Archive for Economics & Fundamentals – Page 109

Gravitational wave detector LIGO is back online after 3 years of upgrades – how the world’s most sensitive yardstick reveals secrets of the universe

By Chad Hanna, Penn State 

After a three-year hiatus, scientists in the U.S. have just turned on detectors capable of measuring gravitational waves – tiny ripples in space itself that travel through the universe.

Unlike light waves, gravitational waves are nearly unimpeded by the galaxies, stars, gas and dust that fill the universe. This means that by measuring gravitational waves, astrophysicists like me can peek directly into the heart of some of these most spectacular phenomena in the universe.

Since 2020, the Laser Interferometric Gravitational-Wave Observatory – commonly known as LIGO – has been sitting dormant while it underwent some exciting upgrades. These improvements will significantly boost the sensitivity of LIGO and should allow the facility to observe more-distant objects that produce smaller ripples in spacetime.

By detecting more events that create gravitational waves, there will be more opportunities for astronomers to also observe the light produced by those same events. Seeing an event through multiple channels of information, an approach called multi-messenger astronomy, provides astronomers rare and coveted opportunities to learn about physics far beyond the realm of any laboratory testing.

Ripples in spacetime

According to Einstein’s theory of general relativity, mass and energy warp the shape of space and time. The bending of spacetime determines how objects move in relation to one another – what people experience as gravity.

Gravitational waves are created when massive objects like black holes or neutron stars merge with one another, producing sudden, large changes in space. The process of space warping and flexing sends ripples across the universe like a wave across a still pond. These waves travel out in all directions from a disturbance, minutely bending space as they do so and ever so slightly changing the distance between objects in their way.

When two massive objects – like a black hole or a neutron star – get close together, they rapidly spin around each other and produce gravitational waves. The sound in this NASA visualization represents the frequency of the gravitational waves.

Even though the astronomical events that produce gravitational waves involve some of the most massive objects in the universe, the stretching and contracting of space is infinitesimally small. A strong gravitational wave passing through the Milky Way may only change the diameter of the entire galaxy by three feet (one meter).

The first gravitational wave observations

Though first predicted by Einstein in 1916, scientists of that era had little hope of measuring the tiny changes in distance postulated by the theory of gravitational waves.

Around the year 2000, scientists at Caltech, the Massachusetts Institute of Technology and other universities around the world finished constructing what is essentially the most precise ruler ever built – the LIGO observatory.

An L-shaped facility with two long arms extending out from a central building.
The LIGO detector in Hanford, Wash., uses lasers to measure the minuscule stretching of space caused by a gravitational wave.
LIGO Laboratory

LIGO is comprised of two separate observatories, with one located in Hanford, Washington, and the other in Livingston, Louisiana. Each observatory is shaped like a giant L with two, 2.5-mile-long (four-kilometer-long) arms extending out from the center of the facility at 90 degrees to each other.

To measure gravitational waves, researchers shine a laser from the center of the facility to the base of the L. There, the laser is split so that a beam travels down each arm, reflects off a mirror and returns to the base. If a gravitational wave passes through the arms while the laser is shining, the two beams will return to the center at ever so slightly different times. By measuring this difference, physicists can discern that a gravitational wave passed through the facility.

LIGO began operating in the early 2000s, but it was not sensitive enough to detect gravitational waves. So, in 2010, the LIGO team temporarily shut down the facility to perform upgrades to boost sensitivity. The upgraded version of LIGO started collecting data in 2015 and almost immediately detected gravitational waves produced from the merger of two black holes.

Since 2015, LIGO has completed three observation runs. The first, run O1, lasted about four months; the second, O2, about nine months; and the third, O3, ran for 11 months before the COVID-19 pandemic forced the facilities to close. Starting with run O2, LIGO has been jointly observing with an Italian observatory called Virgo.

Between each run, scientists improved the physical components of the detectors and data analysis methods. By the end of run O3 in March 2020, researchers in the LIGO and Virgo collaboration had detected about 90 gravitational waves from the merging of black holes and neutron stars.

