Economics & Fundamentals :: Page 114

Archive for Economics & Fundamentals – Page 114

Rising US government bond yields put negative pressure on stock indices

At Monday’s close, the Dow Jones Index (US30) increased by 0.30%, and the S&P 500 Index (US500) added 0.33%. The Technology Index NASDAQ (US100) gained 0.28% yesterday. But despite the gains in the indices, sentiment for growth sectors, including technology, was dampened by a jump in Treasury yields amid growing fears of further Federal Reserve rate hikes.

Shares in Charles Schwab (SCHW) rose by almost 4% after the publication of mixed first-quarter results. The company’s profit beat economists’ expectations, but revenue fell short of forecasts. The brokerage also reported a drop in deposits and said it was suspending its share buyback program. Alphabet (GOOGL) shares fell by 2% on reports that Samsung can abandon Google search in favor of Microsoft’s Bing (MSFT) as the default search engine on its devices, threatening around $3 billion in annual revenues. Apple (AAPL) has announced that it will open a savings account for Apple Card users.

Equity markets in Europe traded flat yesterday. German DAX (DE30) decreased by 0.11%, French CAC 40 (FR40) fell by 0.28%, Spanish IBEX 35 (ES35) gained 0.17%, and British FTSE 100 (UK100) closed on Monday with a 0.10% gain.

ECB head Christine Lagarde warned yesterday that changes in the global economy caused by geopolitics pose a challenge to the European Central Bank and its colleagues. A key finding of leading democracies is that there is a need for greater “resilience” in supply chains – so that they are better insulated from risks ranging from war and pandemics to attempts at coercion by authoritarian regimes.

Oil prices were down by 2% yesterday. The US dollar is strengthening along with rising government bond yields, making dollar-denominated oil more expensive for holders of other currencies. Traders are betting that the Fed will raise its lending rate by another quarter percentage point in May and have pushed back expectations of a rate cut until later this year, as it usually does during a slowdown in economic growth. The IEA also warned in its monthly report that production cuts announced by OPEC+ producers could exacerbate the oil supply shortfall expected in the second half of this year and could hurt consumers and the global economic recovery.

Asian markets mostly rallied yesterday. Japan’s Nikkei 225 (JP225) gained 0.07%, China’s FTSE China A50 (CHA50) jumped by 1.90%, Hong Kong’s Hang Seng (HK50) ended the day up by 1.68%, India’s NIFTY 50 (IND50) fell by 0.68%, and Australia’s S&P/ASX 200 (AU200) was positive by 0.27% by Monday’s end. According to analysts, the prospect of higher interest rates from the US does not bode well for Asian markets, given that it limits the amount of foreign liquidity flowing into the region. But given that most Asian central banks have suspended their respective rate hike cycles, Asian indices could find some support in the short term.

China’s economy grew by 4.5% in the latest quarter, helped largely by the lifting of restrictions against COVID. But other economic indicators were mixed. Industrial production in March was worse than forecast for the second month in a row, indicating that the country’s manufacturing sector is still recovering and has not gained momentum. Nevertheless, strong retail sales data showed that China’s consumption-driven economic recovery is largely on track, which is likely to benefit the country’s exporters in the near term.

The RBA’s March monetary policy minutes showed strong reasons to pause and reassess the need for tightening at future meetings. The board had considered a rate hike in April before deciding to pause. But as inflation remains high, further assessment of data on inflation, jobs, consumer spending, and business conditions is needed.

S&P 500 (F) (US500) 4,151.32 +13.68 (+0.33%)

Dow Jones (US30)33,987.18 +100.71 (+0.30%)

DAX (DE40) 15,789.53 −17.97 (−0.11%)

FTSE 100 (UK100) 7,879.51 +7.60 (+0.097%)

USD Index 102.10 +0.55 +0.54%

Important events for today:

– Australia RBA Meeting Minutes (m/m) at 04:30 (GMT+3);
– China GDP (q/q) at 05:00 (GMT+3);
– China Industrial Production (y/y) at 05:00 (GMT+3);
– China Unemployment Rate (m/m) at 05:00 (GMT+3);
– China Retail Sales (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 Trade Balance (m/m) at 12:00 (GMT+3);
– US Building Permits (m/m) at 15:30 (GMT+3);
– Canada Consumer Price Index (m/m) at 15:30 (GMT+3);
– Canada BoC Gov Macklem Speaks at 18:00 (GMT+3);
– US FOMC Member Bowman Speaks at 20:00 (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 Apr

Reports from major banks give investors optimism about the stock market

By JustMarkets

At the close of the stock market on Friday, Dow Jones Index (US30) decreased by 0.42% (+1.38% for the week), while S&P 500 (US500) lost 0.21% (+1.28% for the week). The NASDAQ Technology Index (US100) fell by 0.35% on Friday (+1.24% for the week).

Short-term inflation expectations in the US jumped to a nearly two-year high at the start of April on the back of higher gas prices, but consumer sentiment did rise. These patterns show that consumers are fully aware that inflation is down from its peak, but high prices still make them feel less financially secure. Despite the minutes of the central bank’s March meeting acknowledging an increased risk of recession later this year, most investors are betting that the Fed will still raise rates by another 25 basis points at its next policy meeting on May 3rd.

