracked the price of crude. “Current oil prices should have no impact on likely inflation over the next five years, but it evidently doesn’t work that way in markets,” John points out.  Lower crude prices have also reduced gasoline costs, which reduces inflationary pressure and improves the likelihood of the Federal Reserve being less aggressive in tightening policy. “The global economy is far less oil-intense than it was in the 1970s, meaning that fuel accounts for a smaller percentage of gross domestic product,” John writes. Nevertheless, paying attention to developments in the energy market may prove a better method of divining where the economy is headed next than running your father’s Excel spreadsheets. Stuck in Neutral? Switzerland has a long and venerable history of offering its “good offices” as a neutral country during times of conflict, beginning with the Franco-Prussian War of 1870-1871. During World War I, Switzerland held 36 such mandates; at one point in World War II it had 219. But Moscow has spurned a Swiss offer to broker the interests of Ukrainians in Russia, rejecting the country’s claimed neutrality because of its support for European Union sanctions. But Switzerland’s neutral status [isn’t impaired by joining trade embargoes](, argues Andreas Kluth. So long as it doesn’t participate militarily, the world, including Russia, should value its role as a mediator. Russian President Vladimir Putin will eventually need an impartial venue to hold peace talks. “Let the Swiss remember that their neutrality is legal, diplomatic and military in nature — not moral,” Andreas writes. “And let them remind Putin of that as well.” As Clara Ferreira Marques points out, Putin’s attack on Ukraine will be [economically devastating]( for Russia. Foreign direct investment will disappear. Domestic incomes will slump. Education and research will slowly be undermined by the brain drain of fleeing academics. Eventually, Russians themselves will agitate for change. “Ultimately, it was economic collapse, not ideological pressure, that felled the Soviet Union,” Clara writes. “The edifice will crack. The West has to encourage that by keeping a united front and focusing on the endgame, not cultural warfare.” Bonus Diplomatic Reading: Biden, Putin and Xi showing up at the next G-20 meeting [won’t be enough](. — Clara Ferreira Marques More on Conflict: A sharper [Israeli-Palestinian clash](is a sign of worse to come. — Hussein Ibish Telltale Charts Hong Kong’s population has shrunk by 1.6%, with a decline of 121,500 residents in the year ended June 30 producing the largest drop in at least six decades. “If the city wishes to end its self-imposed isolation and regain the open, liberal hub status that once underpinned its success, [only a course correction will suffice](,” argues Matthew Brooker. “Hong Kong doesn’t have a publicity problem so much as a reality problem.” Further Reading (and Listening) [It’s tightening, Jim](, but not as we know it. — A podcast featuring Marcus Ashworth, Dan Moss and Jared Dillian China’s technology companies are [far from alone]( in suffering from a slowdown in Southeast Asia. — Tim Culpan Britain needs [a better booster strategy]( for Covid as winter approaches. — Therese Raphael and Sam Fazeli [Kenya’s economy]( can’t afford the cost of a political crisis. — Bobby Ghosh Helping the world’s cities prepare for [more extreme heat](. — Bloomberg’s editorial board Sterling markets are [cruising for a bruising](. — Marcus Ashworth ICYMI Chinese-Canadian financier nabbed in Hong Kong gets [13-year prison sentence and $8 billion fine](. Turkey’s Erdogan [got his rate cut despite an 80% inflation rate](, and now the heat is on the nation’s banks. Poorer nations are facing [growing social unrest]( as the global energy crisis spirals. Kickers The ‘Barbie’ movie is coming, and so is [the trend of dressing like Ken](. Allegedly. (h/t Lionel Laurent) ​​​ Jaap Buitendijk/Warner Bros. Chipotle Mexican Grill Inc. is selling [a limited-edition scented candle]( designed to smell like water stolen lemonade. (h/t Jessica Karl) The world is “woefully underprepared” for [a massive volcanic eruption]( and the likely repercussions on global supply chains, climate and food. Notes: Please send cut-off stonewashed denim waistcoats and complaints to Mark Gilbert at magilbert@bloomberg.net. [Sign up here]( and follow us on [Instagram](, [TikTok](, [Twitter]( and [Facebook](. Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. You received this message because you are subscribed to Bloomberg's Opinion Today newsletter. [Unsubscribe]( | [Bloomberg.com]( | [Contact Us]( [Ads Powered By Liveintent]( | [Ad Choices]( Bloomberg L.P. 731 Lexington, New York, NY, 10022