The observatories have still not yet achieved their maximum design sensitivity. So, in 2020, both observatories shut down for upgrades yet again.

Two people in white lab outfits working on complicated machinery.
Upgrades to the mechanical equipment and data processing algorithms should allow LIGO to detect fainter gravitational waves than in the past.
LIGO/Caltech/MIT/Jeff Kissel, CC BY-ND

Making some upgrades

Scientists have been working on many technological improvements.

One particularly promising upgrade involved adding a 1,000-foot (300-meter) optical cavity to improve a technique called squeezing. Squeezing allows scientists to reduce detector noise using the quantum properties of light. With this upgrade, the LIGO team should be able to detect much weaker gravitational waves than before.

My teammates and I are data scientists in the LIGO collaboration, and we have been working on a number of different upgrades to software used to process LIGO data and the algorithms that recognize signs of gravitational waves in that data. These algorithms function by searching for patterns that match theoretical models of millions of possible black hole and neutron star merger events. The improved algorithm should be able to more easily pick out the faint signs of gravitational waves from background noise in the data than the previous versions of the algorithms.

A GIF showing a star brightening over a few days.
Astronomers have captured both the gravitational waves and light produced by a single event, the merger of two neutron stars. The change in light can be seen over the course of a few days in the top right inset.
Hubble Space Telescope, NASA and ESA

A hi-def era of astronomy

In early May 2023, LIGO began a short test run – called an engineering run – to make sure everything was working. On May 18, LIGO detected gravitational waves likely produced from a neutron star merging into a black hole.

LIGO’s 20-month observation run 04 will officially start on May 24, and it will later be joined by Virgo and a new Japanese observatory – the Kamioka Gravitational Wave Detector, or KAGRA.

While there are many scientific goals for this run, there is a particular focus on detecting and localizing gravitational waves in real time. If the team can identify a gravitational wave event, figure out where the waves came from and alert other astronomers to these discoveries quickly, it would enable astronomers to point other telescopes that collect visible light, radio waves or other types of data at the source of the gravitational wave. Collecting multiple channels of information on a single event – multi-messenger astrophysics – is like adding color and sound to a black-and-white silent film and can provide a much deeper understanding of astrophysical phenomena.

Astronomers have only observed a single event in both gravitational waves and visible light to date – the merger of two neutron stars seen in 2017. But from this single event, physicists were able to study the expansion of the universe and confirm the origin of some of the universe’s most energetic events known as gamma-ray bursts.

With run O4, astronomers will have access to the most sensitive gravitational wave observatories in history and hopefully will collect more data than ever before. My colleagues and I are hopeful that the coming months will result in one – or perhaps many – multi-messenger observations that will push the boundaries of modern astrophysics.The Conversation

About the Author:

Chad Hanna, Professor of Physics, Penn State

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

 

The RBNZ raised the interest rate to a record high. The US can’t agree on raising the debt ceiling

By JustMarkets

The US stock indices ended Tuesday with a negative result. By the close of trading on the stock market Dow Jones (US30) decreased by 0.69%, and S&P 500 (US500) was 1.12% lower. The Technology Index NASDAQ (US100) fell by 0.26% on Tuesday. Stock indices are down again due to growing concerns about the US default. Yesterday lawmakers concluded another round of debt ceiling talks without a deal. The lack of progress comes just days before June 1st, when the US may default on its debt. But it is worth realizing that the likelihood of default is low because such debates happen almost every year and every time politicians agree. But this time, the politicians really delayed the deadlines.

The minutes from the last FOMC meeting will be released today. Despite the hawkish statements from Fed officials, about 88% of traders continue to believe that the US central bank will suspend the tightening cycle at the June meeting.

The latest economic data showed that the US manufacturing PMI fell into contraction territory from 50.2 to 48.5. The service sector was much better, with the PMI rising from 53.6 to 55.1. The drop in the manufacturing sector is the first wake-up call for the US Federal Reserve in terms of high-interest rates starting to have a negative impact on the economy.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.44%, France’s CAC 40 (FR40) fell by 1.33% on Tuesday, Spain’s IBEX 35 (ES35) lost 0.41%, and the British FTSE 100 (UK100) was down by 0.10% yesterday.

