Archive for Economics & Fundamentals – Page 114

14 Mar

US CPI: We’d champion the Fed not to raise rates at all, says deVere CEO

By George Prior

Quick take by Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations:

“US inflation slows to a 6% annual rate, which came in as expected, and represents the slowest annual increase in consumer prices since September 2021.

“Whilst prices in February were 6% higher than a year ago, they are down from an annual rate of 6.4% in January and considerably lower than the 9.1% peak of inflation experienced in June 2022.

“This slowdown is a win for the Federal Reserve, which has been fighting an uphill battle to try and cool red hot inflation.

“The 6% headline figure is positive, and together with the collapse of Silicon Valley Bank and Signature Bank, the second and third biggest bank failures in US history, will certainly give the Fed cause to reconsider their rate hiking agenda.

“However, against a backdrop of a robust labor market, we still expect the central bank will raise interest rates by a quarter-point at their next meeting on March 22.

“Should the Fed pause the rate hike agenda now, it puts them at risk of exposing themselves to inflation speeding up again. And then they would be forced to make larger hikes later, which would harm their objective and dent their credibility, so they can be expected to err on the side of caution.As such, it is likely that they will hike rates, albeit by a quarter-point.

“But due to the time-lag associated with CPI data, we would champion a move by the Fed not to raise rates at all later this month.”

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 offices across the world, over 80,000 clients and $12bn under advisement.

Economics & Fundamentals Financial News
14 Mar

The US government is trying to resolve problems with failing banks. CPI data is in focus today

By JustMarkets

The Federal Reserve will lend one year’s worth of securities portfolios to banks under a new term financing program for banks, eliminating the risk that banks could be forced to sell their $4.4 trillion in government securities at a loss. Meanwhile, the Federal Deposit Insurance Corporation (FDIC) will safeguard all depositors of SVB, as well as depositors of Signature Bank of New York, closed by New York State because of “systemic risk.” According to politicians, these actions will reduce the burden on the financial system and support financial stability. Thus, US authorities are trying to avoid the risks of the 2008 crisis. But for investors and hedge funds, such actions were not so convincing. By the close of the stock market on Monday, Dow Jones (US30) decreased by 0.28%, S&P 500 (US500) lost 0.15%. The NASDAQ Technology Index (US100) gained 0.45% yesterday.

Considering the last news, Goldman Sachs no longer expects the Fed to raise rates at next week’s meeting. The bank sees “significant uncertainty about the path beyond March.” Concerns about financial stability are so great that investors speculate that the Fed now won’t want to rock the boat by raising interest rates by a whopping 50 basis points next week and may not raise them at all. The implied peak in rates has dropped to 5.08% from 5.69%. Many funds now assume the FOMC will raise rates by 25 bps in May, June, and July.

Equity markets in Europe showed their biggest one-day drop of the year yesterday. German DAX (DE30) fell by 3.04%, French CAC 40 (FR40) lost 2.90%, Spanish IBEX 35 (ES35) decreased by 3.51%, and British FTSE 100 (UK100) closed down by 2.58%. The STOXX 600 pan-European index closed the day down by 2.3%, with bank, financial, insurance, and energy stocks taking the brunt of the sellers’ pressure. European bank stocks fell by 5.7%. Investors were shaken by the events of the last few days, so such sell-offs are quite an expected reaction.

HSBC agreed with the Bank of England to buy the British operations of Silicon Valley Bank. After the news, HSBC shares fell by 4.1% by the end of the day. German Commerzbank fell by 12.7%, and French Societe Generale and Spanish Sabadell fell by 6.2% and 11.4%, respectively. Analysts at Morgan Stanley note that the strong liquidity in the structure of the balance sheet of European banks will avoid forced closure or sale of portfolios of bonds.

The European Central Bank meets Thursday and is still expected to raise its rate by 50 basis points and mark further tightening, although it will now have to consider financial stability.

Oil prices fell more than 2% in volatile trading Monday as the Silicon Valley Bank collapse rattled stock markets and raised fears of a new financial crisis—short-term US. Treasury bond yields continued to fall Monday amid lingering fears about the aftermath of the Silicon Valley Bank collapse. Given that gold and silver are inversely correlated to government bond yields, this situation contributes to a sharp strengthening of the precious metals.