The big Wall Street banks started the quarterly reporting season with better-than-expected results. JPMorgan Chase & Co (JPM) jumped +7% after it reported first-quarter results that beat analysts’ top and bottom line estimates. Citigroup Inc (C) and Wells Fargo & Company (WFC) also reported better-than-expected results. The first-quarter reporting season is heating up, and results from Goldman Sachs (GS), Morgan Stanley (MS), and Bank of America (BAC), as well as Netflix (NFLX), Tesla (TSLA), IBM (IBM) and Johnson & Johnson (JNJ), are expected in this week. According to Refinitiv, analysts expect S&P 500 earnings to fall by -4.8% in the first quarter compared with the same period last year.

Equity markets in Europe rose on Friday. The German DAX (DE30) gained 0.50% (+2.61% for the week), the French CAC 40 (FR40) added 0.52% on Friday (+2.61% for the week), the Spanish IBEX 35 index (ES35) increased by 0.33% (+0.95% for the week), the British FTSE 100 (UK100) closed Friday up by 0.36% (+2.73% for the week).

ECB Governing Council spokesman Mario Centeno, who is Portugal’s central bank governor, said on Friday that a quarter-point interest rate hike is the maximum that the European Central Bank should announce at its next meeting. Beyond that, either a pause or a slowdown in the pace of increases is possible. François Villrois de Galleau from the Governing Council of the European Central Bank of France reiterated his view that the cycle of aggressive interest rate rises is coming to an end. But their comments contradict the other ECB officials who are still considering a fourth consecutive 0.5% hike to combat core inflation. The core CPI, in contrast to the overall figure, continues to rise slowly.

The dollar index jumped sharply on Friday as FOMC member Christopher Waller, one of the biggest hawks, said he wanted further monetary policy tightening, despite evidence that inflation in the United States has steadily declined from the highs of recent months. The rise in the dollar has led to a rise in government bond yields. Gold is known to have an inverse correlation to government bond yields, so there has been a collapse in the price of the yellow metal. In the short-term, gold could remain very volatile. But the medium-term outlook points to a renewed historical high.

Oil markets are rising for the fourth week in a row thanks to higher demand forecasts by the IEA global energy agency for 2023. But crude oil prices lost much of Friday’s upward momentum after Fed Chief Waller spoke out in favor of further rate hikes.

Asian markets mostly rallied last week. Japan’s Nikkei 225 (JP225) gained 3.02%, China’s FTSE China A50 (CHA50) declined by 1.06%, Hong Kong’s Hang Seng (HK50) added 1.45%, India’s NIFTY 50 (IND50) jumped by 1.68%, and Australia’s S&P/ASX 200 (AU200) was positive by 1.72%.

The People’s Bank of China kept its medium-term lending rate at 2.75%, keeping monetary policy stable ahead of the key first-quarter GDP figure due to be released on Tuesday.

In the commodities market, futures on coffee (+13.17%), WTI oil (+9.26%), lumber (+9.09%), sugar (+8.45%), Brent oil (+8.44%), gasoline (+5.74%), platinum (+5.52%), silver (+5.42%), orange juice (+2.5%) and palladium (+2.45%) showed the biggest gains last week. Futures on natural gas (-4.96%) and cocoa (-1.5%) showed the biggest drop.

S&P 500 (F) (US500) 4,137.64 −8.58 (−0.21%)

Dow Jones (US30)33,886.47 −143.22 (−0.42%)

DAX (DE40) 15,807.50 +78.04 (+0.50%)

FTSE 100 (UK100) 7,871.91 +28.53 (+0.36%)

USD Index 101.58 +0.57 +0.56%

Important events for today:

– Italian Consumer Price Index (m/m) at 15:30 (GMT+3);
– US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
– Canada Wholesale Sales (m/m) at 15:30 (GMT+3);
– Eurozone ECB President Lagarde Speaks at 18:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

14 Apr

The Colorado River drought crisis: 5 essential reads

By Jennifer Weeks, The Conversation

A 23-year western drought has drastically shrunk the Colorado River, which provides water for drinking and irrigation for Wyoming, Colorado, Utah, New Mexico, Arizona, Nevada, California and two states in Mexico. Under a 1922 compact, these jurisdictions receive fixed allocations of water from the river – but now there’s not enough water to provide them.

As states try to negotiate ways to share the decreasing flow, the U.S. Department of the Interior is considering cuts of up to 25% in allotments for California, Nevada and Arizona. The federal government can regulate these states’ water shares because they come mainly from Lake Mead, the largest U.S. reservoir, which was created when the Hoover Dam was built on the Colorado River near Las Vegas.

These five articles from The Conversation’s archive explain what’s happening and what’s at stake in the Colorado River basin’s drought crisis.

The Colorado River provides water to 40 million people and some of the fastest-growing cities in the U.S., but its flow is dwindling.

1. A faulty river compact

The idea of negotiating a legally binding agreement to share river water among states was innovative in the 1920s. But the Colorado River Compact made some critical assumptions that have proved to be fatal flaws.

The lawyers who wrote the compact knew that the Colorado’s flow could vary and that they didn’t have enough data for long-term planning. But they still allocated fixed quantities of water to each participating state. “We know now that they used optimistic flow numbers measured during a particularly wet period,” wrote Patricia J. Rettig, head archivist of Colorado State University’s Water Resources Archive.