The May Eurozone PMI report showed that fears of higher core inflation should be centered around services, while goods inflation is slowing. Services business activity continues to point to strong growth despite the index dropping from 56.2 to 55.9. Meanwhile, manufacturing business activity showed a slowdown for the first time in 6 months. The more than six-month decline in the index indicates a weakening of the manufacturing sector. The divergence between services and manufacturing is growing, with services inflation accelerating again.

According to the International Monetary Fund’s updated forecasts on Tuesday, the British economy will avoid a recession this year. The IMF now thinks the British economy will grow by a modest 0.4% this year, partly as a result of rising wages. Despite the more optimistic estimate, the IMF said that inflation is likely to remain high in the coming years and will not return to the Bank of England’s target of 2% until mid-2025.

At the moment all the factors are adding up to the rise in oil prices. First, the Canadian wildfires are reducing oil supplies in North America. Second, demand in the US is expected to increase after Memorial Day, which unofficially marks the start of summer road trips in America. Third, Saudi Arabia’s energy minister threatened yesterday to cut production sharply if oil prices fall below $70 a barrel. Fourthly, analysts still expect the growth of demand in China (the biggest oil importer).

Asian markets were mostly down yesterday, except the Indian index. Japan’s Nikkei 225 (JP225) decreased by 0.42%, China’s FTSE China A50 (CHA50) fell by 1.57%, Hong Kong’s Hang Seng (HK50) ended the day down 1.25%, India’s NIFTY 50 (IND50) added 0.18%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday negative 0.05%.

The Central Bank of New Zealand (RBNZ) expectedly to raise interest rates by 25 basis points to 5.5%, the highest level in more than 14 years. The RBNZ also said that inflation remains too high and still predicts a recession this year. According to the monetary policy statement (MPS) accompanying the rate decision, the RBNZ expects the official monetary rate at the current level of 5.5% to be the peak and remain at that level until the middle of next year.

S&P 500 (F) (US500) 4,145.58 −47.05 (−1.12%)

Dow Jones (US30)33,055.51 −231.07 (−0.69%)

DAX (DE40) 16,152.86 −71.13 (−0.44%)

FTSE 100 (UK100) 7,762.95 −8.04 (−0.10%)

USD Index 103.56 +0.36 +0.35%

Important events for today:
  • – New Zealand Retail Sales (m/m) at 01:45 (GMT+3);
  • – New Zealand RBNZ Interest Rate Decision at 05:00 (GMT+3);
  • – New Zealand RBNZ Monetary Policy Statement at 05:00 (GMT+3);
  • – New Zealand RBNZ Press Conference at 06:00 (GMT+3);
  • – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
  • – Eurozone German Ifo Business Climate (m/m) at 11:00 (GMT+3);
  • – UK BoE Gov Bailey Speaks at 16:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – US FOMC Meeting Minutes at 21:00 (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.

Intel is changing the vector of development. The Japanese index reached a 33-year-high

By JustMarkets

The US stock indices traded multidirectional yesterday. By the close of the stock market Dow Jones Index (US30) decreased by 0.42%, S&P 500 (US500) was up by 0.02%. The Technology Index NASDAQ (US100) gained 0.50% on Monday.

The uncertainty in the financial markets still remains. On the one hand, there is still no decision by politicians concerning the US government debt increase. On the other hand, the FOMC is divided on whether to raise the interest rate in June by another 0.25% or to stop the tightening cycle. At the moment, the CME FedWatch tool shows a 75% chance that the US Fed will keep interest rates unchanged next month. But a week ago, there was a 95% chance of that scenario.

On Monday, Intel Corp. (INTC) revealed some new details about the artificial intelligence (AI) computing chip it plans to introduce in 2025. The company plans to radically change its development strategy to compete with Nvidia (NVDA) Corp. and Advanced Micro Devices (AMD) Inc. At a supercomputer conference in Germany on Monday, Intel said its future Falcon Shores chip would have 288 gigabytes of memory and support 8-bit floating-point computing. These specifications are important for artificial intelligence models like ChatGPT services.

