Archive for Economics & Fundamentals – Page 103

18 May

Debt ceiling talks continue. Australian labor market shows weakness

By JustMarkets

The US stock indices rose on Wednesday amid hopes that Congress will work out an agreement to raise the national debt ceiling, allowing the US to avoid defaulting on its obligations. At the close of the stock market yesterday, the Dow Jones Index (US30) gained 1.24%, the S&P 500 Index (US500) added 1.19%, and the Nasdaq Technology Index (US100) jumped by 1.28%. After yesterday’s meeting, lawmakers expressed optimism that a default can be avoided. US President Biden will travel to Japan today for a meeting of G-7 world leaders, but he cut the rest of his trip to Asia while the debt ceiling problem persists.

Debt negotiation is just one issue that has investors worried. Concerns are also high about a possible recession, which could well start later this year because of much higher interest rates. One of the main positives that has kept the economy out of recession so far has been steady spending by US households. They have continued to spend even as manufacturing, the US banking system, and other parts of the economy collapsed under the pressure of high-interest rates.

Shares of Tesla Inc (TSLA) jumped more than 4% after yesterday’s annual shareholder meeting, at which CEO Elon Musk said he intends to remain in office. It was also announced that the company will begin shipping its long-awaited Cybertruck later this year.

According to economic data, the number of new housing starts in the US in April was in line with expectations, but the numbers for March were revised downward.

Equity markets in Europe traded yesterday without a single dynamic. German DAX (DE30) gained 0.34%, French CAC 40 (FR40) decreased by 0.09% yesterday, Spanish IBEX 35 (ES35) added 0.22% on Wednesday, British FTSE 100 (UK100) closed negative by 0.32%.

The meeting of the G-7 countries will be held this weekend. It is noteworthy that China was not invited to the summit. The primary purpose of the meeting is to strengthen unity against challenges from Beijing and Moscow. All G7 countries – the United States, Japan, Germany, the United Kingdom, France, Canada, and Italy are closely linked economically with China, the world’s second-largest economy and a key global manufacturing base and market. Countries are puzzling over how to alert China to what they see as a threat to global supply chains and economic security without alienating a powerful and important trading partner.

Asian markets were mostly down yesterday, except the Japanese Index. Japan’s Nikkei 225 (JP225) gained 0.84%, China’s FTSE China A50 (CHA50) lost 0.71% over the day, Hong Kong’s Hang Seng (HK50) ended the day down by 2.09%, India’s NIFTY 50 (IND50) was down by 0.57%, and Australia’s S&P/ASX 200 (AU200) ended Wednesday down 0.37%. A larger-than-expected reduction in Japan’s trade deficit helped Japan’s Nikkei 225 Index (JP225) extend its winning streak for the sixth consecutive session.

Australia’s labor market unexpectedly contracted in April, and unemployment rose amid some cooling economic activity. Total national employment fell by 4,300 in April to 13.9 million, with expectations of an increase of 25,000. As a result, the unemployment rate increased from 3.5% to 3.7%. The potential cooling in the labor market is also due to the fact that interest rates in Australia have reached a ten-year high. The Reserve Bank of Australia (RBA) has warned that employment is likely to fall further this year as rates remain high or possibly increase further. Weakness in the labor market also gives the RBA less room to raise rates further.

New Zealand on Thursday announced a budget deficit more significant than originally forecast as tax cuts, rising inflation, and a slowing economy hit the nation’s treasury, forcing the government to minimize new spending and increase its bond program. New Zealand’s finance minister announced billions to rebuild infrastructure after severe weather earlier this year and some new initiatives to help those struggling with increased spending.

S&P 500 (F) (US500) 4,158.77 +48.87 (+1.19%)

Dow Jones (US30)33,420.77 +408.63 (+1.24%)

DAX (DE40) 15,951.30 +53.37 (+0.34%)

FTSE 100 (UK100) 7,723.23 −27.85 (−0.36%)

USD Index 102.89 +0.33 +0.32%

Important events for today:
  • – New Zealand Producer Price Index (q/q) at 01:45 (GMT+3);
  • – Japan Trade Balance (m/m) at 02:50 (GMT+3);
  • – Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
  • – New Zealand Annual Budget Release at 05:00 (GMT+3);
  • – UK Monetary Policy Report Hearings at 12:15 (GMT+3);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
  • – US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
  • – US Existing Home Sales (m/m) at 17:00 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+3).
  • – Canada BoC Gov Macklem Speaks at 18:00 (GMT+3).

By JustMarkets

 

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.

Economics & Fundamentals Financial News
17 May

War rooms and bailouts: How banks and the Fed are preparing for a US default – and the chaos expected to follow

By John W. Diamond, Rice University 

Convening war rooms, planning speedy bailouts and raising house-on-fire alarm bells: Those are a few of the ways the biggest banks and financial regulators are preparing for a potential default on U.S. debt.