Nor did the compact encourage conservation as the West’s population grew. “When settlers developed the West, their prevailing attitude was that water reaching the sea was wasted, so people aimed to use it all,” Rettig observed.

2. Temporary cuts aren’t big enough

Western states have known for years that they were taking more water from the Colorado than nature was putting in. But reducing water use is politically charged, since it means imposing limits on such powerful constituencies as farmers and developers.

In 2019, officials from the U.S. government and the seven Colorado Basin states signed a seven-year drought contingency plan that temporarily reduced states’ water allocations. But the plan did not propose long-term strategies for addressing climate change or overuse of water in the region.

“Since 2000, Colorado River flows have been 16% below the 20th-century average,” wrote water policy experts Brad Udall, Douglas Kenney and John Fleck. “Temperatures across the Colorado River Basin are now over 2 degrees Fahrenheit (1.1 degrees Celsius) warmer than the 20th-century average, and are certain to continue rising. Scientists have begun using the term ‘aridification’ to describe the hotter, drier climate in the basin, rather than ‘drought,’ which implies a temporary condition.”

3. The looming threat of dead pool

Lake Mead and Lake Powell, the other major reservoir on the lower Colorado River, were created to provide water for irrigation and to generate hydropower, which is produced by the force of water flowing through large turbines in the lakes’ dams. If water in either lake drops below the intakes for the turbines, the lake will fall below “minimum power pool” and stop producing electricity.

If water in the lakes dropped even further, they could reach “dead pool,” the point at which water is too low to flow through the dam. This is an extreme scenario, but it can’t be ruled out, University of Arizona water expert Robert Glennon warned. In addition to drought and climate change, he noted, both lakes lie in canyons that “are V-shaped, like martini glasses – wide at the rim and narrow at the bottom. As levels in the lakes decline, each foot of elevation holds less water.”

Infographic of Hoover Dam and water levels where power general and then water flow would stop. — This graphic shows the water level in Lake Powell as of November 2022 and the levels that represent minimum power pool and dead pool.
Arizona Department of Water Resources

4. Why hydropower matters

Climate change and drought are stressing hydropower generation throughout the U.S. West by reducing snowpack and precipitation and drying up rivers. This could create serious stress for regional electric grid operators, according to Penn State civil engineers Caitlin Grady and Lauren Dennis.

“Because it can quickly be turned on and off, hydroelectric power can help control minute-to-minute supply and demand changes,” they wrote. “It can also help power grids quickly bounce back when blackouts occur. Hydropower makes up about 40% of U.S. electric grid facilities that can be started without an additional power supply during a blackout, in part because the fuel needed to generate power is simply the water held in the reservoir behind the turbine.”

While most hydropower dams are likely here to stay, in Grady’s and Dennis’ view, “climate change will change how these plants are used and managed.”

5. The resurrection of Glen Canyon

Lake Powell was created by flooding Glen Canyon, a spectacular swath of canyons on the Utah-Arizona border. As the lake’s water level drops, many side canyons have reemerged. Effectively, climate change is draining the lake.

A boat trip into zones of Glen Canyon that have been uncovered as water levels drop.

This is a once-in-a-lifetime opportunity to recover a unique landscape, wrote University of Utah political scientist Dan McCool. “But managing this emergent landscape also presents serious political and environmental challenges.”

In McCool’s view, a key priority should be to give Native American tribes a meaningful role in managing those lands – including cultural sites and artifacts that were flooded when the river was dammed. The river has also deposited massive quantities of sediments in the canyon behind the dam, some of which are contaminated. And as visitors flock to newly accessible side canyons, the area will need staff to manage visitors and protect fragile resources.

“Other landscapes are likely to emerge across the West as climate change reshapes the region and numerous reservoirs decline. With proper planning, Glen Canyon can provide a lesson in how to manage them,” McCool observed.

About the Author:

Jennifer Weeks, Senior Environment + Energy Editor, The Conversation

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

Economics & Fundamentals Opinions

14 Apr

Boosting EV market share to 67% of US car sales is a huge leap – but automakers can meet EPA’s tough new standards

By Alan Jenn, University of California, Davis

One big question keeps surfacing after the Biden administration announced plans to raise auto standards so sharply they would likely boost electric vehicle production to 67% of all new passenger vehicle sales in under a decade: Can automakers pull that off?

The proposal would require a huge change in production and consumer choice. To put it in perspective, in 2022 about 6% of U.S. passenger vehicle sales were all-electric.

I study the electric vehicle industry and policy. Here’s why I think the Environmental Protection Agency’s plan can succeed.

Automakers have met tough targets before

Automakers typically push back against tougher rules and often lobby to get standards relaxed. However, U.S. car companies have also shown that they can meet ambitious goals.

When California began requiring that car companies sell a certain percentage of zero-emissions vehicles, its initial target translated to about 15% of all new car sales by 2025. Automakers quickly exceeded that goal. By 2022, nearly 19% of California’s new light-duty vehicle sales were electric. In response, the rules were ramped up last year to 100% of all new cars by 2035.

U.S. automakers are already ramping up to meet the California rules, as well as aggressive requirements in Europe and China.

The U.S. Environmental Protection Agency can’t set quotas for EV sales, but it can require automakers to progressively lower total greenhouse gas emissions from the vehicles they sell. Emission rates are inherently tied to fuel economy – more fuel-efficient vehicles emit less carbon dioxide, a greenhouse gas that is warming the planet.