Asian markets traded yesterday without a single trend. Japan’s Nikkei 225 (JP225) declined by 1.11%, China’s FTSE China A50 (CHA50) gained 0.88%, Hong Kong’s Hang Seng (HK50) jumped by 1.95%, India’s NIFTY 50 (IND50) was 1.49% lower, while S&P/ASX 200 Australia (AU200) closed down by 0.50% on Monday. But since the market opened on Tuesday, Asian indices started to show sharp declines. Investors are sharply reducing their positions in banking stocks amid fears of contagion from the looming US crisis, and there is also growing uncertainty over monetary policy ahead of US inflation data (CPI). Any signs of overheated inflation combined with problems in the banking sector could be a bad omen for Asian stock markets.

S&P 500 (F) (US500) 3,855.76 −5.83 (−0.15%)

Dow Jones (US30)31,819.14 −90.50 (−0.28%)

DAX (DE40) 14,959.47 −468.50 (−3.04%)

FTSE 100 (UK100) 7,548.63 −199.72 (−2.58%)

USD Index 103.63 −0.95 (−0.90%)

Important events for today:
  • – UK Average Earnings Index (m/m) at 09:00 (GMT+2);
  • – UK Claimant Count Change (m/m) at 09:00 (GMT+2);
  • – UK Unemployment Rate (m/m) at 09:00 (GMT+2);
  • – Switzerland Producer Price Index (m/m) at 09:30 (GMT+2);
  • – Spanish Consumer Price Index (m/m) at 10:00 (GMT+2);
  • – US Consumer Price Index (m/m) at 14:30 (GMT+2);
  • – US FOMC Member Bowman Speaks at 23:20 (GMT+2).

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
14 Mar

Risk-off sentiment intensifies amid SVB turmoil

By ForexTime

Another wave of risk aversion swept through Asian shares on Tuesday, as the implosion of Silicon Valley Bank (SVB) continued to echo across global markets.

The recent developments have fueled fears over a U.S. banking crisis with investors around the world on edge, waiting to see what happens next. Risk-off is likely to remain the name of the game this week as players remain concerned about the financial sector. In the currency space, there was no love for the dollar as markets reconsidered the Fed’s rate hiking cycle at its meeting next week. Oil prices were under fire, extending heavy losses from Monday while gold glittered through the chaos, gaining 2.4% in the previous session.

We have seen some huge moves across financial markets over the past few days with events moving at an incredibly rapid pace. From mounting concerns over a U.S. banking crisis to rapidly shifting Fed rate hike expectations and explosive levels of volatility across the FX, equity, and commodity spaces. Things could spice up further thanks to the pending US inflation data release on Tuesday and the European Central Bank meeting later in the week. In the meantime, a sense of caution is seen capping risk appetite and limiting gains across stock markets.

US CPI data in focus

If not for the recent developments revolving around the SVB crisis, everyone would be eagerly awaiting the pending US figures for February. Although this is still a major risk event, the banking crisis has forced investors to question the Fed’s next move, with a 50bp hike priced out by markets for next week’s FOMC meeting. Traders now anticipate either no move at all or a 25bp hike which is currently given a probability of 54% according to Bloomberg. The key question is whether the pending inflation data will shift these expectations.

The headline US CPI figure is expected to show price pressures easing to 6% last month, compared to the 6.4% witnessed in January thanks to falling energy prices. However, all eyes will be on the core inflation rate which could impact markets. It will also be interesting to see whether the dollar is thrown a lifeline if the inflation figures print higher than expected. It has been hammered by growing expectations of a less-aggressive Fed as contagion fears intensify. The Dollar Index remains under pressure on the daily charts with a breakdown below 103.00 encouraging a decline towards 102.30.

Currency spotlight: Volatile week for EURUSD

It is shaping up to be another wild week for the world’s most traded FX pair.