Yesterday, China banned some sales of Micron Technology Inc (MU) chips to key industries in its country, citing national security concerns. MU shares fell more than 3%.

Equity markets in Europe also traded without a single dynamic yesterday. German DAX (DE30) decreased by 0.32%, French CAC 40 (FR40) lost 0.18% on Monday, Spanish IBEX 35 (ES35) was up by 0.57%, British FTSE 100 (UK100) closed positive 0.18% yesterday.

The European Central Bank needs to raise interest rates some more and then leave them in restrictive territory for a while to bring inflation down to its medium-term target of 2%, Spanish Central Bank Governor Pablo Hernández de Cos said Monday. Investors expect the ECB to raise borrowing costs above 4% by the end of the summer.

Analysts at UBS are forecasting gold prices rising to $2100 an ounce by the end of 2023 and to $2200 an ounce by the end of 2024 as the reasons are given for the preservation of increased geopolitical risks and high inflation.

Oil prices rose Monday in response to a more positive tone in negotiations between the White House and its congressional Republicans to raise the US national debt ceiling before the June 1 default deadline. Higher demand and gasoline prices have also influenced energy trade sentiment ahead of the upcoming Memorial Day celebration on May 29, which unofficially marks the start of summer car travel in the United States.

European gas prices, which have been falling in recent weeks, are expected to remain low amid record-high supplies of liquefied natural gas by US exporters. European Union gas supplies are safe for the summer, and it is too early to tell if the EU will be able to prevent price shocks in the winter.

Asian markets were mostly up yesterday, except for the Australian index. Japan’s Nikkei 225 (JP225) gained 0.90% on the day, China’s FTSE China A50 (CHA50) jumped by 1.11%, Hong Kong’s Hang Seng (HK50) gained 1.17% on the day, India’s NIFTY 50 (IND50) added 0.61%, and Australia’s S&P/ASX 200 (AU200) was negative 0.22% on the day.

Japan’s Nikkei 225 reached a 33-year high. Japanese stocks have been on the rise over the past two weeks, boosted in large part by strong seasonal reports and bets that the Bank of Japan will maintain its ultra-loose policy. Data on Tuesday showed that the country’s manufacturing sector rose unexpectedly in May, while service sector growth hit a record high, indicating some resilience in the world’s third-largest economy.

S&P 500 (F) (US500) 4,192.63 +0.65 (+0.016%)

Dow Jones (US30)33,286.58 −140.05 (−0.42%)

DAX (DE40) 16,223.99 −51.39 (−0.32%)

FTSE 100 (UK100) 7,770.99 +14.12 (+0.18%)

USD Index 103.26 +0.06 +0.06%

Important events for today:
  • – Australia Manufacturing PMI (m/m) at 02:00 (GMT+3);
  • – Australia Services PMI (m/m) at 02:00 (GMT+3);
  • – Japan Manufacturing PMI (m/m) at 03:30 (GMT+3);
  • – Japan Services PMI (m/m) at 03:30 (GMT+3);
  • – Singapore Consumer Price Index (m/m) at 08:00 (GMT+3);
  • – Eurozone French Manufacturing PMI (m/m) at 10:15 (GMT+3);
  • – Eurozone French Services PMI (m/m) at 10:15 (GMT+3);
  • – Eurozone German Manufacturing PMI (m/m) at 10:30 (GMT+3);
  • – Eurozone German Services PMI (m/m) at 10:30 (GMT+3);
  • – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
  • – UK Services PMI (m/m) at 11:30 (GMT+3);
  • – US Manufacturing PMI (m/m) at 16:45 (GMT+3);
  • – US Services PMI (m/m) at 16:45 (GMT+3);
  • – US New Home Sales (m/m) at 17:00 (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.