The new federal proposal, which still faces a comments period and could change before being finalized, would set emissions restrictions tight enough that it will effectively result in about two-thirds of new light-duty vehicles sold by 2032 being electric. That’s almost as aggressive as rules in the European Union. A second EPA proposal, also announced April 12, 2023, affects heavy-duty vehicles in the same way, but sets a lower target.

The government is offering lots of incentives

While the proposed rules are strict, the federal government has provided unprecedented support over the last year and a half to help meet demand for EV battery parts and production, computer chips and charging infrastructure.

The Bipartisan Infrastructure Law, in conjunction with 2022’s Inflation Reduction Act, are providing billions of dollars in grants and loans for EV and battery manufacturing, plus tax breaks for EV buyers. The infrastructure law also allocated US$7.5 billion to build a network of EV chargers throughout the country under the National Electric Vehicle Infrastructure program.

In an ideal world, “carrots” like these would be enough to encourage automakers to embrace the technological shift. But the EPA’s new greenhouse gas emissions standards represent the “stick” designed to guarantee the shift happens.

EVs aren’t just luxury anymore

Making EVs affordable will be crucial to success. Tightening fuel economy and greenhouse gas emission standards is known to increase the average price of new vehicles. For now, EVs have a higher sticker price than gasoline vehicles, which is a major barrier to their adoption.

The cost of batteries is one reason EV prices are higher. But there’s another important reason, and it may be changing: the types of electric vehicles being produced.

Many of the current EV models are large or luxury vehicles. Those vehicle classes have higher profit margins, meaning automakers make more money off the sales, which helps them invest in production.

But more entry-level EVs are coming on the market soon. And many of them, such as the Chevrolet Bolt, are already fairly cost competitive with comparable gas cars – and cheaper overall when taking into account lower energy and maintenance costs.

Increasing EV production will bring down costs over time as manufacturing processes improve and sales and competition grow.

In the meantime, the Inflation Reduction Act’s tax credits can help narrow the current price gap between certain EVs and gas vehicles. Buyers can get up to $7,500 for qualifying new electric vehicles.

Investments are already underway

Meeting the EPA’s standards won’t be easy, and the industry will face other challenges. For example, the U.S. needs to train workers in new skills, both for auto production and for charger installation, and it will need to boost renewable energy production to power EVs cleanly.

The ramp-up will also come with costs. Ford announced in early 2023 that its EV division had lost $3 billion in each of the previous two years and would likely lose a similar amount in 2023 as it invested in new production.

But Ford also said it expects to see an 8% profit margin by 2026 and to boost production that year to 2 million electric vehicles. Ford and several other automakers have announced large investments in electric vehicle capabilities. A recent Reuters analysis found that 37 global automakers expected to invest $1.2 trillion in EVs, batteries and materials through 2030.

John Bozzella, CEO of the industry trade group Alliance for Automotive Innovation, said automakers were committed to the EV transition and would work with U.S. regulators, but he also called the EPA plan “aggressive by any measure.” Whether it’s feasible, he said, will depend in part on how the U.S. manages charging infrastructure, supply chains and the resilience of the power grid.

The proposed rules provide clear targets

The aggressive nature of the EPA’s proposed regulation is a major departure from the norm. Efficiency standards have traditionally meant incremental improvements in vehicle technologies, like increasing engine efficiency. The proposed rule likely will be challenged once finalized, and since it isn’t written into law, there’s a chance it could be reversed by future administrations.

But these standards can help companies set goals for the future by providing clear targets. Failing to meet EPA rules can come with tough penalties, up to $45,000 per vehicle per day in some cases. That’s enough to very rapidly put any automaker out of business.

In my view, the updated standards are necessary to ensure that the U.S. can keep pace with EV adoption around the world.

About the Author:

Alan Jenn, Associate Professional Researcher in Transportation, University of California, Davis

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

Economics & Fundamentals Opinions

14 Apr

Week Ahead: 3 potential trading opportunities

By ForexTime

Shifting expectations surrounding Fed rate hikes remain the primary driver of financial markets.

Yet, the week ahead still features several other potential catalysts for more opportunities for various assets:

Monday, April 17

GBP: Speech by Bank of England Deputy Governor Jon Cunliffe
USD: Speech by Richmond Fed President Thomas Barkin

Tuesday, April 18

AUD: Australia March household spending; RBA April meeting minutes
CNH: China 1Q GDP; March retail sales, industrial production, jobless rate
EUR: Germany April ZEW survey expectations; Eurozone February trade balance
GBP: UK February unemployment rate; March jobless claims
CAD: Canada March CPI
SPX500_m: Q1 earnings from Goldman Sachs and Bank of America

Wednesday, April 19

JPY: Japan February industrial production (final)
EUR: Eurozone March CPI (final)
GBP: UK March CPI
USD: Fed Beige Book
Crude: EIA weekly US stockpiles data

Thursday, April 20

NZD: New Zealand 1Q CPI
JPY: Japan March external trade
CNH: China loan prime rates
EUR: Eurozone April consumer confidence; ECB March meeting report
USD: Fed speak; US weekly initial jobless claims

Friday, April 21

JPY: Japan March national CPI; April PMIs
EUR: Eurozone April PMIs
GBP: UK April PMIs and consumer confidence; March retail sales
CAD: Canada February retail sales
USD: US April PMIs

1) Brent oil to climb higher towards $90?

