Archive for Economics & Fundamentals

The ECB is getting closer to tightening monetary policy. China shows weak economic data

by JustForex

According to the data released on Friday, the University of Michigan’s sentiment index fell to 59.1 from 65.2 in April. The figure was lower than all economists surveyed by Bloomberg, which had an average score of 64. The US consumer sentiment fell to its lowest level since 2011 as remaining concerns about inflation clouded Americans’ views of the economy.

At the close of the stock market on Friday, the Dow Jones index (US30) increased by 1.47% (-1.49% for the week) and the S&P 500 index (US500) added 2.39% (-1.41% for the week). Technology index NASDAQ (US100) jumped by 3.82% on Friday (-0.99% for the week). Аt the end of the week, all three indices were negative.

Major European indices traded higher on Friday. German DAX (DE30) gained 2.10% on Friday (+2.96% for the week), French CAC 40 (FR40) added 2.52% (+2.51% for the week), Spanish IBEX 35 (ES35) increased by 1.68% (+0.74% for the week), British FTSE 100 (UK100) jumped by +2.55% (+0.41% for the week). Consumer price index in France increased 0.4% in April (after +1.4% in March). On an annualized basis, the inflation rate reached 4.8%. The annualized consumer price index in Spain declined from 8.4% to 8.3%. EU industrial production fell by 1.8% in March 2022. With the war in Ukraine and sanctions on Russian goods and energy, the European economy is starting to show signs of slowing down. More and more ECB officials are leaning toward an interest rate hike at the July meeting. At the same time, analysts predict that the ECB is likely to decide at its next meeting to end its economic stimulus program.

The G7 countries agreed to increase the economic and political isolation of Russia. In addition, the statement notes that the G7 countries will supply arms to Ukraine, if necessary – for a long time. Also, the statement said that the G7 countries will never recognize the borders that Russia is trying to change through military aggression. G7 countries also criticized Minsk for its position on Ukraine. The G7 countries also intend to step up efforts to reduce dependence on Russian energy as quickly as possible. This includes phasing out coal and oil.

For its part, Russia has begun to threaten the EU openly. “If the EU actually approves the procedure for Ukraine to start entering the European Union, this will mean the end of the European Union,” the Russian Foreign Ministry said. At the same time, Russia began to openly threaten Finland and Sweden, which intend to join NATO in the near future. “As soon as Finland and Sweden become members of NATO and units of the alliance are there, these territories will become a possible target for the Russian military,” said Deputy Permanent Representative of Russia to the UN Polyansky.

Analysts at the American Institute for War Research (ISW) believe that Russia has almost no chance of success in a war with Ukraine. The new phase of the war will follow one of three developmental paths:

  • The Russian Federation will stop and decide to annex already occupied territories;
  • The Russians will try to mobilize additional forces (with mobilization not excluding military collapse);
  • Putin will continue to pursue impossible military goals with insufficient resources and eventually collapse in the coming months.

In commodity markets, gold is still under pressure from high government bond yields and a strong dollar. Once the dollar index begins to decline and monetary policy is close to normalization, gold and silver will once again become attractive assets to buy. But at the moment, there is no fundamental reason for the price of precious metals to rise.

Oil prices rose on Friday, but at the opening session on Monday started to show a sharp decline amid weak data from China, which again increased investors’ concerns over the demand.

Asian markets closed in the green territory last week. Japan’s Nikkei 225 (JP225) gained 2.64% over the week, Hong Kong’s Hang Seng (HK50) added 2.68% over the week, and Australia’s S&P/ASX 200 (AU200) was up +1.93% over the week. China’s economic figures for April disappointed analysts. Retail sales in China fell by 11.1% year on year. Industrial production fell by 2.9% in April compared to the same period last year. The unemployment rate increased from 5.8% to 6.1%. Auto sales in April were down by 31.6% from a year ago. Local lockdowns in China continue to impact manufacturing and business activity seriously. China’s central bank on Monday extended the maturity of medium-term loans, keeping the interest rate unchanged for the fourth month in a row, in line with market expectations. India banned wheat exports to ensure the country’s food security.

In the commodities market, wheat futures (+6.45%), gasoline (+5.05%), coffee (+1.85%) and soybeans (+1.5%) showed the biggest gains at the end of the week. Lumber futures (-7.1%), silver (-5.55%), natural gas (-5.23%), palladium (-4.83%), gold (-3.85%), orange juice (-3.49%), platinum (-2.64%) and copper (-2.4%) showed the biggest drop.

