InvestMacro

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%

• – 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.

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.

“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.

You can access this special report for free when you join Club EWI, the world’s largest Elliott wave educational community. Just follow the link below:

Read “Your 5 Top Alternatives to Banks” now when you sign up for a FREE Club EWI account.

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%

• – 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.

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.

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%

• – 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.

By JustMarkets

At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.17%, and the S&P 500 Index (US500) lost 0.46%. The NASDAQ Technology Index (US100) fell by 0.63% on Tuesday. Discussions over the US debt limit dampened investor sentiment as there was no progress on preventing a US default before the anticipated June 1 deadline.

President Joe Biden will meet with House Speaker Kevin McCarthy today. Both politicians face the need to reach an agreement on the debt ceiling, or else the US will face default as early as June 1. McCarthy is pushing for spending cuts and deficit reduction in exchange for raising the debt ceiling, while Biden wants it raised as a condition for any budget negotiations.

According to a new poll, public confidence in Jerome Powell’s leadership of the Federal Reserve has plummeted and is now at or below the level of his predecessors. A Gallup poll released Tuesday found that 36% of Americans believe they have confidence that the Federal Reserve chairman will do or recommend the right thing for the economy. That’s down from 37% for Janet Yellen during her first year at the helm of the Fed in 2014. Confidence in the Fed usually follows the state of the economy. President Joe Biden has 35% American confidence in the economy, the lowest of any president since George W. Bush got 34% during the 2008 financial crisis.

Shares of PayPal Holdings Inc (PYPL) fell more than -11% as the payments company cut its annual transaction margin forecast. Shares of Palantir Technologies (PLTR) jumped more than 23% yesterday after the analyst company reported better-than-expected first-quarter results and said it expects earnings in every quarter this year.

Stock markets in Europe were mostly down on Tuesday. Germany’s DAX (DE30) added 0.02%, France’s CAC 40 (FR40) decreased by 0.59% yesterday, Spain’s IBEX 35 index (ES35) fell by 0.31%, and the British FTSE 100 (UK100) closed lower by 0.18% on Tuesday. The International Monetary Fund is still concerned about the recent turmoil in the banking sector and believes the risk of a banking crisis remains.

The Bank of England’s monetary policy meeting is due tomorrow. Inflation in the UK is much higher than in the United States and Europe, so the Bank of England will seek to reduce inflationary pressures. Markets expect the Bank of England to raise the interest rate by 0.25% from 4.25% to 4.5%, marking the twelfth consecutive rate hike since December 2021. The Bank of England’s final interest rate is expected to be 4.85% by September 2023.

Crude oil prices rose for the third straight session amid reports that the Biden administration will cancel the remaining withdrawals from the Strategic Petroleum Reserve (SPR) and instead add to it a volume that could reach 200 million barrels. Before the news, oil prices were declining yesterday due to weak data from China. China’s imports fell sharply in April, while exports rose more slowly than expected, adding to signs of a slower-than-expected economic recovery for the world’s biggest crude oil importer. There had been high hopes for the Chinese economy that demand for crude oil would rise sharply in the second quarter, but so far, this has not been seen.

Asian markets traded yesterday without a single trend. Japan’s Nikkei 225 (JP225) gained 1.01% on the day, China’s FTSE China A50 (CHA50) decreased by 0.55% yesterday, Hong Kong’s Hang Seng (HK50) was down by 2.12%, India’s NIFTY 50 (IND50) added 0.01%, and Australia’s S&P/ASX 200 (AU200) was down by 0.17%.

Real wages in Japan fell for the twelfth consecutive month in March as consumer inflation outpaced nominal wage growth. Large companies negotiated wage increases at labor talks in March, and whether this trend spreads to small businesses depends on the outlook for the normalization of monetary policy by the Bank of Japan under new Governor Kazuo Ueda. Inflation-adjusted real wages, a barometer of household purchasing power, fell by 2.9% in March from a year earlier, following the same rate of decline in February.

S&P 500 (F) (US500) 4,119.17 −18.95 (−0.46%)

Dow Jones (US30)33,561.81 −56.88 (−0.17%)

DAX (DE40) 15,955.48 +2.65 (+0.017%)

FTSE 100 (UK100) 7,764.09 −14.29 −0.18%)

USD Index 101.65 +0.27 +0.27%

• – Canada Building Permits (m/m) at 15:30 (GMT+3);
• – US Consumer Price Index (m/m) at 15:30 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – Switzerland SNB Chairman Jordan speaks at 19:00 (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.

By George Prior 

Progress in slowing down US inflation is likely to have stalled, the consumer price index report is expected to show tomorrow – but the Federal Reserve must “resist the temptation” for further interest rate hikes.

This is the warning from Nigel Green, the founder and CEO of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations, ahead of the release of US inflation data on Wednesday that will play a key role in shaping the Fed’s interest rate plans moving forward.

He says: “We expect that The Bureau of Labor Statistics on Wednesday will show higher prices for core goods – fuelled by rising prices of vehicles – which will have the effect of counteracting cooling prices more generally.

“In addition, America’s employers added a sizeable 253,000 jobs in April, showing that the labor market is still surprisingly resilient.

“All this, we believe, will act as a spur to the Federal Reserve to raise rates again at their next meeting in June, after having hiked them last week to a range of 5 to 5.25%, its tenth increase in 14 months, and the highest since 2006.

“I would urge the US central bank to resist the temptation to do so.

“Rate hikes are a blunt instrument as they function by taking the heat down across the board, meaning parts of the US economy, which is already slowing, are likely to get broken.”