“You hope it doesn’t happen, but hope is not a strategy – so you prepare for it,” Brian Moynihan, CEO of Bank of America, the nation’s second-biggest lender, said in a television interview.

The doomsday planning is a reaction to a lack of progress in talks between President Joe Biden and House Republicans over raising the US$31.4 trillion debt ceiling – another round of negotiations took place on May 16, 2023. Without an increase in the debt limit, the U.S. can’t borrow more money to cover its bills – all of which have already been agreed to by Congress – and in practical terms that means a default.

What happens if a default occurs is an open question, but economists – including me – generally expect financial chaos as access to credit dries up and borrowing costs rise quickly for companies and consumers. A severe and prolonged global economic recession would be all but guaranteed, and the reputation of the U.S. and the dollar as beacons of stability and safety would be further tarnished.

But how do you prepare for an event that many expect would trigger the worst global recession since the 1930s?

Preparing for panic

Jamie Dimon, who runs JPMorgan Chase, the biggest U.S. bank, told Bloomberg he’s been convening a weekly war room to discuss a potential default and how the bank should respond. The meetings are likely to become more frequent as June 1 – the date on which the U.S. might run out of cash – nears.

Dimon described the wide range of economic and financial effects that the group must consider such as the impact on “contracts, collateral, clearing houses, clients” – basically every corner of the financial system – at home and abroad.

“I don’t think it’s going to happen — because it gets catastrophic, and the closer you get to it, you will have panic,” he said.

That’s when rational decision-making gives way to fear and irrationality. Markets overtaken by these emotions are chaotic and leave lasting economic scars.

Banks haven’t revealed many of the details of how they are responding, but we can glean some clues from how they’ve reacted to past crises, such as the financial crisis in 2008 or the debt ceiling showdowns of 2011 and 2013.

One important way banks can prepare is by reducing exposure to Treasury securities – some or all of which could be considered to be in default once the U.S. exhausts its ability to pay all of its bill. All U.S. debts are referred to as Treasury bills or bonds.

The value of Treasurys is likely to plunge in the case of a default, which could weaken bank balance sheets even more. The recent bank crisis, in fact, was prompted primarily by a drop in the market value of Treasurys due to the sharp rise in interest rates over the past year. And a default would only make that problem worse, with close to 190 banks at risk of failure as of March 2023.

Another strategy banks can use to hedge their exposure to a sell-off in Treasurys is to buy credit default swaps, financial instruments that allow an investor to offset credit risk. Data suggests this is already happening, as the cost to protect U.S. government debt from default is higher than that of Brazil, Greece and Mexico, all of which have defaulted multiple times and have much lower credit ratings.

But buying credit default swaps at ever-higher prices limits a third key preventive measure for banks: keeping their cash balances as high as possible so they’re able and ready to deal with whatever happens in a default.

Keeping the financial plumbing working

Financial industry groups and financial regulators have also gamed out a potential default with an eye toward keeping the financial system running as best they can.

The Securities Industry and Financial Markets Association, for example, has been updating its playbook to dictate how players in the Treasurys market will communicate in case of a default.

And the Federal Reserve, which is broadly responsible for ensuring financial stability, has been pondering a U.S. default for over a decade. One such instance came in 2013, when Republicans demanded the elimination of the Affordable Care Act in exchange for raising the debt ceiling. Ultimately, Republicans capitulated and raised the limit one day before the U.S. was expected to run out of cash.

One of the biggest concerns Fed officials had at the time, according to a meeting transcript recently made public, is that the U.S. Treasury would no longer be able to access financial markets to “roll over” maturing debt. While hitting the current ceiling prevents the U.S. from issuing new debt that exceeds $31.4 trillion, the government still has to roll existing debt into new debt as it comes due. On May 15, 2023, for example, the government issued just under $100 billion in notes and bonds to replace maturing debt and raise cash.

The risk is that there would be too few buyers at one of the government’s daily debt auctions – at which investors from around the world bid to buy Treasury bills and bonds. If that happens, the government would have to use its cash on hand to pay back investors who hold maturing debt.

That would further reduce the amount of cash available for Social Security payments, federal employees wages and countless other items the government spent over $6 trillion on in 2022. This would be nothing short of apocalyptic if the Fed could not save the day.

To mitigate that risk, the Fed said it could could immediately step in as a buyer of last resort for Treasurys, quickly lower its lending rates and provide whatever funding is needed in an attempt to prevent financial contagion and collapse. The Fed is likely having the same conversations and preparing similar actions today.

A self-imposed catastrophe

Ultimately, I hope that Congress does what it has done in every previous debt ceiling scare: raise the limit.