Main market quotes:

S&P 500 (F) (US500) 4,023.89 +93.81 (+2.39%)

Dow Jones (US30) 32,196.66 +466.36 (+1.47%)

DAX (DE40) 14,027.93 +288.29 (+2.10%)

FTSE 100 (UK100) 7,418.15 +184.81 (+2.55%)

USD Index 104.47 -0.39 (-0.37%)

Important events for today:
  • – Japan Producer Price Index (m/m) at 02:50 (GMT+3);
  • – China Retail Sales (m/m) at 05:00 (GMT+3);
  • – China Industrial Production (m/m) at 05:00 (GMT+3);
  • – China Unemployment Rate (m/m) at 05:00 (GMT+3);
  • – Eurozone EU Economic Forecasts (m/m) at 12:00 (GMT+3);
  • – US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
  • – US FOMC Member Williams Speaks at 15:55 (GMT+3);
  • – UK Monetary Policy Report Hearings at 17:15 (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.

Week Ahead: Sterling to sink to greater depths?

By ForexTime

The market adage “Sell in May and go away” has certainly rung true in 2022.

The selloff across bonds, stocks, and even cryptos has taken a steeper dive so far this month, amid worries that central bank rate hikes could choke the global economy.

Investors and traders worldwide will be scouring the following economic data and events in the coming week, looking for reasons as to whether the selloff should be extended or perhaps take a breather:

Monday, May 16

  • JPY: Japan April PPI
  • CNH: China April industrial production, retail sales, property sales, and unemployment rate
  • EUR: EU Commission releases Spring economic forecasts
  • USD: New York Fed President John Williams speech

Tuesday, May 17

  • AUD: RBA releases May policy meeting minutes
  • GBP: UK March unemployment and April jobless claims
  • EUR: Eurozone 1Q GDP and employment
  • USD: US April retail sales and industrial production
  • USD: Fed speak
    • Fed Chair Jerome Powell
    • Chicago Fed President Charles Evans
    • Cleveland Fed President Loretta Mester
    • Philadelphia Fed President Patrick Harker
    • St. Louis Fed President James Bullard
  • Q1 earnings: Walmart, Home Depot, Vodafone, JD.com

Wednesday, May 18

  • JPY: Japan 1Q GDP
  • GBP: UK April CPI and PPI, BOE MPC member Catherine Mann speech
  • US crude: EIA weekly US crude inventories
  • CAD: Canada April CPI
  • USD: Philadelphia Fed President Patrick Harker speech
  • Q1 earnings: Tencent, Target

Thursday, May 19

  • JPY: Japan April external trade
  • AUD: Australia April unemployment
  • ZAR: South Africa Reserve Bank rate decision
  • EUR: ECB publishes April meeting accounts
  • USD: US weekly initial jobless claims
  • Xiaomi Q1 earnings

Friday, May 20

  • JPY: Japan April CPI
  • GBP: UK April retail sales, May consumer confidence
  • EUR: Eurozone May consumer confidence

The GBP index, which measures Sterling’s performance against six of its G10 peers in equal weights, is trading around its lowest levels since December 2020.

This index could return to recent lows if the coming week’s data on jobs, inflation, retail sales, and consumer confidence point to more economic woes.

After all, the Bank of England recently highlighted the risk of a recession by year-end.

Darker clouds over the UK economic outlook should keep the GBP index firmly entrenched in the downtrend that has persisted since February, potentially sending this index back towards the 1.47 mark.

 

The growing downside risks to the UK economy, which are expected to narrow the window of opportunity for further BOE rate hikes, have allowed most of Sterling’s G10 peers to maintain a year-to-date advance against the Pound.

 

Even the beleaguered euro has seized the opportunity to break out of its downtrend against GBP that had been in place since September 2020.

Last week, EURGBP secured a weekly close above its 50-week simple moving average for the first time since January 2021.

 

And with King Dollar reigning supreme across the FX universe, GBPUSD has been sent to its weakest levels since November 2020.

 

We may see even more US dollar strength in the coming week if the scheduled Fed speak does little to douse the prospects of a 75-basis point US rate hike over the summer months.

Such perceived signals for an ultra-hawkish Fed, coupled with dismal data out of the other side of the Atlantic, should heap more downward pressure on GBPUSD and potentially drag ‘cable’ closer to the psychologically-important 1.20 line.

Although GBPUSD’s 14-day relative strength index has broken below the 30 threshold that denotes oversold conditions, any recovery should prove fleeting, as long as the UK economic data suggests that a recession is inevitable and binds the BOE’s hawkish hands, all while the Fed presses ahead with rate hikes galore.

 

READ MORE: Dovish BOE sends GBPUSD to lowest since mid-2020


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ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Investors fear a new economic crisis in the United States

by JustForex

More and more economic experts believe that the Federal Reserve’s plan to curb inflation may lead to a recession in the economy. To fight inflation, the Fed has launched its most aggressive monetary tightening campaign in decades, planning multiple rate hikes of half a percent in a row and $9 trillion in cuts to its balance sheet. But this tightening campaign is causing cracks in financial markets and steep increases in mortgage rates and other forms of borrowing. This could lead to an economic crisis in the coming months and put pressure on the Fed, both because of inflation and the negative side effects of higher rates. The Economic data is also not encouraging. The US producer price index, also called “factory” inflation or wholesale inflation, increased to 11% in annual terms. Last month’s growth was 0.5%. According to many analysts, the producer price index is a more accurate indicator of the inflation faced by businesses and retailers that suffers the most from supply chain disruptions. The initial jobless claims increased to 203,000 (+1,000 for the last week). A strong labor market amid rising inflation is the first sign of an impending recession. Such signals scare investors enough to sell off their portfolios, which leads to a decrease in stock indices. At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.33%, the S&P 500 (US500) lost 0.13%, and the NASDAQ Technology Index (US100) fell by 0.06%.