With markets now having a stronger grasp of the supply outlook in light of the OPEC+ production cuts, oil markets are set to focus their attentions towards other factors over the coming week:

Look out for the data releases that speak to the health of major economies, such as China’s data dump on Tuesday, as well as PMI readings out of the likes of Japan, the Eurozone, the UK, and the US on Friday.

Of course, there’s the weekly EIA report on US crude stockpiles due on Wednesday to consider as well.

If markets are given fresh evidence that these major economies, especially China, are losing growth momentum, that may drag oil prices lower on fears that global demand may not be robust enough to even absorb the lowered oil supplies.
Similarly, a larger-than-expected build in US crude stockpiles tend to translate into oil prices moderating back towards the $84.47 Fibonacci support (23.6% Fib level from the 2022 high down to the March 2023 trough).
On the other hand, better-than-expected economic data and/or a larger drawdown in US oil stockpiles may boost prices to a new cycle high closer to $90/bbl.

Note that from a technical perspective, Brent still appears “overbought”, which suggests a technical pullback may soon ensue.

2) USDInd to touch 100?

The Fed’s Beige Book due on Wednesday, along with the slate of public speeches by Fed officials on Thursday, should offer insights into what Fed officials will be considering at its upcoming rate decision.

Note that this is the last few chances to hear from Fed officials before they enter a blackout period beginning this Saturday, April 22, ahead of the next FOMC meeting to be held on May 2nd – 3rd.

Should the Fed’s Beige Book present anecdotal evidence about worsening US economic conditions, that may prompt the Fed to ease up on its “demand-destroying” rate hikes. Combined with more Fed officials who state publicly that they’re willing to consider a pause with its rate hikes, such dovish signals may drag the USD index closer towards the psychologically-important 100 mark.
On the other hand, if the Fed’s Beige Book is a repeat of its previous release in suggesting that the US economy remains on solid footing, coupled with Fed officials signalling their continued desire for even more rate hikes to vanquish inflationary pressures, such a hawkish scenario might prompt the USD Index to test resistance around its previous cycle low at 101.385.

3) USDJPY to touch 131?

The Japanese Yen has been lagging behind its G10 peers in taking advantage of the weaker US dollar.

So far in April, JPY has gained by merely 0.23% against the greenback, putting it in last place among its G10 counterparts’ month-to-date performance against the buck.

This has been largely due to markets paring bet their bets over a rate hike by the Bank of Japan, under the stewardship of new governor Kazuo Ueda.

However, Japan’s national consumer price index (CPI) release on Friday may provide enough reason to reawaken expectations that the BoJ can finally move closer to exiting negative interest rates, perhaps first by further tweaking its YCC (yield curve control) programme.

A higher-than-3.2% headline inflation print may allow the Yen to play catch up and push USDJPY back lower and closer towards the psychologically-important 130 level.
A lower-than-3.2% headline inflation print may force markets to further delay their bets for when that BoJ rate hike may eventually occur, potentially translating into a breach above its 50-day and 100-day simple moving averages (SMAs) for USDJPY.

From current levels at the time of writing, Bloomberg’s FX model is now pointing to a slightly higher chance (42%) that USDJPY will touch the 131 mark rather than the 134 level (38% chance) over the next one-week period.

Article by ForexTime

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

Economics & Fundamentals Opinions

13 Apr

Earnings season guidance will give recession clues

By George Prior

Investor focus is set to shift from inflation to earnings season, which starts on Friday, as it will give us more insight about a forthcoming recession, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The assessment from deVere Group’s Nigel Green comes ahead of earnings reports on Friday from major Wall Street banks including JPMorgan Chase, Citigroup, and Wells Fargo. Among other companies reporting next week are Tesla, IBM, and Johnson & Johnson.

He says: “For weeks it’s all been about the trajectory of inflation and subsequent interest rate hikes for investors. But the focus is now shifting to earnings season.

“The big banks will be keenly watched as not only do they often set the mood music for the rest of the season, but also because they are more intricately linked to the rest of the economy than most other sectors.

“In addition, they’ll be more in focus than ever following the crisis triggered by Silicon Valley Bank last month.”

Should banks report lower earnings or revenue than expected, it could be a sign that they are experiencing issues with lending and other financial activities.

“If banks are struggling, it could make it more difficult for businesses and consumers to access credit, which could in turn further slow down economic growth and lead to a recession,” notes the deVere Group CEO.

“Plus, a fall in bank earnings could indicate a lack of confidence in the wider economy, which would cause investors to pull back on their investments and further exacerbate the likelihood of a forthcoming recession.”

With established economic indicators – such as the inverted yield curve – currently flashing up signs of a possible recession, investors will not only be analyzing the reports about last quarter’s earnings, they will be looking at the accompanying guidance for the months ahead.

“Guidance will be in the forefront of investors’ minds this earnings season. Last time around, there was a lot of negative guidance from corporates and I think we’ll have much of the same this time too,” says Nigel Green.

“Corporate guidance in earnings season is critical for the wider economy because it provides insight into the future expectations of companies, which will impact investor sentiment and overall economic activity.”

Earlier this week the CEO said that bond markets and stock markets are not singing the same tune currently. “Both cannot be right. This gaping disconnect between bonds and stocks suggests that investors should brace themselves for significant volatility this quarter” in global financial markets.