After gapping higher on Monday, bulls remain in control despite the weakness witnessed early this morning. The recent SVB fallout has fueled speculation about the Fed adopting a more cautious approach toward rates which has ultimately weakened the dollar. This development added to the recent weakness after last Friday’s mixed US jobs report. The major risk event for the euro this week will be the European Central Bank meeting on Thursday. Given how a 50-basis point hike is still expected, much focus will be on the messaging on the size of rate increases beyond the March meeting. Whatever the outcome, it will be a challenging meeting for the ECB and will certainly set the tone for the euro this month.

Commodity spotlight – Gold

Gold bulls took a breather on Tuesday morning after charging higher in the previous session.

Nevertheless, the path of least resistance points north as the collapse of SVB sent investors sprinting to safety. Given how the dollar is getting no love and Treasury yields have tumbled, gold prices have the potential to push higher. It will be wise to keep a close eye on how the precious metal reacts to the inflation data this afternoon. Looking at the technical picture, the strong breakout and daily close above $1900 have opened the doors to higher levels. A breakout above Monday’s high could trigger a move towards $1935 and $1955, respectively. If prices dip back under $1900, bears may target $1873, where the 50-day SMA resides.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
13 Mar

Silicon Valley Bank’s bankruptcy could be a trigger for the financial crisis. The US Federal Reserve may stop rate hikes

By JustMarkets

SVB shares fell by 44% on Friday, adding to a 60% drop in the previous session. Meanwhile, larger US banks JPMorgan (JPM), Citigroup (C), and Morgan Stanley (MS) were also down. The fall of SVB shares, which began on Thursday, spread to other American and European banks. According to Reuters, US banks lost more than $100 billion in the stock market, and European banks lost another $50 billion over the past two trading days. This has caused panic among investors, and that panic could intensify if people start withdrawing their deposits from banks on Monday, fearing a 2008 scenario. At the close of the stock market on Friday, the Dow Jones Index (US30) decreased by 1.07% (-4.53% for the week), and the S&P 500 (US500) lost 1.45% (-4.77% for the week). The NASDAQ Technology Index (US100) fell by 1.76% on Friday (-5.09% for the week).

According to analysts at JPMorgan, the recent sell-off in big bank stocks is an “exaggeration,” mainly because of the stronger monetary position of these lenders compared to their smaller peers.

The Board of Governors of the Federal Reserve has announced that it will hold an emergency closed-door meeting at 4:30 p.m. (GMT+2) on March 13, 2023. It is likely that the sudden collapse and FDIC seizure of SVB Financial Group (SIVB) on Friday was the reason for the Fed’s accelerated meeting. SVB was the largest bank failure since the 2008 financial crisis. Its collapse shook the entire banking system.

Following news of the SVB Financial Group (SIVB) bankruptcy, investors limited their bets on a 50 basis point rate hike in March to 40% from about 80%. The threat that something systemic may be brewing in the banking system, forcing many regional banks out of business, will not be well received by the government. And the likely response could be intense political pressure on Federal Reserve Chairman Jerome Powell to stop raising rates.

The British clearing bank The Bank of London is considering an application to rescue the British division of the bankrupt US bank Silicon Valley Bank. The news of the British bank’s interest comes a day after the Bank of England said it was seeking a court order to put SVB UK into bankruptcy proceedings after US regulators seized control of its parent SVB Financial Group earlier Friday.

The Labor Department reported that Nonfarm payrolls rose by 311,000, well above the consensus forecast of 205,000 but below the revised 507,000 in January. The labor market remains too strong for the Fed to consider stopping rate hikes and cutting rates. But payrolls data indicate that the first signs of a “cooling off” are on the horizon.

Stock markets in Europe were mostly down on Friday. German DAX (DE30) was 1.32% lower (-1.09% for the week), French CAC 40 (FR40) fell by 1.30% (-2.24% for the week), Spanish IBEX 35 (ES35) decreased by 1.47% (-2.24% for the week), British FTSE 100 (UK100) was 1.67% lower (-2.50% for the week).

British Prime Minister Rishi Sunak said on Friday that he was in talks with the United States and the European Union to bring down inflation amid fears that it could make European markets uncompetitive. Europe fears that $369 billion in US subsidies for electric cars and other clean technologies could disadvantage companies on the continent.