These contentious debates over lifting it have become too commonplace, even as lawmakers on both sides of the aisle express concerns about the growing federal debt and the need to rein in government spending. Even when these debates result in some bipartisan effort to rein in spending, as they did in 2011, history shows they fail, as energy analyst Autumn Engebretson and I recently explained in a review of that episode.

That’s why one of the most important ways banks are preparing for such an outcome is by speaking out about the serious damage not raising the ceiling is likely to inflict on not only their companies but everyone else, too. This increases the pressure on political leaders to reach a deal.

Going back to my original question, how do you prepare for such a self-imposed catastrophe? The answer is, no one should have to.The Conversation

About the Author:

John W. Diamond, Director of the Center for Public Finance at the Baker Institute, Rice University

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

Economics & Fundamentals Opinions
17 May

A decline in US retail sales indicates consumer weakness. Gold declines, but the outlook remains bullish

By JustMarkets

At yesterday’s stock market close, the Dow Jones Index (US30) decreased by 1.01%, and the S&P 500 Index (US500) fell by 0.64%. NASDAQ Technology Index (US100) closed yesterday down by 0.18%. After disappointing quarterly results, falling shares of Home Depot put pressure on shares. Home Depot (HD) stock fell more than 2% after reporting quarterly earnings that fell short of Wall Street expectations due to falling lumber prices. Retailer sentiment was also hurt by US retail sales data that fell short of expectations, signaling weaker consumer sentiment. The energy sector was the biggest headwind for the overall market, as weaker-than-expected economic data from China overshadowed expectations for higher energy demand.

Other economic data showed that US industrial production and manufacturing activity rose unexpectedly in April. Total industrial production increased by 0.5% m/m in April. The US manufacturing production rose by 1.0% m/m, beating expectations of 0.1%.

US President Joe Biden will partially shorten his trip to the G-7 leaders’ summit to intensify efforts to make progress on the debt ceiling agreement. Policymakers remain unable to reach a consensus, which increases the likelihood of a US default on June 1st.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.12%, French CAC 40 (FR40) fell by 0.16% yesterday, Spanish IBEX 35 (ES35) lost 0.11% Tuesday, British FTSE 100 (UK100) closed the day negative by 0.34%.

Eurozone GDP grew by a modest 0.1% over Q1 2023. The ZEW Institute report showed that the economic prospects of Germany and the Eurozone are starting to deteriorate again, and the reason for that is the steady inflation and rising interest rates.

Gold, the supposed hedge against economic and political turmoil, fell below $2,000 for the first time since early May. Economists are attributing the decline in gold prices to a possible bipartisan deal that would end the impasse and avoid a US default. But in the medium term, even if the debt ceiling is raised, the US Federal Reserve will press pause on its interest-rate hike cycle this summer, causing US government bond yields to begin falling, giving a boost to gold and silver.

The International Energy Agency raised its forecast for global oil demand by 200,000 BPD to a record 102 million BPD. Demand on the eve of the summer months is slowly but growing. With lower production, the bullish outlook for oil remains until autumn.

Asian markets traded yesterday without a single dynamic. Japan’s Nikkei 225 (JP225) gained 0.73% yesterday, China’s FTSE China A50 (CHA50) lost 0.39% on the day, Hong Kong’s Hang Seng (HK50) gained 0.04% on the day, India’s NIFTY 50 (IND50) fell by 0.61%, and Australia’s S&P/ASX 200 (AU200) was negative 0.45% on Tuesday.

The Nikkei 225 index jumped by 0.9% to a near 20-month high, continuing its recent gains as data showed Japan’s GDP grew more than expected in the first quarter, boosted mainly by strong consumer spending and outbound tourism. But the outlook for the economy remains bleak amid a sustained downturn in Japan’s largest export markets in the West.

Wage growth in Australia hit a decade high, but quarterly growth fell short of forecasts. The wage price index rose by 0.8% in the March quarter from the previous quarter. This provides some temporary solace for policymakers who fear that the price and wage spiral could lead to more rate hikes. Annual wage growth is expected to peak at 4.0% later this year and then decline to 3.7% by mid-2025.

S&P 500 (F) (US500) 4,109.90 −26.38 (−0.64%)

Dow Jones (US30)33,012.14 −336.46 (−1.01%)

DAX (DE40) 15,897.93 −19.31 (−0.12%)

FTSE 100 (UK100) 7,751.08 −26.62 (−0.34%)

USD Index 102.63 +0.19 +0.19%

Important events for today:
  • – Japan GDP (q/q) at 02:50 (GMT+3);
  • – Australia Wage Price Index (q/q) at 04:30 (GMT+3);
  • – Japan Industrial Production (m/m) at 07:30 (GMT+3);
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
  • – UK BoE Gov Bailey Speaks at 12:50 (GMT+3);
  • – US Building Permits (m/m) at 15:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustMarkets

 

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.