Federal Reserve Chairman Jerome Powell was re-elected for a second term yesterday. Powell made an interesting point yesterday: “I have said, and I will say again, that, you know, if you had perfect hindsight, you’d go back, and it probably would have been better for us to have raised rates a little sooner,” Powell said, in an interview with Marketplace that will air this evening.

Major European indices closed in the red zone yesterday. The German DAX (DE30) decreased by 0.64%, the French CAC 40 (FR40) fell by 1.01%, the Spanish IBEX 35 (ES35) lost 1.35%, and the British FTSE 100 (UK100) fell by 1.56%. Gabriel Makhlouf, head of the Central Bank of Ireland, has joined many European Central Bank policymakers in urging the ECB to be more decisive and take action on inflation.

According to analysts, the UK is already showing signs of stagflation (slowing economic growth while consumer prices are rising). It is likely that the Bank of England will have to raise interest rates even more to curb inflation, warns Bloomberg manager Dave Ramsden.

Sanctions imposed on “EuRoPol” GAZ by Moscow prohibit gas deliveries through the Polish section of the Yamal-Europe pipeline.

The International Energy Agency (IEA) said yesterday that it does not expect acute shortages amid the worsening disruption of oil supplies from Russia. According to the IEA, a new embargo against Russia may accelerate the reorientation of trade flows of Russian oil toward Asia. This is the reason why oil continues to rise despite lower demand. On the other hand, more and more European countries want to eliminate oil and gas dependence on Russia following its invasion of Ukraine. Sooner or later, this will cause serious economic damage to Russia as most of Russia’s profits come from the sale of oil and gas.

Asian markets closed yesterday with a decline. Japan’s Nikkei 225 (JP225) fell by 1.77%, Hong Kong’s Hang Seng (HK50) lost 2.24%, and Australia’s S&P/ASX 200 (AU200) was down by 1.75%. On Thursday, Japanese Foreign Minister Yoshimasa Hayashi agreed with his counterparts in Britain, Canada, and France on the importance of G7 unity in countering Russia’s invasion of Ukraine.

Chinese developer Zhongliang Holdings struggles to extend a $729 million bond maturity before next week’s deadline to avoid defaulting on offshore debt. Zhongliang’s bond default could heighten investor fears about China’s real estate sector.

Main market quotes:

S&P 500 (F) (US500) 3,930.08 -5.10 (-0.13%)

Dow Jones (US30) 31,730.30 -103.81 (-0.33%)

DAX (DE40) 13,739.64 -89.00 (-0.64%)

FTSE 100 (UK100) 7,233.34 -114.32 (-1.56%)

USD Index 104.77 +0.92 (+0.98%)

Important events for today:
  • – Eurozone French Consumer Price Index (m/m) at 09:45 (GMT+3);
  • – Eurozone Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
  • – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3);
  • – US FOMC Member Mester Speaks at 19:00 (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.

Can A Recovery In US Consumption Be Expected?

By Orbex

The latest data from the US has been giving some mixed signals about the underlying conditions. That has increased the uncertainty about what the Fed might do at its next meeting. The practical result for us traders is that there is more volatility in the currency markets. Generally, the dollar sets a relatively steady course, but contradicting data could make it hard to figure out where things are going.

Tomorrow’s release of University of Michigan consumer sentiment could stir up the mix a little more. Consumers are the drivers of the American economy, and they are being buffeted around by choppy economic waters. All through last year, consumer optimism had been declining. Which isn’t surprising, since inflation had been increasing faster than wages, sapping at consumer purchasing power. But since March a little optimism has returned. Now the question is whether that’s just a little “hump” before turning to the downside, or the sign of a new trend.

The conflicting data

First, we had the report of negative Q1 GDP growth. Following that, investors took a more cautious outlook in terms of what the Fed will do in the next meeting. Speculation coalesced around the idea that the Fed would raise rates by 50 basis points, and 75 bps was out of the question.

But yesterday, CPI figures came in above expectations. Sure, they were lower than the prior four-decade record high. But they showed that inflation is still far from betting firmly under control. Inflation, particularly if not coupled with real wage growth, eventually leads to economic stagnation. With already one quarter of negative growth, getting prices under control has increased urgency. Following the data release, the number of analysts expecting a 75 bps hike at the next meeting increased to 15%, nearly doubling the 8% from a week ago.

Can we get a resolution?

Falling consumer sentiment would be an indication that a recession might be imminent, and likely would be interpreted as the possibility of looser monetary policy than currently expected. That could contribute to a weaker dollar. But if consumers are regaining confidence, that would help give the Fed the motivation needed to keep raising rates. So, it could support the dollar.