Markets Gripped By US Debt Ceiling Talks

By ForexTime

Asian markets gave up earlier gains on Tuesday as investors adopted a cautious stance after US debt ceiling negotiations ended “productive talks” without a deal. However, President Joe Biden and House Speaker Kevin McCarthy both expressed optimism about reaching a breakthrough to avoid a default. European futures are pointing to a positive open ahead of the preliminary PMI figures for the eurozone in May. Wall Street closed mixed and remains influenced by the US debt ceiling developments. In the currency space, the dollar crept higher drawing strength from hawkish Federal officials while gold fell for a second day amid hints of progress towards avoiding a US default.

Big week for USD

The dollar could be injected with fresh volatility this week due to the US debt limit negotiations, Fed minutes, and top-tier US economic data.

Dollar bulls were able to draw support in the previous session from the productive US debt limit talks and hawkish comments from Fed officials. Midweek, all eyes will be on the minutes from the May FOMC meeting which could offer more clues about the central bank’s next move. After proceeding with a 25-basis point hike in May, the Fed signalled a potential pause. It will be interesting to see what the minutes show in regard to the thinking of policymakers and how united they were around the idea of 5.25% being the peak level of rates. Of course, we have heard from a slew of Fed officials since the meeting which could make the minutes relatively stale.

On the data front, much focus will be on the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (PCE) scheduled to be released on Friday. The April PCE report is forecast to show headline prices rising 0.3% month-over-month after March’s 0.1% increase, while the core PCE deflator is projected to rise 0.3%, the same as March. The core personal consumption expenditures price index is seen rising 4.6% year-over-year, the same as seen in March. Any further evidence of cooling inflationary pressures may reinforce the argument around the Fed pausing and eventually cutting interest rates later in 2023.

Currency spotlight – GBPUSD

GBPUSD could see more weakness if the pending UK inflation data on Wednesday shows signs of cooling inflationary pressures. Markets forecast inflation cooling to 8.2% in April, down from the 10.1% in March. If expectations match reality, this would be the sharpest decline in more than 30 years, bringing an end to seven consecutive months of double-digit inflation. Looking at the technical picture, GBPUSD may slip towards 1.2370 on expectations around the BoE potentially pausing rate hikes. A solid breakdown below 1.2370 could signal a further selloff towards 1.2280. If prices push back above 1.2450, bulls may target 1.2550.

Commodity Spotlight – Gold

Gold prices got no love on Tuesday morning, shedding 0.5% as optimism over the US debt ceiling developments dampened its allure. This promises to be another volatile week for the precious metal thanks to the cocktail of risk events and economic releases. If US debt talks continue to head in the right direction and hopes continue to rise over a deal reached, this could drag prices lower as risk appetite returns. Expect gold to also be influenced by the Fed minutes and key US data including the inflation report on Friday. Focusing on the technicals, sustained weakness below $1970 may open a path toward $1945 and $1900 respectively. Bulls need to claw their way back above $2000 to get back into the game.


Forex-Time-LogoArticle by ForexTime

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

The US Federal Reserve officials are hinting at a pause in the rate hike cycle. China has kept rates at historic lows

By JustMarkets

Problems with the US debt ceiling were back in the spotlight late last week. Investors are scared by the likelihood of default if politicians can’t reach an agreement. While the probability of such a scenario is low, the rise in the dollar last week showed how investors were buying dollars as a safe haven currency. At the close of the stock market on Friday, the Dow Jones Index (US30) decreased by 0.33% (+0.32% for the week), and the S&P 500 Index (US500) fell by 0.14% (+1.58% for the week). The Technology Index NASDAQ (US100) was down 0.24% on Friday (+2.90% for the week).

US President Joe Biden and House Speaker Kevin McCarthy will meet again today to continue negotiations on raising the debt ceiling. Speaking to reporters at the US Capitol, McCarthy said positive discussions had taken place to resolve the crisis. Before leaving Japan after the G7 summit earlier Sunday, Biden indicated that he was willing to cut spending along with tax adjustments to reach an agreement, but the Republicans’ latest ceiling proposal was unacceptable.