Economics & Fundamentals Financial News
16 May

Sentiment Fragile Amid US Debt Ceiling Standoff

By ForexTime

Most Asian equities were mixed on Tuesday as investors digested weaker-than-expected Chinese economic data. Industrial production and retail sales data from the world’s second-largest economy missed expectations in April, pointing to further signs of an uneven recovery. European futures are pointing to a flat open as political and economic uncertainty rocked sentiment in the region. Despite Wall Street closing higher in the previous session, US equity futures remain shaky ahead of a debt limit meeting between US President Joe Biden and House Speaker Kevin McCarthy on Tuesday. In the currency space, the dollar steadied while the Australian Dollar weakened against every single G10 currency following the disappointing China data. Regarding commodities, gold seems to be on standby while oil extended gains from the prior session as the US government confirmed plans to refill its strategic reserves.

This morning’s data revealed that the rate of UK unemployment rose to 3.9% in the three months to March, up from 3.8% in the previous quarter. The claimant count jumped by 46.7k in April, surpassing the 26.5k in the previous month. Average earnings, including bonuses, increased 5.8% year-over-year in March versus 5.8% in February. GBPUSD fell in response to the report as deteriorating labour market conditions fuelled expectations around the BoE pausing rate hikes.

Currency spotlight – EURUSD

The data dump from Europe this morning could trigger fresh volatility in EURUSD. Much attention will be directed towards the German ZEW Economic Sentiment Index and second estimate of first quarter GDP. The German business survey is forecast to decline to -5 in May compared to 4.1 in April. Ultimately, a set of disappointing economic figures may question the ECB’s ability to keep hiking rates, weakening the euro as a result. Taking a look at the technical picture, EURUSD remains under pressure on the daily charts. A solid breakdown below the 1.0845 support could open the doors towards 1.0800, a level where the 100-day SMA resides.

Another volatile week for USD?

This could be a wild week for the dollar thanks to the cocktail of political uncertainty, global growth fears, key US economic data, and speeches from numerous Federal Reserve officials.

All eyes will be on the ongoing drama regarding the debt limit with a meeting between US President Joe Biden and top lawmakers planned for Tuesday afternoon. On the data front, investors will be presented with key reports from economies across the world which could fuel concerns over global growth if they disappoint. The latest US retail sales figures among other data could influence expectations around the Fed’s next move, especially after the central bank stressed that incoming data would influence monetary policy decisions. The chorus of Fed speakers throughout the week may also add to dollar volatility, especially if more clues are offered on the Fed’s policy path.

Commodity Spotlight – Gold

Gold slipped towards the psychological $2000 level on Tuesday morning as investors braced for a key meeting between President Biden and key lawmakers to resolve the debt ceiling stalemate. The precious metal is likely to draw support from the growing fears and jitters around the threat of a potential default. Expect gold prices to be also influenced by global growth fears and expectations around the Federal Reserve’s next policy move. Looking at the technical picture, the precious metal remains trapped within a very wide range on the daily charts. Should $2000 prove to be unreliable support, prices may sink toward $1970. Alternatively, a rebound from $2000 could open a path back towards $2015 and $2032, respectively.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
16 May

China’s economic data once again falls short of expectations. Gold regains its shelter asset status

By JustMarkets

At Monday’s close, the Dow Jones Index (US30) added 0.14%, and the S&P 500 (US500) was up by 0.30%. The NASDAQ Technology Index (US100) closed yesterday positive by 0.66%. Reports of progress in the debt ceiling negotiations fuel investor optimism that US lawmakers can break the current impasse and agree to increase the federal budget and prevent the United States from defaulting on its debt. President Biden is scheduled to meet with House Speaker Kevin McCarthy and other congressional leaders today.

Beyond politics, the focus remains on regional banks, which have partially recovered from last week’s sell-off: PacWest Bancorp (PACW) jumped by 17%, Comerica Inc (CMA) increased by 7%, and Zions Bancorporation (ZION) has added over 8% yesterday. Nevertheless, despite the rally, concerns about the banking sector remain. Data released on Friday showed that US commercial bank deposits fell for the second week in a row, and lending activity declined strongly after a month of growth.

As for economic indicators, the Empire State manufacturing index for May fell more than expected, indicating a continued slowdown in manufacturing activity.

Microsoft Corporation (MSFT) got approval from EU antitrust regulators to buy Activision Blizzard (ATVI) for $69 billion. But Microsoft will also have to appeal against the decision of the British Competition Authority, which had earlier blocked the deal.

Stock markets in Europe were mostly up yesterday. German DAX (DE30) gained 0.02%, French CAC 40 (FR40) added 0.05%, Spanish IBEX 35 (ES35) lost 0.35% on Monday, British FTSE 100 (UK100) closed the day up by 0.30%.