The current consensus is that the Michigan May Consumer Sentiment indicator will fall a bit. The estimation is for it to move back to 64.0 from 65.2 in April. Not necessarily a bad sign, but if it doesn’t rise, that wouldn’t be a good sign, either. So, we’d have to see a significant beat or miss to potentially solve the issue of conflicting data.

The key levels

If Michigan Consumer Sentiment drops below the 60 level, it could be an indication that the recent positivity was an aberration of the trend. On the other hand, a move close to the 70 level could be seen as confirmation that consumers are finally feeling better about spending.

 


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Orbex is a fully licensed broker that was established in 2011. Founded with a mission to serve its traders responsibly and provides traders with access to the world’s largest and most liquid financial markets. www.orbex.com

Persistent inflation in the US heightened investors’ fears of an aggressive monetary tightening

by JustForex

The Dow Jones Index (US30) fell to a fresh yearly low yesterday as CPI data showed that inflation remains near a 40-year high. The US inflation rate fell to 8.3% from 8.5%, but the data was worse than analysts’ expectations of 8.1%. Fed officials indicate that inflation has been more resilient, and more action may be needed. Last week, Fed Chairman Jerome Powell said that the Fed is not seriously considering a 75 basis point hike at its next two meetings. But after yesterday’s inflation report, policymakers’ opinions may change. Persistent inflation in the US has increased investors’ fears about an aggressive monetary policy tightening, so the stock market saw another sell-off yesterday. At the close of the stock market yesterday, the Dow Jones index (US30) decreased by 1.02%, the S&P 500 index (US500) fell by 1.65%, and the technology index NASDAQ (US100) lost 3.18%. Analysts believe that the US Federal Reserve maintains a fine line between pushing the economy into recession and lowering inflation.

Major European indices closed in the green zone yesterday. Germany’s DAX (DE30) gained 2.17%, France’s CAC 40 (FR 40) jumped by 2.50%, Spain’s IBEX 35 (ES35) added 2.13%, and Britain’s FTSE 100 (UK100) increased by 1.44%. The UK GDP in the last month decreased by 0.1%, while production also declined by 0.2%. Britain slowly moved toward stagflation (slowing economic growth with high inflation). Analysts believe that the Bank of England failed in its forecasting and has completely misinterpreted the causes of inflation. In a speech yesterday, ECB head Christine Lagarde said that the Russia-Ukraine war had exacerbated all the major drivers of inflation, as well as increased economic uncertainty and clouded growth prospects. This has further complicated the situation facing monetary policy, as inflation and economic growth move in opposite directions in the short term. Since last December, the ECB has begun to move toward gradual policy normalization. According to several indicators, inflation expectations are at or above 2%. ECB inflation forecasts increasingly indicate that inflation will be on target level in the medium term.

Finland is expected to announce its intention to join NATO today, while Sweden is likely to announce its intention a little later, EU diplomats and officials said. Russia’s invasion of Ukraine is changing European security. This move is likely to further anger Russia, as Moscow has repeatedly warned Finland and Sweden against joining NATO, threatening severe military and political repercussions. In the wider Scandinavian region, Norway, Denmark, and the three Baltic countries are already members of NATO.

In southern Ukraine, where Russia has seized some territory, Moscow plans to hold a fake referendum on independence or annexation to make its occupation permanent. Russian forces also continue to shell the Azovstal steel plant in the southern port of Mariupol. Ukraine claims that tens of thousands of people have probably been killed in Mariupol. Between 150,000 and 170,000 of the city’s 400,000 inhabitants still live in the city, which the Russian army has destroyed.

US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.5 million barrels from the previous week. This week, oil prices are under pressure along with global financial markets due to concerns about rising interest rates, the strongest US dollar in two decades, inflation, and a possible recession. Prolonged quarantine measures over COVID-19 in China, the world’s largest importer of crude oil, have also affected the market. The EU is still haggling over the details of the Russian embargo. The vote requires a unanimous decision, but Hungary is against a ban as it would be too destructive to its economy.

The rise in the dollar index harms gold prices. Gold has an inverse correlation to the dollar index and US government bond yields. US inflation is at its highest level, and aggressive monetary policy is already weighed on the price. Therefore, as inflation subsides, gold and silver will once again be good assets to buy, especially since gold miners have a steady increase in profits, which is not reflected in prices yet.

Asian markets closed higher yesterday. Japan’s Nikkei 225 (JP225) gained 0.18%, Hong Kong’s Hang Seng (HK50) added 0.97%, and Australia’s S&P/ASX 200 (AU200) increased by 0.19%. According to New Zealand’s Finance Minister, forecasts show signs of slowing inflation. The Monthly Business Survey of Australia (NAB) indicates very good business conditions and confidence. The April survey recorded a significant improvement in leisure and personal services sector conditions after a period of steady decline during the pandemic.

