19 Aug

Inflation in the Eurozone shows no signs of slowing down. US real estate market is showing signs of a recession

August 19, 2022

By JustForex

According to the National Association of Realtors monthly report, home sales fell nearly 6% in July compared to June. Compared to the same month last year, home sales are down about 20%. The US real estate market is already in a recession regarding economic impact. But other data so far show no signs of weakness. Philadelphia’s Monthly Manufacturing Index rose to 6.2 this month from a negative 12.3 in July, topping all 30 estimates by Reuters economists. The number of US new jobless claims also fell moderately last week. Consumer price inflation and employment data for August, due out before the Fed’s September meeting, will likely affect the size of the rate hike. Traders now expect the benchmark rate to peak at 3.5% in March, although some Fed officials favor 4% or more.

The US stock indices rose yesterday. As the stock market closed, the Dow Jones Index (US30) added 0.06%, and the S&P 500 Index (US500) increased by 0.23%. The Technology Index NASDAQ (US100) gained 0.21%.

The Fed officials spoke again about more aggressive rate hikes. In his speech yesterday, Minneapolis Fed Chairman Neel Kashkari indicated that a Fed rate hike would significantly slow the economy and make a recession more likely. St. Louis Fed Chairman Jim Bullard thinks another 0.75% hike is needed. Next week will be the annual gathering of policymakers at the Jackson Hole Symposium, which will be a focus for traders and investors. But analysts believe Fed Chairman Jerome Powell will again dismiss the market’s optimism by reminding investors that there will be another inflation report and job number before the Fed meeting in September.

Equity markets in Europe were mostly up yesterday. German DAX (DE30) gained 0.52%, French CAC 40 (FR 40) added 0.45%, Spanish IBEX 35 (ES35) lost 0.05%, British FTSE 100 (UK100) closed up by 0.35%.

The Eurozone Consumer Price Index (CPI) reached 8.9% in annual terms, compared to June’s value of 8.6%. A year earlier, the figure was 2.5%. The outlook for Eurozone inflation has not improved after the interest rate hike in July, said European Central Bank board member Isabelle Schnabel, suggesting she favors another significant interest rate hike next month, even as recession risks intensify. Ms. Schnabel also added that another difficulty is that a rate hike would inevitably raise borrowing costs disproportionately in the bloc’s periphery, putting countries with more debt, such as Italy or Greece, at greater risk.

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Eurozone businesses are struggling with surging energy prices and deficits, rising inflation, and expectations of higher interest rates. Germany’s economic sentiment index, the Eurozone’s leading index, recently showed a drop in investor sentiment in August as fears grow that rising costs of living will hit private consumption.

Norway’s Central Bank raised its deposit rate by 50 basis points and indicated it would likely raise rates next month. Norges Bank acknowledged that the trajectory of the discount rate would be faster than predicted in June, and inflation risks will remain high for longer. The interest rate now stands at 1.75%.

The Turkish lira fell after the Central Bank announced another interest rate cut. Policymakers lowered the benchmark rate to 13% from 14%. The Turkish central bank’s decision to lower interest rates amid soaring inflation surprised analysts and economists, as global banks are raising rates to reduce inflation.

Gold prices are falling amid a rising US dollar index and US government bond yields. And while the US Federal Reserve is in a cycle of monetary policy tightening, gold and silver have no fundamental support.

Whether sanctions on Iranian oil are lifted or not, OPEC does not seem to be about to give up the price per barrel of $90 or more. Rumors that the Iran nuclear deal could be reopened and data showing that the largest oil importer, China, has reduced its oil consumption because of the pandemic have caused oil prices to fall to $85 a barrel this week. While upbeat weekly US data increased optimism that fuel demand will improve in the near term, lingering recession fears and possible OPEC+ production increases are likely to limit the upside for oil prices.

Asian markets traded lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.96%, Hong Kong’s Hang Seng (HK50) lost 0.80%, and Australia’s S&P/ASX 200 (AU200) was down by 0.21% by the end of the day.

S&P 500 (F) (US500) 4,283.74 +9.70 (+0.23%)

Dow Jones (US30) 33,999.04 +18.72 (+0.055%)

DAX (DE40) 13,697.41 +70.70 (+0.52%)

FTSE 100 (UK100) 7,541.85 +26.10 (+0.35%)

USD Index 107.45 +0.87 (+0.82%)

Important events for today:
  • – Japan National Consumer Price Index (m/m) at 02:30 (GMT+3);
  • – UK Retail Sales (m/m) at 09:00 (GMT+3);
  • – Germany Producer Price Index (m/m) at 09:00 (GMT+3);
  • – Canada Retail Sales (m/m) at 15:30 (GMT+3).

By JustForex

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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