Oil prices increased yesterday as the US government confirmed plans to start replenishing its depleted strategic oil reserves (SPR). The Department of Energy (DOE) said on Monday that it would purchase up to 3 million barrels of oil for SPR. Oil prices were also helped by news of supply cuts in Canada due to wildfires.

Gold prices fell slightly yesterday as a number of Federal Reserve officials warned that interest rates could still rise amid relatively high inflation and a robust labor market. Gold has an inverse correlation to government bond yields, which tend to rise when rates rise. Nevertheless, gold’s medium-term trend remains bullish. Unless the US somehow raises the government debt ceiling, investors will sell off dollars in favor of gold as a shelter asset. If there is no US default, there is a high probability of a pause by the Fed in June, which would also be a green flag for gold.

Asian markets rose strongly yesterday. Japan’s Nikkei 225 (JP225) gained 0.81%, China’s FTSE China A50 (CHA50) increased by 1.33%, Hong Kong’s Hang Seng (HK50) jumped by 1.75%, India’s NIFTY 50 (IND50) added 0.46%, and Australia’s S&P/ASX 200 (AU200) was up by 0.14% over the Monday.

Industrial production in China rose less than expected in April (actual 5.6%, expectations 10.9%). Lower-than-expected retail sales data (actual 18.4%, expectations 21%) suggest a sluggish economic recovery this year. Fixed-asset investment, a key indicator of business sentiment for the coming months, rose by 4.7% in April, below the 5.5% increase expected and slower than the 5.1% increase seen in March. The unemployment rate fell from 5.3% to 5.2%. But looking at the numbers from a non-expected perspective, China’s economy is recovering, but not at such a fast pace.

S&P 500 (F) (US500)  4,136.28 +12.20 (+0.30%)

Dow Jones (US30)33,348.60 +47.98 (+0.14%)

DAX (DE40) 15,917.24 +3.42 (+0.021%)

FTSE 100 (UK100) 7,777.70 +23.08 (+0.30%)

USD Index 102.71 +0.65 +0.63%

Important events for today:
  • – Australia RBA Meeting Minutes (m/m) at 03:30 (GMT+3);
  • – China Retail Sales (m/m) at 05:00 (GMT+3);
  • – China Unemployment Rate (m/m) at 05:00 (GMT+3);
  • – UK Average Earnings Index (m/m) at 09:00 (GMT+3);
  • – UK Claimant Count Change (m/m) at 09:00 (GMT+3);
  • – UK Unemployment Rate (m/m) at 09:00 (GMT+3);
  • – German ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
  • – Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
  • – Eurozone GDP (q/q) at 12:00 (GMT+3);
  • – Eurozone Trade Balance (q/q) at 12:00 (GMT+3);
  • – Canada Consumer Price Index (m/m) at 15:30 (GMT+3);
  • – US Retail Sales (m/m) at 15:30 (GMT+3);
  • – US Industrial Production (m/m) at 16:15 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 17:00 (GMT+3);
  • – US FOMC Member Williams Speaks at 19:15 (GMT+3).

By JustMarkets

 

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.

Economics & Fundamentals Financial News
15 May

The US debt ceiling crisis is ultimate gift for China: deVere CEO

By George Prior

The US failing to raise the debt ceiling and defaulting on its financial obligations would be the “ultimate gift” for China, affirms the CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations.

Nigel Green’s comments come as President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders are planning to meet Tuesday to discuss budget negotiations to avoid what could be an unprecedented default that would rock the global financial system.

Biden has been reluctant to give details about terms of the negotiation but said at the weekend that he believed a deal could be reached.

The standoff is down to Democrats demanding a “clean” increase without conditions to pay debts resulting from spending and tax cuts approved by Congress. Meanwhile, Republicans are saying they will not authorise any additional borrowing without an agreement to cut spending.

According to the Treasury, the US may default as soon as June 1, causing a global economic catastrophe, if the limit is not raised by Congress before then.

The deVere Group CEO says: “A default would upend the global financial system and would likely be worse than the 2008 crash.

“It would cause upheaval on an unprecedented level. However, there would be a major beneficiary of the economic and financial fallout: China.”

He continues: “The US failing to raise the debt ceiling and defaulting on its financial obligations would be the ultimate gift for China as it seeks global economic and financial dominance.

“A default would lead to a decline in the value of the US dollar and a loss of confidence in the US financial system. As such, investors would seek alternative destinations for their capital.

“China would move to position itself as a more stable and attractive investment option, attracting more international investment and capital inflows. In turn, this would boost the Chinese economy and financial markets.”

If Congress is unable to agree and raise the debt ceiling there would be a depreciation of US asset prices, including real estate, companies, and infrastructure. “China, with its significant foreign exchange reserves, would likely take advantage of the situation by purchasing these assets at discounted prices.

“Beijing would, we expect, acquire strategic assets in sectors like technology, energy, or manufacturing, which could enhance its economic and technological capabilities.”