Main market quotes:

S&P 500 (F) (US500) 3,935.18 −65.87 (−1.65%)

Dow Jones (US30) 31,834.11 −326.63 (−1.02%)

DAX (DE40) 13,828.64 +293.90 (+2.17%)

FTSE 100 (UK100) 7,347.66 +104.44 (+1.44%)

USD Index 104.02 +0.10 (+0.10%)

Important events for today:
  • – New Zealand Inflation Expectations (q/q) at 06:00 (GMT+3);
  • – UK GDP (m/m, q/q) at 09:00 (GMT+3);
  • – UK Industrial Production (m/m) at 09:00 (GMT+3);
  • – UK Manufacturing Production (m/m) at 09:00 (GMT+3);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
  • – US Producer Price Index (m/m) at 15:30 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+3);
  • – US FOMC Member Daly Speaks at 22:00 (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.

Investors expect a decline in US consumer inflation

by JustForex

Yesterday, the US indices traded cautiously and had no unified dynamics. By the close of the stock market, the Dow Jones index (US30) decreased by 0.26%, the S&P 500 index (US500) added 0.25%, and the NASDAQ Technology Index (US100) jumped 0.98%.

According to hedge fund strategists, investors are looking for signs of a potential peak in inflationary pressures, and if today’s data shows a decline in consumer prices, stock indices will show a strong rally. On the other hand, if the inflation data are worse than expected or there is a new acceleration of inflation, the stock market may see a strong sell-off.

The US Congress plans to allocate another $40 billion to Ukraine. The proposal for additional funding related to COVID-19, which some Democrats wanted to combine with emergency funding for Ukraine, will now be considered separately. On April 28, Biden asked Congress for $33 billion to support Ukraine, including more than $20 billion in military aid. The proposal was a dramatic escalation of US funding for the war with Russia.

Yesterday, US President Joe Biden said that the COVID-19 pandemic, combined with supply chain problems and Russia’s war with Ukraine, were to blame for the spike in inflation. The US government rushed trillions of COVID-19 bailouts and infrastructure spending into the economy.

Major European indices traded higher yesterday. Germany’s DAX (DE30) gained 1.15%, France’s CAC 40 (FR40) jumped by 0.51%, Spain’s IBEX 35 (ES35) closed at opening levels, and Britain’s FTSE 100 (UK100) increased by 0.37%. Germany’s inflation rate jumped to 7.4% year on year, the highest level since 1981. Over the last month, consumer prices added 0.8%. The acceleration of inflation includes rising energy prices following Russia’s invasion of Ukraine. Additional factors include delivery bottlenecks due to supply chain disruptions caused by the Covid-19 pandemic and notable price increases in the preceding stages of the economic process. ECB spokesman Madis Muller said today that the ECB’s current policy is inadequate at the current level of inflation. He added that the bond-buying program should end in early July or earlier, and the interest rate should be raised to positive levels this summer.

Oil prices continue to fall as tough quarantine measures in Shanghai continue to raise demand concerns. US President Joe Biden stressed yesterday that as the inflation surge had driven up annual consumer prices by more than 8%, the US is releasing oil from its strategic oil reserves and pressuring companies to return record-high profits to consumers in the form of lower prices.

Asian markets traded lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.58%, Hong Kong’s Hang Seng (HK50) was down 1.84%, and Australia’s S&P/ASX 200 (AU200) fell by 0.98%. As the world’s second-largest economy remains under strict quarantine restrictions due to Covid-19, China’s growth prospects remain a challenge for global trade. China’s consumer price index increased to 2.1% y/y. Price growth for the month was 0.6%. In contrast, factory inflation declined from 8.3% to 8.0% y/y. The slowdown in PPI (factory inflation) was due to government measures to stabilize commodity prices and increase supply. On Tuesday, China’s state planner called for stabilization of energy prices and acceleration of oil and gas exploration and development. Beijing has planned daily coal production at 12.6 million tons this year and gives priority to energy security due to geopolitical uncertainty caused by Russia’s invasion of Ukraine.

Main market quotes:

S&P 500 (F) (US500) 4,001.05 +9.81 (+0.25%)

Dow Jones (US30) 32,160.74 -84.96 (-0.26%)

DAX (DE40) 13,534.74 +154.07 (+1.15%)

FTSE 100 (UK100) 7,243.22 +26.64 (+0.37%)

USD Index 103.91 +0.26 (+0.25%)

Important events for today:
  • – US FOMC Member Bostic Speaks at 02:00 (GMT+3);
  • – China Consumer Price Index (m/m) at 04:30 (GMT+3);
  • – China Producer Price Index (m/m) at 04:30 (GMT+3);
  • – German Consumer Price Index (m/m) at 09:00 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 11:00 (GMT+3);
  • – US Consumer Price Index (m/m) at 15:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (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.