“Should the US, the world’s largest economy, fall into a recession, it would clearly have a global impact. Investors will be doing a deep-dive into corporate guidance statements as earnings season kicks off, as recession fears have been increasing in recent weeks,” he concludes.

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

13 Apr

Overall inflationary pressures in the US are easing, but core inflation remains high

By JustMarkets

The US stock market was mostly down yesterday. At the close of trading, the Dow Jones Index (US30) decreased by 0.11%, and the S&P 500 Index (US500) lost 0.41%. The NASDAQ Technology Index (US100) fell by 0.85%.

The US Consumer Price Index declined from 6% to 5% year-on-year. Core inflation (excluding food and energy prices) rose from 5.5% to 5.6% y/y, with the Index adding 0.4% for the month. This data disappointed investors as the key inflation indicator shows no signs of slowing down, which increases the likelihood of another interest rate hike by the Fed. CME FedWatch Tool shows a 68% probability that the Fed will raise the interest rate by 0.25% at the May meeting. Comments from FOMC officials diverge. San Francisco Fed President Mary Daly pointed out that the Fed needs to keep raising interest rates, with another Fed official, Harker, indicating that the Central Bank may no longer need to raise interest rates monthly as overall inflation in the US is falling. The factory inflation (PPI) report will be released today, which will give more information on inflationary pressures.

The minutes of the Federal Reserve’s March meeting showed that policymakers are concerned about a mild recession this year. Although the Central Bank is likely to pause the interest rate hike cycle in the near future, a subsequent slowdown in economic growth could be a bad omen.

The slowdown in US inflation is shifting investor focus to the reporting season. Investors believe a strong corporate reporting season may be needed for a decisive rise in equities. The upcoming reporting season begins on April 14 with the release of results from major Wall Street banks, including JPMorgan Chase (JPM), Citigroup Inc (C), and Wells Fargo (WFC), which investors will be scrutinizing to gauge the impact of last month’s banking crisis.

The Bank of Canada left interest rates unchanged for the second consecutive meeting. The central bank kept the interest rate at 4.5%, in line with economists’ expectations. But the door for further rises remains open and further policy will depend on the next inflation and GDP data. BoC chief Maclem indicated at a press conference that the governing council discussed the likelihood of rates remaining in restrictive territory for a longer period in order to curb inflation.

Equity markets in Europe mostly rose on Tuesday. By the end of the day, German DAX (DE30) gained 0.31%, French CAC 40 (FR40) added 0.09%, Spanish IBEX 35 (ES35) increased by 0.40%, and the British FTSE 100 (UK100) gained 0.50% yesterday.

ECB spokesman and head of the Austrian Central Bank, Robert Holzmann, believes that the ECB needs to raise the interest rate by 0.5% in May. However, other ECB policymakers are in favor of a 0.25% increase. Before the May meeting, the Eurozone will publish another inflation report, which is likely to tell which move Europe’s Central Bank will choose. If core inflation shows no signs of slowing, the ECB will be more decisive.

Gold strengthened its position in the $2000 territory on Wednesday, hitting another peak. Despite a mixed US inflation report, government bond yields fell yesterday. Gold and silver are inversely correlated to US bond yields.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up by 0.57%, China’s FTSE China A50 (CHA50) decreased by 0.58%, Hong Kong’s Hang Seng (HK50) was down by 0.86%, India’s NIFTY 50 (IND50) added 0.51%, Australia’s S&P/ASX 200 (AU200) closed positive by 0.47%.

Bank of Japan Governor Ueda indicated yesterday that he wants to take the first step towards closer relations with “peers.” By peers, he means the other global central banks. Thus, there is a growing probability that the BoJ will start to move toward monetary policy normalization in the near future. The Japanese yen is strengthening amid such rumors.

S&P 500 (F) (US500)4,091.95 −16.99 (−0.41%)

Dow Jones (US30) 33,646.50 −38.29 (−0.11%)

DAX (DE40) 15,703.60 +48.43 (+0.31%)

FTSE 100 (UK100) 7,824.84 +39.12 (+0.50%)

USD Index 101.57 -0.64 (-0.62%)

Important events for today:

– Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
– China Trade Balance (m/m) at 06:00 (GMT+3);
– UK GDP (m/m) at 09:00 (GMT+3);
– UK Industrial Production (m/m) at 09:00 (GMT+3);
– UK Manufacturing Production (m/m) at 09:00 (GMT+3);
– UK Trade Balance (m/m) at 09:00 (GMT+3);
– German Consumer Price Index (m/m) at 09:00 (GMT+3);
– Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
– US Producer Price Index (m/m) at 15:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– Canada BoC Gov Macklem Speaks at 16:00 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

12 Apr

The IMF has published a new economic forecast. Investors awaiting US inflation report and Fed meeting minutes

By JustMarkets

The US stock market traded without a single trend yesterday. At the close of trading, Dow Jones Index (US30) increased by 0.29%, S&P 500 (US500) closed at opening levels. The Technology Index NASDAQ (US100) was down by 0.43%. At the moment, the situation in the US stock market is mixed. Investors are waiting for the US inflation report and the latest Federal Reserve meeting minutes. These two reports will explain the US Federal Reserve’s future policy. Rising core inflation and hawkish FOMC minutes could add confidence to the dollar as it increases the likelihood of another 0.25% interest rate hike at the May 3 meeting. Conversely, lower inflationary pressures, along with non-hawkish FOMC minutes, could trigger a sell-off in the dollar.