In his speech Friday, US Federal Reserve Chairman Jerome Powell hinted at a pause in the rate hike cycle, indicating that the Fed can afford to examine the situation, given how far it has come. Minneapolis Fed President Neel Kashkari also said he might support keeping interest rates on hold at the Central Bank’s next meeting in June to give officials more time to assess the impact of past rate hikes and inflation forecasts.

Stock markets in Europe were mostly up on Friday. German DAX (DE30) jumped by 0.69% (+1.93% for the week), French CAC 40 (FR40) gained 0.61% on Friday (+0.65% for the week), Spanish IBEX 35 Index (ES35) added 0.50% (-0.11% for the week), British FTSE 100 (UK100) was on the rise by 0.19% (+0.03% for the week).

G7 leaders on Saturday agreed to a new initiative to counter economic coercion and pledged to take measures to ensure that any actors attempting to use economic dependence as a weapon would fail and face the consequences. The world is facing an alarming increase in cases of economic coercion aimed at exploiting economic vulnerabilities. Analysts believe that China will be the first to be affected. In turn, the G7 countries call on China to put pressure on Russia to end the war in Ukraine and respect Taiwan’s status and fair trade rules. The statement also commits G7 leaders to deepen cooperation to strengthen supply chains and calls for a greater role for low-income countries in building economic resilience.

Britain on Friday published plans to ban imports of Russian diamonds, copper, aluminum, and nickel and announced new sanctions against Russia targeting companies linked to suspected Ukrainian grain theft.

Oil prices fell Friday as investors fear that US policymakers will fail to agree on a new debt ceiling and trigger a default that would hurt the economy and reduce fuel demand. On the other hand, according to energy company Baker Hughes Co. the number of oil rigs in the US, an indicator of future production, fell by 11 last week to 575, the biggest weekly drop since September 2021. Analysts at the National Australia Bank said that while the possibility of additional rate hikes adds to concerns about weak demand in the United States, oil prices could rise because of stronger demand in China during 2023.

Asian markets traded without a single trend last week. Japan’s Nikkei 225 (JP225) jumped by 4.27% for the week, China’s FTSE China A50 (CHA50) fell by 1.60% for the week, Hong Kong’s Hang Seng (HK50) was down 0.38% for the week, India’s NIFTY 50 (IND50) lost 0.80%, and Australia’s S&P/ASX 200 (AU200) was up 0.31% for the week.

The People’s Bank of China on Monday (PBoC) kept its key lending rate near an all-time low of 3.65%, but the slowdown in the country’s growth has markets bracing for a possible rate cut this year.

In the commodities market, futures on natural gas (+14.43%), cotton (+7.6%), orange juice (+6.86%), gasoline (+6.16%), coffee (+4.29%), cocoa (+2.85%), and WTI oil (+2.66%) showed the biggest gains last week. Futures on soybeans (-6.1%), corn (-5.12%), and wheat (-4.76%) showed the biggest drop.

S&P 500 (F) (US500) 4,191.98 −6.07 (−0.14%)

Dow Jones (US30)33,426.63 −109.28 (−0.33%)

DAX (DE40) 16,275.38 +112.02 (+0.69%)

FTSE 100 (UK100) 7,756.87 +14.57 (+0.19%)

USD Index 103.19 -0.39 -0.38%

Important events for today:
  • – China PBoC Loan Prime Rate at 04:15 (GMT+3);
  • – Hong Kong Consumer Price Index (m/m) at 11:30 (GMT+3);
  • – US FOMC Member Bullard Speaks at 17:50 (GMT+3);
  • – US FOMC Member Bostic Speaks at 17:50 (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.

Core inflation in Japan rose again to a 40-year high. Gold falls amid rising US government bonds

By JustMarkets

US stock indices rose yesterday, despite the growth of the dollar index. At the close of the stock market yesterday, the Dow Jones Index (US30) gained 0.34%, the S&P 500 Index (US500) added 0.94%, and the Nasdaq Technology Index (US100) jumped by 1.51%.