The strengthening of the yuan’s position would also be a major advantage for China, notes Nigel Green. “The US dollar’s status as the world’s primary reserve currency could be undermined in the event of a default. This would be an opportunity for China to promote the internationalisation of its own currency.”

Beijing has been pushing for the use of the yuan in global trade, investment, and as a reserve currency, aiming to reduce reliance on the US dollar and enhance the influence of its currency – and a default would be a huge help for China in this regard.

Last week, in a media statement, the deVere CEO said that even if there is a last-minute agreement and a default is diverted, the drama will have eroded some of the current global reserve currency’s credibility and reputation as a ‘safety asset’.

“In addition, we expect that China would seize the opportunity to strengthen its trade partnerships with other countries, offering more attractive trade terms and position itself as a reliable trading partner. This could lead to increased market access and trade opportunities for Chinese firms.”

Nigel Green concludes: “Whatever happens in debt ceiling talks this week between Democrats and Republicans, China’s massive PR machine is already spinning the narrative that the US is a declining power.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Economics & Fundamentals Financial News
15 May

Is a Pension Fund Crisis Next?

“U.S. pension funds are on the brink of implosion”

By Elliott Wave International

Did you get a heads-up from the financial media that the U.S. banking system was vulnerable before the failures of Silicon Valley, Signature and First Republic banks?

There may have been outlier articles here and there but no real warnings.

By contrast, the 2021 edition of Robert Prechter’s book Conquer the Crash, Last Chance to Conquer the Crash, reminded readers that:

In a crash and depression, we will see falling asset values, massive layoffs, high unemployment, corporate and municipal bankruptcies, pension fund implosions, bank and insurance company failures and ultimately social and political crises.

As you know, some of these things have recently been unfolding.

Let’s focus on pension funds for a few moments. Yes, some recent articles have provided warnings, but they have not been widespread.

The headline of one of those news items is from the Washington Post (Feb. 14):

Time Bomb of Public Pension Funding Ticks Louder

Many public pensions suffer from funding shortfalls. In other words, they don’t have nearly enough money to meet their obligations. More than that, investments are being made in potentially financially dangerous assets to boost returns, such as private equity.

Many people who are counting on a pension probably don’t know that some private equity firms have invested pension-fund money in the housing market since the Great Recession — yes, they bought actual houses. As the Atlanta Journal Constitution reported (Feb. 12):

Private equity firms like Blackstone Group, Pretium Partners and Amherst convinced public pension funds and other large institutional investors to bankroll their homebuying sprees.

If the housing market crashes, you guessed it, some pension funds will take a big hit.

Here’s another headline from a British newspaper, the Guardian (Feb. 2):

US pension funds are on the brink of implosion — and Wall Street is ignoring it

However, Elliott Wave International is not ignoring it.

As the Elliott Wave Theorist said in February [The Elliott Wave Theorist has published monthly since 1979 and covers major financial and cultural trends):

Unfunded liabilities of states’ pension funds in the U.S. stood at $1.3 trillion as of year-end 2022. Private pension funds are underfunded as well. The whole system has made promises it can’t fulfill.

And, getting back to the banking crisis, the FDIC may face challenges fulfilling its promises to depositors if bank failures become widespread. In other words, the FDIC can only “make whole” a limited number of depositors at one time (up to $250,000). Whether the federal government steps in is another matter. The point is: it may not be wise to count on the FDIC during a major banking panic.

So, the question arises: Are there viable alternatives to banks?

Yes!

Elliott Wave International is now offering a special report titled “Your 5 Top Alternatives to Banks,” which is excerpted from Robert Prechter’s Last Chance to Conquer the Crash.

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This article was syndicated by Elliott Wave International and was originally published under the headline Is a Pension Fund Crisis Next?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Economics & Fundamentals Financial News
15 May

Political disputes over raising the US debt ceiling could trigger a recession

By JustMarkets

At the closing of the stock market on Friday, Dow Jones Index (US30) decreased by 0.03% (-0.23% for the week), and S&P 500 (US500) fell by 0.16% (-0.31% for the week). The Technology Index NASDAQ (US100) lost 0.32% on Friday (+0.43% for the week). Friday’s data, which showed a sharper-than-expected drop in consumer sentiment in the United States, heightened fears that the political debate over raising the debt ceiling could trigger a recession. Republicans are pushing for steep spending cuts in exchange for raising the debt ceiling, while Democrats are pointing out that the debt ceiling is not an appropriate vehicle for budget changes.

The Congressional Budget Office warned late last week that the US would face a significant risk of default during the first two weeks of June if lawmakers do not raise the debt ceiling the country is legally allowed to incur. Negotiations between US President Joe Biden and top lawmakers to raise the $31.4 trillion debt ceiling are scheduled to resume early this week. Analysts at JPMorgan believe there is unwarranted panic in the markets, and politicians will not default but point out that, statistically, volatility in financial markets at a time like this is increasing.