Fed officials are signaling disagreement over whether to raise rates again. New York Fed President John Williams said on Tuesday that Fed officials still have a lot of work to do to bring rates down and suggested they would stay the course. Meanwhile, Chicago Fed President Austan Goolsbee, who is voting on monetary policy decisions this year, instead called for “prudence and patience” in assessing the economic impact of tightening credit conditions. Williams, speaking earlier in the interview, said the average forecast by Fed officials in March suggests another interest rate hike this year, followed by a pause.

First-quarter earnings reports from major banks, including JPMorgan (JPM ), Citigroup (C), and Wells Fargo (WFC), will also be released this week. Analysts expect S&P 500 companies to report a 5.2% year-on-year decline in first-quarter earnings as they lower expectations.

The International Monetary Fund on Tuesday cut its global growth forecast for 2023 as higher interest rates dampened activity and warned that a severe worsening of turmoil in the financial system could reduce output almost to recessionary levels. The IMF currently forecasts global real GDP growth of 2.8% in 2023 and 3.0% in 2024, a sharp slowdown from 3.4% in 2022 due to monetary tightening. The IMF forecast for the US has slightly improved: Growth in 2023 is forecast at 1.6% compared with a forecast of 1.4% in January. But the Fund has lowered forecasts for some major economies, including Germany, which is forecast to contract by 0.1% in 2023, and Japan, where growth is forecast at 1.3% instead of the 1.8% forecast in January.

The Fund also envisaged a severe deterioration scenario with a much broader exposure to bank balance sheet risks, leading to a sharp credit contraction in the US and other advanced economies, a significant reduction in household spending, and an exodus of investment funds into dollar-denominated safe haven assets. Emerging market countries would be hit hard by lower export demand, currency depreciation, and a sharp rise in inflation. That said, central banks should not stop fighting inflation because of financial stability risks that look “largely subdued.”

Equity markets in Europe mostly rallied on Tuesday. Germany’s DAX (DE30) ended the day up 0.37%, France’s CAC 40 (FR40) added 0.89% over yesterday, Spain’s IBEX 35 Index (ES35) lost 0.80%, Britain’s FTSE 100 (UK100) gained 0.57% over yesterday.

The IMF forecasts released yesterday do not take into account the impact of the recent OPEC+ oil production cuts, which caused a jump in oil prices. The IMF assumes an average world oil price of $73 a barrel in 2023, well below the price of current oil prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 1.05%, China’s FTSE China A50 (CHA50) decreased by 0.59%, Hong Kong’s Hang Seng (HK50) added 0.76%, India’s NIFTY 50 (IND50) gained 0.56%, Australia’s S&P/ASX 200 (AU200) closed positive by 1.26%.

The head of Japan’s leading banking group MUFG believes that the Bank of Japan may end its control of the yield curve by September. On Monday, Ueda said at his first press conference as governor of the Bank of Japan that it would be “appropriate” to maintain control of the yield curve. Ueda added that the bank could explore a “more sustainable structure that takes into account spillover effects,” hinting at changes in the future. According to analysts, if the Bank of Japan is confident that inflation will reach a stable level, it could possibly abolish its negative interest rate policy in the fiscal year 2024.

S&P 500 (F) (US500)4,108.94 −0.17 (−0.0041%)

Dow Jones (US30) 33,684.79 +98.27 (+0.29%)

DAX (DE40) 15,655.17 +57.28 (+0.37%)

FTSE 100 (UK100) 7,785.72 +44.16 (+0.57%)

USD Index 102.15 -0.43 (-0.41%)

Important events for today:

– US FOMC Harker Speaks at 01:00 (GMT+3);
– US FOMC Kashkari Speaks at 02:30 (GMT+3);
– Japan Producer Price Index (m/m) at 02:50 (GMT+3);
– Indian Consumer Price Index (m/m) at 15:00 (GMT+3);
– US Consumer Price Index (m/m) at 15:30 (GMT+3);
– UK BoE Gov Bailey Speaks at 16:00 (GMT+3);
– Canada BoC Interest Rate Decision at 17:00 (GMT+3);
– Canada BoC Monetary Policy Report at 17:00 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
– Canada BoC Press Conference at 18:00 (GMT+3);
– US FOMC Meeting Minutes at 21:00 (GMT+3);
– UK BoE Gov Bailey Speaks at 22:15 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

12 Apr

Mixed Trade As Focus Turns To US CPI & Fed Minutes

By ForexTime

Most Asian stocks struggled for direction on Wednesday as investors turned cautious ahead of key U.S inflation data that may impact the Fed’s monetary policy path. European and US equity futures are both pointing to a mixed open in what feels like the calm before a potential storm. In the currency space, the dollar edged lower this morning weakening against almost every single G10 currency excluding the Japanese yen. Gold prices jumped over 0.7% during early trade while oil prices were mostly steady, holding near their highest close since January.

It is safe to say that markets are waiting for the pending US inflation data before making the next big move. Minutes from the Federal Reserve’s March policy meeting are also due to be released this evening, which could offer further clarity about the Fed’s 25-basis point hike after the collapse of Silicon Valley Bank and general banking fears that rattled financial markets.