Five things that economists know, but sound wrong to most other people

By Renaud Foucart, Lancaster University 

Economists have shaped the modern world in many ways. Governments make policy choices in response to the data that we produce about things like GDP and inflation. Social media companies use our insights about human behaviour to create features that encourage people to use their platforms. And we’re at the heart of everything from incentivising renewables developers to build more wind farms to regulating the behaviour of tech giants like Google or Facebook.

Yet this is only one side of the story. A curious thing about our profession is that when we academic economists largely agree with each other on something important, the rest of the world often completely ignores our conclusions. Are these findings too counter-intuitive, too impractical, or something else? Here are five examples so that you can decide for yourself:

1. A lowest price guarantee means you will end up paying too much

Retailers make these kinds of price pledges all the time: if you find this item cheaper somewhere else, we will match the price. I see it everywhere from grocery stores to furniture shops to pharmacies. Yet while such a guarantee seems at first sight to benefit consumers, decades of evidence – from tyre retailers to grocery stores – shows that they are mostly a subtle way for retailers to collude on maintaining high prices.

When a retailer offers a low price, it mainly does it to attract consumers by being cheaper than its competitors. But by committing to a price match, each time your competitor offers a discount to your price, your customers know they can come to you and benefit from the same price. The competitor therefore has nothing to gain from offering a discount and prices remain high. Interestingly, it’s illegal for competitors to collude with one another to fix prices – yet price-matching effectively does exactly that, and it’s legal everywhere.

2. Housing subsidies given to tenants often benefit landlords

One of the first principles a student of economics learns is that people receiving a subsidy are not necessarily the ones who benefit from it. For example, in a study in France back in 2006, property owners were found to be pocketing more than three-quarters of housing subsidies being given to tenants.

The reason was that the subsidies motivated families to move into larger houses, and for students in those families to become independent earlier. Since the number of houses on the market remained fairly constant, the main effect of this extra demand was to increase rental prices both for larger homes and for student accommodation – thus transferring taxpayer money to those who needed it the least.

Compare this with a study of the effects of cuts to housing benefits in the UK in 2011-12. Households renting larger houses – in a reverse of what happened in France – demanded smaller ones, and this drove prices down and hurt landlords the most. On the other hand, the poorest households already lived in rental accommodation that was too small for their needs so could not realistically move to something smaller. For this reason, they had no choice but to absorb the benefits cut themselves.

In both the French and UK examples, instead of housing subsidies, the government should have simply given the renters money and let them decide what to do with it. That way, people would have chosen the most suitable accommodation and spent anything left over on other things, such as better food, education or healthcare.

3. Cost of living concerns are never a valid reason to avoid taxing pollution

Gas and fuel prices have soared following the Russian invasion of Ukraine. Motorists are having to pay much more to fill their tanks, while many households are struggling with their power bills.

To fight this crisis, European countries such as France have been offering fuel rebates to consumers. This helps people, but it is also great news for energy suppliers. In many cases the supplier is Russia, so it feeds directly into Vladimir Putin’s military budget and does nothing to help carbon emissions.

Most economists would instead place new tariffs on Russian oil to price in the cost of financing the war and induce businesses and consumers to switch to other energy sources whenever possible. The revenues raised by the tariffs can then be used to help people directly, be it by lowering other taxes or by financing social security.

In the UK, we are doing the exact opposite to this. Consumers are having to pay more national insurance while fuel duties are being cut.

4. Politicians are often more credible when they delegate

To convince people to trust you to do something, one solution is to take out of your hands the possibility of changing your mind later. This is why central banks are independent of governments: so that investors believe they are not playing with interest rates for electoral gains.

In most matters, however, governments are reluctant to delegate decision-making to independent institutions. In France, for instance, several governments spent billions of euros between 2009 and 2017 on the infrastructure needed to implement a tax on trucking, only to back down entirely in the run-up to the presidential election. Had the implementation of the tax been delegated to an independent agency, the fiasco would never have happened.

In another example, the UK recently launched the shared prosperity fund to replace EU-allocated funds to its poorest regions. The new system is much more centralised than before and it is hard to know how much previous funding will be matched. Centralised regional development funds can also be prone to favouritism and political patronage, which in the UK would reduce the credibility of the government in its plans to “level up” the country.

5. Investors consistently beating the market are probably doing something illegal

There is no magic formula to predict short-term changes in the value of a financial asset. Sure, some investments return more money than others, and financial bubbles certainly exist, but anyone asking you to trust them to make more money than the market in the long run is either lying or knows something the rest of the world does not.

If it’s the latter, we call it insider trading. This is illegal, although it still happens. During the 2008 financial crisis, for instance, politically connected investors who knew where the government would intervene made much more money than others did. Stories about financial geniuses may be much more appealing than these kinds of realities, but that doesn’t mean they are true.The Conversation

About the Author:

Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

Major April Inflation Rates: China and US

By Orbex

Tomorrow, we get the release of inflation rates from the two largest economies in the world. Both are set to provide differing perspectives on what is ultimately the same problem. Besides the usual focus on the potential impact of monetary policy, commodity currencies are likely to be in focus. Particularly as the cost of raw materials is seen as the underlying driver of interest rates, and the corresponding reaction in the forex markets.