White House economic adviser Lael Brainard said Thursday that a default on the $31.4 trillion US debt would lead to a recession in the US economy. Brainard also pointed out that Biden’s negotiating team has been instructed not to agree to any Republican proposal to raise the debt ceiling that would deprive Americans of health care or plunge any of them into poverty. Republicans, who are threatening to default on the government, are trying to convince Democrats to accept tougher job requirements for some federal aid programs, as well as cut spending in exchange for lifting the borrowing limit.

“Hawkish” Fed officials (Laurie Logan and James Bullard) oppose a June rate hike pause. On Thursday, interest rate futures markets showed a 33.3% chance of a rate hike in June, up from a 90% chance just a week ago. Fed governor and vice presidential candidate Philip Jefferson, speaking Thursday, also said that while progress on inflation is slowing, it is too early to feel the full impact of these rapid rate hikes. Powell is scheduled to speak on Friday, and investors expect him to update his views in light of new economic data.

Shares of Walmart Inc (WMT) jumped by 1.3% after the largest US retailer reported first-quarter sales were up 8%.

Stock markets in Europe were mostly up yesterday. Germany’s DAX (DE30) added 1.33%, France’s CAC 40 (FR40) decreased by 0.64% yesterday, Spain’s IBEX 35 (ES35) was up 0.17% Thursday, Britain’s FTSE 100 (UK100) closed the day positive 0.25%.

The Turkish lira fell to a record low against the dollar on Thursday after incumbent President Tayyip Erdogan’s lead in the presidential election came as a surprise, while the country’s sovereign dollar bonds stabilized after a three-day drop following the election.

Oil fell by 1% Thursday as the dollar continued to rise on expectations of uncertainty in talks over a higher US government debt ceiling. The oil refineries in China in April increased by 18.9% compared to last year. Chinese refineries maintained a high growth rate to meet recovering domestic fuel demand and build stocks ahead of the summer tourist season.

The US dollar approached a six-month high against the yen on Friday amid rising US Treasury bond yields as uncertainty over debt ceiling talks in Washington raised expectations of higher interest rates. Gold has an inverse correlation to the dollar index and government bond yields, which is why it fell for a third straight day. But UBS analysts predict gold will reach $2,100 by the end of 2023 and $2,200 an ounce by March 2024, urging investors to keep the yellow metal in their portfolios.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 1.60% yesterday, China’s FTSE China A50 (CHA50) lost 0.26% over the day, Hong Kong’s Hang Seng (HK50) gained 0.85%, India’s NIFTY 50 (IND50) was 0.28% lower, while Australian S&P/ASX 200 (AU200) closed positive 0.52%.

Japan’s nationwide core consumer price index rose from 3.1% to 3.4% year-over-year, returning to 40-year highs after declining in the first quarter and foreshadowing increased pressure on the Bank of Japan to finally tighten policy this year.

Preliminary polls suggest that the Reserve Bank of New Zealand (RBNZ) will raise interest rates by another plus 0.25% at its May 24 meeting, but there will be a pause after that. The country’s largest banks, ANZ, ASB, Bank of New Zealand, Kiwi Bank, and Westpac, are also expecting a 25 basis point increase next week. Although the RBNZ was one of the first major global central banks to tighten monetary policy, inflation in the first quarter is still 6.7%, more than three times the RBNZ target of 2.0%.

S&P 500 (F) (US500) 4,198.05 +39.28 (+0.94%)

Dow Jones (US30)33,535.91 +115.14 (+0.34%)

DAX (DE40) 16,163.36 +212.06 (+1.33%)

FTSE 100 (UK100) 7,742.30 +19.07 (+0.25%)

USD Index 103.53 +0.65 +0.63%

Important events for today:
  • – New Zealand Trade Balance (m/m) at 01:45 (GMT+3);
  • – Japan National Core Consumer Price Index at 02:30 (GMT+3);
  • – Canada Retail Sales (m/m) at 15:30 (GMT+3);
  • – US FOMC Member Williams Speaks at 15:45 (GMT+3);
  • – US FOMC Member Bowman Speaks at 16:00 (GMT+3);
  • – US Fed Chair Powell Speaks at 18:00 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 22:00 (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.

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.

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.

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.

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.


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