Equity markets in Europe mostly rose on Friday. German DAX (DE30) gained 0.50% (-0.34% for the week), French CAC 40 (FR40) added 0.45% (-0.18% for the week), Spanish IBEX 35 (ES35) increased by 0.56% (+0.78% for the week), British FTSE 100 (UK100) close up by 0.31% (+0.67% for the week).

With underlying inflation in the Eurozone remaining steady, there is no doubt that the ECB will continue to raise rates. Europe’s central bank has already raised interest rates by 375 basis points in the current tightening cycle and is expected to raise them another 50 basis points in two quarter-point steps in June and July.

Oil prices fell more than 1% Friday, falling for the third straight week because of a stronger dollar and fears of weak demand due to weak data from China. Data from Beijing last week showed that China’s consumer inflation barely rose in April, while producer inflation fell to its lowest level since the pandemic peak in 2020. China’s trade data is also disappointing, with imports down 1.4% and exports up 8.5%. This is evidence that the economy is recovering unevenly, which could hit demand.

Gold gained momentum on Friday. The trigger for gold’s rise now is investor concern about the impasse over the US government debt hike. Investors are looking for safe-haven assets, which tend to be gold, the US dollar, and the Swiss franc. And the medium-term outlook for gold remains bullish. Historically, once the Fed officially pushes the pause button, nominal government bond yields begin to fall over the next few months. And that tends to drive up the price of precious metals, especially if rates fall further.

Turkish President Tayyip Erdogan beat his opposition rival Kemal Kilicdaroglu in Sunday’s election (49% to 45%) but failed to win an absolute majority to extend his 20-year rule. Neither Erdogan nor Kilicdaroglu passed the 50% barrier needed to avoid a second round, which is due in the May 28 elections.

Asian markets traded unevenly last week. Japan’s Nikkei 225 (JP225) gained 1.01% over the week, China’s FTSE China A50 (CHA50) fell by 1.76% over the week, Hong Kong’s Hang Seng (HK50) lost 2.49% over the week, India’s NIFTY 50 (IND50) gained 0.75%, and Australia’s S&P/ASX 200 (AU200) was up by 0.51% over the week.

In the commodities market, futures on natural gas (+6.6%), gasoline (+2.14%), and lumber (+2.1%) showed the biggest gains last week. Futures on orange juice (-9.54%), silver (-6.94%), cotton (-4.22%), copper (-4.06%), wheat (-3.79%), coffee (-2.92%) and corn (-2.22%) showed the biggest declines.

S&P 500 (F) (US500) 4,124.08 −6.54 (−0.16%)

Dow Jones (US30)33,300.62 −8.89 (−0.027%)

DAX (DE40) 15,913.82 +78.91 (+0.50%)

FTSE 100 (UK100) 7,754.62 +24.04 (+0.31%)

USD Index 102.71 +0.65 +0.63%

Important events for today:
  • – Japan Producer Price Index (m/m) at 02:50 (GMT+3);
  • – Switzerland Producer Price Index (m/m) at 09:30 (GMT+3);
  • – Eurozone EU Economic Forecasts at 12:00 (GMT+3);
  • – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
  • – US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
  • – US FOMC Member Kashkari Speaks at 16:15 (GMT+3).

By JustMarkets

 

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.

Economics & Fundamentals Financial News
11 May

Bank of England’s incompetence on inflation leads to more misery

By George Prior

The Bank of England’s incompetence continues to punish households and businesses across the UK as interest rates are hiked by a quarter of a percentage point to 4.5%, taking borrowing costs to their highest since 2008.

This assessment from Nigel Green, the CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations, comes as the UK central bank announces its 12th consecutive rate rise on Thursday.

He says: “The Bank of England has failed households and businesses across the UK who are continuing to be punished by the central bank’s failings.

“They failed with their inaction at the start, passively standing by for far too long last year when the UK was first coming out of Covid lockdowns, and prices were already starting to surge.

“They’re failing again now with this latest rate hike – the 12th in a row.

“The Bank seems to be intent on driving the UK’s consumer-led economy into a deeper recession by continuing to make borrowing more expensive, leading to a reduction in spending and investment. Inevitably, this will trigger a further slowdown in economic activity.

He continues: “To add insult to injury, central bank monetary policy is notoriously slow to take effect.

“It is said that changes in interest rates take a year to 18 months to feed themselves into the broader economy. Given the many interest rate hikes over the last 18 months, it would be astonishing if we did not see a marked slowdown in employment growth and demand over the coming months.”

The deVere CEO goes on to add: “Officials at the Bank of England have been behind the curve from the outset.

“They’re going too hard, too late.”