Spotlight on US CPI Data

Today’s big event and potential market shaker will be the latest US inflation data. US headline CPI is forecast to slow to 5.2% in March compared to the 6% witnessed in February with the key core monthly reading expected to cool modestly but remain elevated. Traders are currently pricing in a 70% probability of a 25-basis point rate hike in May, according to Fed funds futures with today’s inflation data expected to reinforce these bets. Ultimately further evidence of US inflation slowing could fuel the disinflation story that Fed Chair Jerome Powell has talked about recently, sending the dollar lower. Alternatively, stubborn core figures may dampen expectations around the Fed pausing its policy tightening anytime soon, which could offer support to dollar bulls.

A few hours after the US inflation data, the focus will shift to the FOMC minutes. Investors will closely scrutinise the language and whether any fresh clues are offered on future Fed rate moves. If the minutes strike a dovish tone similar to the March meeting decision, this could reinforce market expectations around the Fed’s hiking cycle nearing an end.

Regarding the technical picture, the Dollar Index (DXY) remains in a downtrend on the daily chart. There have been consistent lower lows and lowers highs while the MACD trades below zero. A strong move back below 102.00 could encourage a decline towards this month’s low. Should prices stay above 102.00, this may signal a move back towards 102.80 and 103.30, respectively.

Bank of Canada to keep rates steady

The Bank of Canada (BoC) is expected to keep interest rates unchanged at 4.5% for a second straight meeting. The annual inflation rate in Canada continues to show signs of cooling, falling sharply to 5.2% in February compared to 5.9% in the previous month. However, some economic data has surprised to the upside with the job market still piping hot and wage pressures strong. Much attention will be directed towards the BoC’s updated forecasts and Governor Mackem’s word for fresh clues on the central bank’s policy path. Looking at the technical picture, USDCAD could be injected with fresh volatility due to the BoC meeting, US CPI, and Fed minutes. Prices are under pressure on the daily chart and may descend towards the 200-day SMA around 1.3395.

Commodity Spotlight – Gold

Gold prices extended gains on Wednesday morning, finding comfort above $2000 as caution reigned ahead of the US inflation data.

The precious metal continues to draw strength from a weaker dollar despite last Friday’s jobs report boosting expectations for one more Fed rate hike. Despite the positive performance this week, everything could come crashing down for gold if the US inflation figures exceed market expectations. Expect the precious metal to also be influenced by the FOMC minutes which could provide clues on future Fed moves. Talking technicals, prices remain bullish on the daily charts and could be heading toward the $2032 recent high. Beyond this point, the next levels of interest are $2070 and the all-time high at $2075.47. Should prices slip back under $2000, gold could retest $1950 and $1900, respectively.

Article 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

12 Apr

US CPI data: It’s time for the Fed to pivot

By George Prior

US CPI data is likely to show on Wednesday that inflation has peaked and the Federal Reserve must stop interest rate hikes from next month, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The warning from deVere Group’s Nigel Green comes as global financial markets await the latest US inflation report for March due out at 8.30 am Eastern Time. Economists forecast it rose 5.6% from a year earlier, excluding food and energy prices, which is approximately the same as the previous month.

He says: “Monetary policy is heavily driven by this data. Investors around the world will be treading water until it’s published as the CPI will give signals about how the Federal Reserve will set interest rates in the world’s largest economy at their next meeting on May 3.

“March’s headline inflation is expected to come in at 5.2%, a slowdown from February’s 6% annual gain. Core inflation, which strips out energy and food, is forecast to ease slightly month-over-month.

“This would suggest that inflation has peaked, being the slowest annual increase in consumer prices since May 2021.

“However, it is not going to be enough for the Fed and we fully expect the FOMC (Federal Open Market Committee) – the branch of the Federal Reserve responsible for implementing monetary policy – will set a quarter point interest rate hike in May.”

But the deVere CEO says he is worried about further rate hikes, citing two main reasons.

“Investors are increasingly concerned that the Fed’s overtightening now – when monetary policy time lags are notoriously long – could steer the US economy into a recession,” he notes.

“The time lag in monetary policies is very high. Economists estimate interest rate changes take up to 18 months to have the full effect. This means monetary policymakers need to try and predict the state of the economy for up to 18 months ahead.

“With inflation seemingly having peaked, the Fed is slowing winning the battle and officials now need to take their foot of the brake.”

He continues: “The Fed must also heed the warnings of the inverted US Treasury yield curve, which is now in day 193. I cannot stress this enough.

“The inverted yield curve suggests a recession is looming because it’s a sign of a tight credit market and weak economic growth.

“The inversion of the yield curve has preceded most US recessions since 1950.”

Should the US, the world’s biggest economy, fall into a recession, it would “clearly have a global impact” says Nigel Green. “At a time when the IMF is saying that five years from now, global growth is expected to be around 3%, which is the lowest medium-term forecast in a World Economic Outlook for over 30 years.”

The world economy is “not currently expected to return over the medium term to the rates of growth that prevailed before the pandemic,” the fund said in its latest economic outlook on Tuesday.

The slower growth prospects come from the increasing living standards in economies such as China and South Korea, weaker global labor force growth and geopolitical issues, such as Brexit and Russia’s invasion of Ukraine, the IMF said.

The deVere CEO concludes: “It’s time for the Fed to pivot. Will it? I doubt it.”

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