What’s important in China

China reports first, and while the CPI change is important, it might not be the most important to the markets given the current circumstances. Traders might be more interested in the PPI figure. Here’s why:

Major economic hubs in China are well into their second month of targeted lockdowns. Lockdowns depress consumer demand, and prices. The rest of the world saw deflationary pressures during the lockdown period, and China isn’t likely to be all that different in this respect. Slower inflation would simply affirm the already expected easing stance of the PBOC and keep the yuan under pressure with its trading partners.

China’s monthly inflation rate is projected to rise at 0.2% compared to 0.0% recorded in March. That is an acceleration, but still remains below target. Annual inflation is forecast at 1.8% up from 1.5% seen in the prior reading.

Which prices are key?

Businesses have been raising prices because their input costs have increased. Raw materials, including commodities, have been increasing in price. One of the measures to see the real impact is through the Producer Price Index, typically understood to measure the cost inflation that businesses are facing.

China’s April PPI is forecast to slow down to 7.7% compared to 8.3% prior. It could be a sign that supply-chain costs are finally starting to ease. Or it could be a reflection of the impact on demand due to rolling shutdowns of factories in China.

Is US inflation peaking?

At least that’s the consensus view. The average of economists forecast annualized US inflation for April to drop to 8.1% from 8.5% prior. If there isn’t a drop, it could disquiet markets, because it’s about time for the actions of the Fed to start cooling down prices. The lower this figure, the less likely the Fed will be as aggressive in its hiking cycle, and it could help support the stock market. Counterintuitively, it could also mean a weaker dollar. At least in the short term, as analysts reevaluate what the Fed could do.

Core inflation rate annualized for April is projected to drop to 6.0% from 6.5%, a stronger move to correction. That is still triple the target, and unlikely to dissuade the Fed from another 50 bps hike at the next meeting. But it could have an effect on the expectation on the number of hikes later this year.

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Orbex-LogoArticle by Orbex

Orbex is a fully licensed broker that was established in 2011. Founded with a mission to serve its traders responsibly and provides traders with access to the world’s largest and most liquid financial markets. www.orbex.com

How to Recognize a Less-Than-Obvious Opportunity (In focus: Corn)

Here’s a new, FREE report (valued at $49) that ensures you will do just that

By Elliott Wave International

When I was growing up, my father owned and operated a furniture manufacturing company. Its products stocked the shelves of several well-known retail stores across the country, including Walmart.

On the cover of one of his most popular products, a simple D.I.Y. end table, was a picture of the fully assembled table with a framed photograph of a smiling young girl holding a Persian cat. That young girl was me, and the cat was my childhood pet Princess.

Naturally one day the inevitable happened. My dad and I were shopping at Walmart, and we passed a woman with one of his boxed DIY tables in her cart. She looked at me, then at the face staring back at her on the cover of the box, and then again at me.

Visibly shaken, she braved her way over to my dad and asked if, in fact, I was the girl on the box. Without skipping a beat, he grinned and said he saw the resemblance but no, I was not her and we were on our way. I couldn’t help looking back to see the woman, standing there glued in place with an utterly baffled expression.

Out of earshot, I asked my dad why he lied. “Trust me,” he replied. “We don’t want your head getting so big we have to strap you to the roof of the car.”

Here’s the thing: Every day, “fundamental” analysts say they see the corresponding bullish or bearish news event reflected on the surface of a specific market’s fundamental “pool.”

Take, for example, the recent rally in corn prices to all-time record highs on April 26. Mainstream analysts cite one catalyst for the grain’s gains: The Ukraine war, seeing as Russia and Ukraine account for approximately 20% of the world’s corn exports.

From Aljazeera on April 8:

Russia and Ukraine, whose vast grain-growing regions are among the world’s main breadbaskets, account for a huge share of the globe’s exports in several major commodities, including wheat, vegetable oil and corn, their prices reached their highest levels ever last month.

But if you take a closer look at corn’s rally, you’ll see the gains began back in October 2021 — four months before Putin declared his “special military operation” in Ukraine on February 24.

In turn, the mainstreamers were looking at the wrong reflection; namely, that of “market fundamentals,” which only show you what’s behind, not ahead.

That’s where the Wave Principle steps in. For those new to the Wave Principle, it’s a form of technical analysis that uses chart patterns and other indicators to anticipate market turns.

It’s founded on these core observations:

  • Market trends are driven by correlate trends in collective investor psychology
  • Investor psychology progresses in 2 modes: impulsive and corrective
  • Identifying these patterns correctly can illuminate the near- and long-term path for prices

Recently, we asked three of our top analysts here at Elliott Wave International what pattern or indication they look for most to indicate an important change. The results were too good not to share — and turn into a FREE ($49 value) resource titled “5 Easy-to-Spot Chart Set-ups to Help You Nail Market Reversals.”