Bank of England policymakers voted 7-2 for May’s hike, with Monetary Policy Committee members Silvana Tenreyro and Swati Dhingra again expressing their opposition to further tightening.

Last week, the US Federal Reserve and the European Central Bank both raised their borrowing rates by 25 basis points.

The Fed Chair Jerome Powell at the meeting after the announcements hinted at a pause moving forward, but ECB President Christine Lagarde said it was too early to do so.

The deVere CEO concludes: “The announcement of another hike is a further blow for UK households and business who are the ones left struggling to deal with decisions made by the Bank of England, which is still failing to curb the fastest inflation of any major economy.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Economics & Fundamentals Financial News
11 May

Inflationary pressure in the US continues to decline. Chinese inflation data disappointed investors

By JustMarkets

The US Consumer Price Index rose by 0.4% last month, but a deeper look at the data showed a slowdown in core services inflation. According to the CME FedWatch Tool, the likelihood of a Fed pause in June rose from 79% to 96%. But analysts at Morgan Stanley don’t share that and believe that a slight rise in core inflation with a significant slowdown in core services should prompt the Fed to leave the door open for a June hike. While US inflation fell more than expected annually, there are concerns that the impact of higher interest rates on the US economy is only now beginning to show. And the dynamics of the stock indices show it well. At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.22%, while the S&P 500 Index (US500) added 0.24%. The NASDAQ Technology Index (US100) lost 0.63% on Wednesday.

The Walt Disney Company (DIS) Co cut its streaming loss by $400 million quarter-on-quarter but also cut subscriber numbers. The quarterly profit was in line with Wall Street expectations. DIS stock fell nearly 5% after the stock market closed.

Stock markets in Europe were mostly down on Wednesday. Germany’s DAX (DE30) decreased by 0.37%, France’s CAC 40 (FR40) fell by 0.49% yesterday, Spain’s IBEX 35 index (ES35) was down by 0.18%, and the British FTSE 100 (UK100) closed lower by 0.41%.

ECB spokesman Centeno indicated yesterday that ECB policy will remain tight for some time after rates peak, with rates set to start falling in 2024. Speaking Tuesday night, Isabel Schnabel, another ECB executive board spokeswoman, said the ECB would continue to raise borrowing costs with full determination until there are signs that core inflation is also falling steadily.

Today, the Bank of England will likely raise interest rates for the 12th time in a row. The market is almost unanimous in expecting the Monetary Policy Committee to choose another 25 basis point hike. But the outlook diverges further as the Bank of England faces a tougher situation: the UK is projected to be the worst major economy over the next two years, and inflation is still twice as high as in the US and the Eurozone.

Thomas Jordan, head of the Swiss National Bank (SNB), pointed out yesterday that inflation is above the price stability range. Meanwhile, the nominal appreciation of the Swiss franc is mainly due to inflation abroad. This increases the likelihood of another rate hike at the next SNB meeting.

Oil prices rebounded Thursday after falling more than a dollar a barrel the day before, helped by stronger US fuel demand data. A sharper-than-expected drop in US gasoline inventories pushed prices higher, reflecting more robust demand for transportation fuel in the United States.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.41% for the day, China’s FTSE China A50 (CHA50) fell by 0.99%, Hong Kong’s Hang Seng (HK50) was down 0.53% for the day, India’s NIFTY 50 (IND50) added 0.27%, and Australia’s S&P/ASX 200 (AU200) closed negative 0.12%.

China’s consumer price inflation fell short of expectations and has been declining for four straight months this year. The consumer price index was 0.1% year-on-year in April. The weak Consumer Price Index indicates that consumer spending has remained sluggish despite lifting COVID-19 restrictions earlier this year. Measures taken by the Chinese government to increase domestic spending have had little effect on inflation, as the economy has weakened after three years of lockdowns. Although levels of retail spending and travel demand in China have risen slightly in recent months, they remain well below levels seen before the COVID-19 pandemic. A weak inflation reading in April would likely entail additional stimulus and potentially looser monetary conditions in the country.

S&P 500 (F) (US500) 4,129.20 +10.03 (+0.24%)

Dow Jones (US30)33,487.87 −73.94 (−0.22%)

DAX (DE40) 15,896.23 −59.25 (−0.37%)

FTSE 100 (UK100) 7,732.09 −32.00 (−0.41%)

USD Index 101.44 −0.17 −0.16%

Important events for today:
  • – China Consumer Price Index (m/m) at 04:30 (GMT+3);
  • – China Producer Price Index (m/m) at 04:30 (GMT+3);
  • – UK BoE Interest Rate Decision at 14:00 (GMT+3);
  • – UK BOE Monetary Policy Report at 14:00 (GMT+3);
  • – UK BoE Gov Bailey Speaks at 14:30 (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 FOMC Member Waller Speaks at 17:15 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustMarkets

 

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.

Economics & Fundamentals Financial News
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