The deVere CEO continues: “US inflation has been coming down each month since it hit 9.1% in June 2022.

“We expect headline CPI will come in at an annual rate of 5% for April – the same as in March – meaning that progress to bring down US inflation would have stalled.

“Let’s hope this isn’t a trigger for the Fed to continue on with its rate hike agenda.”

Nigel Green cited three reasons why he believes the US central bank was wrong to have raised rates last week and why it would be wrong to do so next time too.

“First, the crisis within the US financial system is still not over. There remain serious and legitimate concerns that after a string of bank failures, there could be more to come,” he noted.

“The turmoil from the banking crisis is leading to a drop in bank lending, tightening the credit conditions for households and businesses. In turn, this will inevitably lead to a slowdown in economic activity and hiring.

“The Fed’s interest rate hiking agenda has tightened financial conditions which, in part, led to the banking crisis, and now the banking crisis itself is going to put the squeeze on financial conditions even more.

“Second, the time lag for monetary policies is very long. It is said that it takes about 18 months to two years for the full effect of rate hikes to filter fully into the economy.

“Third, the bond market is suggesting a long and/or deep recession with its inverted yield curve. Yields are inversely related to bond prices.”

This is typically the sign of a coming recession – an inverted yield curve has emerged roughly a year before nearly all recessions since 1960.

He concludes: “Investors will pour over the data for clues on the Fed’s policy path on interest rates.

“Regarding the central bank’s future plans, investors will likely be hoping for the best but fearing the worst.”

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.

By JustMarkets

The Dow Jones Index (US30) decreased by 0.17% at Friday’s close, while the S&P 500 Index (US500) added 0.05%. The NASDAQ Technology Index (US100) gained 0.18% on Monday.

Goldman Sachs joins Barclays in predicting that the Federal Reserve will cut interest rates significantly this year. But the latest futures position data from the Commodity Futures Trading Commission shows that hedge funds expect the Fed to keep rates higher longer.

A report from the New York Federal Reserve showed Monday that bank stresses that began in March had little impact on American sentiment. The Federal Reserve regional bank reported in its April survey of consumer expectations that respondents forecast inflation after one year at 4.4%, up from 4.7% in the March survey. The report also showed that respondents’ perceptions of the current financial situation improved in April, while their expectations for the year worsened. Respondents indicated they expect unemployment to rise and to be more likely to lose their jobs, as well as difficulty finding a new job.

The PacWest stock jumped by 5% on Monday. The company announced a dividend cut from 25 cents to 1 cent per share late Friday night. PacWest CEO Paul Taylor assured investors that the bank’s business remains “fundamentally sound.” Concerns about regional banks have not subsided since regulators took over the First Republic last week, leading to the US bank’s third collapse since early March. Rapidly rising interest rates have put pressure on banks with long-term bonds, causing deposit outflows.

Stock markets in Europe were mostly up on Monday. Germany’s DAX (DE30) decreased by 0.05%, France’s CAC 40 (FR40) added 0.11% yesterday, Spain’s IBEX 35 index (ES35) was up 0.70%, Britain’s FTSE 100 (UK100) was not trading Monday.

The European Central Bank should keep raising interest rates amid “too high” core inflation levels, ECB Governing Council spokesman Klaas Knot said over the weekend. The ECB will have to raise borrowing costs “until core inflation is suppressed.” Last week, the eurozone central bank raised its deposit rate by a quarter point to 3.25%, and ECB President Christine Lagarde also signaled that more interest rate hikes are likely.

Oil prices are up more than 2% as recession fears begin to fade. Fears of a recession are easing the risks of lower demand. Typically, oil demand rises in the run-up to summer as more travel occurs. And with OPEC+ countries still cutting production on a daily basis, black gold prices are projected to rise for the next three months. Analysts at Commerzbank say concerns about oil demand are exaggerated and expect prices to rise in the coming weeks.

Asian markets were mostly on the rise yesterday. Japan’s Nikkei 225 (JP225) declined by 0.71%, China’s FTSE China A50 (CHA50) jumped by 1.17%, Hong Kong’s Hang Seng (HK50) added 1.24% over the day, India’s NIFTY 50 (IND50) increased by 1.08%, and Australia’s S&P/ASX 200 (AU200) was up by 0.78%.

Continued soft monetary policy from the Bank of Japan is fueling a rally in Japanese markets, with the Nikkei 225 largely outperforming its global peers on the prospect of soft monetary conditions.

China’s latest trade balance data showed an increase in exports and a drop in imports. This suggests that local demand remains weak, which may prevent a more significant economic recovery this year. The prospect of weak demand in China does not bode well for Asian markets, which depend on the country as an export destination.

Australia recorded its first budget surplus in 15 years as its treasury was bolstered by unanticipated tax revenue from higher commodity prices and wages. The budget projected a small surplus of about A$4 billion ($2.71 billion) for the fiscal year ending in June. At the same time, deficit estimates for subsequent years have been revised downward.

S&P 500 (F) (US500) 4,138.12 +1.87 (+0.045%)

Dow Jones (US30)33,618.69 −55.69 (−0.17%)

DAX (DE40) 15,952.83 −8.19 (−0.051%)

FTSE 100 (UK100) 7,778.38 +75.74 (+0.98%)

USD Index 101.41 +0.20 +0.19%

• – Australia Retail Sales (m/m) at 04:30 (GMT+3);
• – China Trade Balance (m/m) at 06:00 (GMT+3);
• – US FOMC Member Williams Speaks at 19:05 (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.