This 5-part, all-video collaboration is a masterclass in identifying and implementing these high-confidence arrangements.

Set-up #2 is taught by EWI analyst Jeffrey Kennedy and focuses on the Elliott wave pattern known as an ending diagonal, defined as:

“This is a terminating wave pattern that may form in the fifth wave position of an impulse or as wave C of an ABC formation. As you can see here, it consists of five waves, waves 1, 2, 3, 4, 5.

“This is why ending diagonals are so formidable. They tend to lead to sharp reversals in price back to beyond the origin of the pattern.”

(Jeffrey Kennedy is also the editor of several EWI subscription services including Trader’s Classroom and Commodity Junctures Service)

In his 5 Easy-to-Spot Chart Set-ups to Help You Nail Market Reversals video, Jeffrey shows you an example of an ending diagonal that occurred in gold prices back in 2013, which led to a $50/ounce drop.

We can also show you an example in the recent history of corn, one that set the stage for its powerful surge long before the Ukraine war began. Here, in his November 2021 Monthly Commodity Junctures, Jeffrey recognized this pattern in a terminating wave C and heeded its potential for signaling sharp, swift reversals:

“Basis the March contract, I believe we have an ending diagonal that terminated in October, so now the stage is set for further rallymoving forward to roughly $7 a bushel.

It’s going to be exciting watching this market continue to climb higher in the months ahead.

“I do expect corn … to make new highs above those we saw in May.”

In March, corn touched Jeffrey’s initial target. The March Monthly Commodity Junctures‘ Wave Watch segment presented a new forecast for the grain in which Jeffrey said he “will be looking for further rally up to 801.”

And this final chart captures the full range of grain’s magnificent gains.

Now you understand why the ending diagonal was included in our “5 Easy-to-Spot Chart Set-ups to Help You Nail Market Reversals” video, and why Jeffrey Kennedy was the chosen instructor for that video lesson.

In it, Jeffrey leaves no questions about this pattern unanswered, including:

  • Where they can occur
  • How to recognize them on a price chart
  • 2 cardinal rules pertaining to each subwave
  • And how to time reversals following the pattern

In turn, each of the five lessons from this FREE report are in the best possible hands. And so, you too will be.

Become part of our rapidly growing online Club EWI community and get instant access to the complete “5 Easy-to-Spot Chart Set-ups to Help You Nail Market Reversals” report.

Can German ZEW Turn the Euro Around?

By Orbex

For the last month, the Euro has been getting weaker against its major trading partners. The EURUSD took a particularly strong move lower after the ECB failed to substantially change its monetary policy. Although it was a relatively strong move, it was within the general trend seen since the beginning of last year. The move has left the Euro at its weakest point since well before the last financial crisis.

The question now is whether the trend will continue. Can the Euro fall to parity with the dollar? Well, that would depend on the data. The chief instigator of move in the EURUSD is the differential in bond yields, which are driven currently by expectations around monetary policy. But central banks respond to the underlying economic data, and tomorrow we have a key bit that typically moves the markets.

What’s the issue to focus on?

The ECB is hesitant to raise rates primarily because more costly credit translates into poor economic performance. And this is a somewhat odd situation. Because the EU’s economy is positive, while the US reported negative growth in the last quarter. Yet the Fed has a much more aggressive stance against inflation. To be fair, the US is facing higher inflation, but comparably not all that much higher. 8.5% is more than 7.4%, but proportionally it’s still a major problem.

So, basically the EU is facing more “pent up” expectations about monetary policy tightening. The market is pricing in just 3 rate hikes this year, compared to 6 for the Fed. With lackluster growth in the shared economy, those expectations are likely to remain under wraps. But if there are signs of optimism in the economy, this could be interpreted as giving the ECB more room to act. Which could translate into an expectation that the yield gap between Europe and the US would close in the future. That could finally give the Euro a lift.

What to look out for

One of the leading indicators for the economy is the ZEW Sentiment Survey, which asks key actors to compare where they expect the economy to be six months from now. If it’s rising, it shows improved optimism; but if it’s falling, then the expectation is the economy will continue to underperform. Although the survey for the Eurozone is released at the same time, typically the market pays more attention to the German figure.

And the consensus of economists is that the survey will continue to move away from optimism. ZEW Economic Sentiment Index for May is expected to further into the red at -42.5 compared to -41.0 at the last reading. This is compared to the current situation, which is also expected to become worse at -35.0 from -30.8 prior.

Where things could go

Basically, German businesses are expected to say that the current situation is bad, and they expect it to get worse over the next six months. That is, through the usually more positive period of the summer.

If the situation were to show an improvement – that is, the Expectations were less negative – then it could help the Euro a bit.

Test your strategy on how the euro will fare with Orbex – Open your account now. 


Orbex-LogoArticle by Orbex

Orbex is a fully licensed broker that was established in 2011. Founded with a mission to serve its traders responsibly and provides traders with access to the world’s largest and most liquid financial markets. www.orbex.com