Saudi oil giant Aramco on Sunday reported record net income in 2022, helped by higher energy prices, higher sales, and better oil product margins.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) decreased by 0.14% for the week, China’s FTSE China A50 (CHA50) lost 4.34% for the week, Hong Kong’s Hang Seng (HK50) fell by 5.47% for the week, India’s NIFTY 50 (IND50) was down 0.31%, and Australia’s S&P/ASX 200 (AU200) closed negative 2.01% for the week.

China’s legislature confirmed the continued leadership roles in the central bank and finance ministry for Yi Gang and Liu Kun. China plans to redouble efforts to overcome persistent financial risks and technological bottlenecks in President Xi Jinping’s third five-year term.

In the commodities market, futures on orange juice (+6.85%) and lumber (+2.36%) showed the biggest gains last week. Futures on natural gas (-19.04%), cotton (-7.12%), palladium (-5.59%), gasoline (-3.94%), WTI oil (-3.77%), Brent oil (-3.72%), wheat (-3.6%), corn (-3.36%) and silver (-2.98%) showed the biggest drop.

S&P 500 (F) (US500) 3,861.59 −56.73 (−1.45%)

Dow Jones (US30)31,909.64 −345.22 (−1.07%)

DAX (DE40) 15,427.97 −205.24 (−1.31%)

FTSE 100 (UK100) 7,748.35 −131.63 (−1.67%)

USD Index 104.64 −0.67 (−0.67%)

Important events for today:
  • – Indian Consumer Price Index (m/m) at 14:00 (GMT+2);
  • – Fed emergency closed-door meeting at 17:30 (GMT+2).

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
13 Mar

Week’s main events (March 13 – March 17)

By JustMarkets

On Friday, startup-focused lender SVB Financial Group became the largest bank to collapse since the 2008 financial crisis. The decline in SVB stock, which began Thursday, has spread to other US and European banks. This caused panic among investors, which could intensify if people start withdrawing their deposits from banks on Monday, fearing a 2008 scenario. Therefore, this week the main investors’ attention will be focused on how the situation in the banking sector will develop further. Also, this week, important inflation data will be released in the United States and Europe. The main focus will be on the core CPI data. The UK and Australia will publish their labor market reports, which may affect central banks’ monetary policy. On Thursday, the ECB will hold its monetary policy meeting, at which a 0.5% rate hike is expected.

Monday, March 13
On Monday, the main event will be an emergency meeting of the Federal Open Market Committee concerning the situation with Silicon Valley Bank and the US banking system. There may be unpopular decisions. The Fed may suspend rate hikes due to the deteriorating situation in the banking sector.
Main events of the day:
  • – Indian Consumer Price Index (m/m) at 14:00 (GMT+2);
  • – Fed emergency closed-door meeting at 17:30 (GMT+2).
Tuesday, March 14
Various statistics for many countries are expected on Tuesday. The most important event will be the US consumer inflation data. Analysts forecast that annual inflation will fall from 6.4% to 6.0%, but the focus will be on core inflation. Traders should also pay attention to the unemployment rate in the United Kingdom. This indicator is taken into account by the Bank of England to regulate monetary policy.
Main events of the day:
  • – UK Average Earnings Index (m/m) at 09:00 (GMT+2);
  • – UK Claimant Count Change (m/m) at 09:00 (GMT+2);
  • – UK Unemployment Rate (m/m) at 09:00 (GMT+2);
  • – Switzerland Producer Price Index (m/m) at 09:30 (GMT+2);
  • – Spanish Consumer Price Index (m/m) at 10:00 (GMT+2);
  • – US Consumer Price Index (m/m) at 14:30 (GMT+2);
  • – US FOMC Member Bowman Speaks at 23:20 (GMT+2).
Wednesday, March 15
On Wednesday, essential macro statistics on China will be released, affecting Asian indices. The Bank of Japan will publish last month’s monetary policy meeting minutes. There will be no surprises, but volatility in currency pairs with the yen might rise as the report is released. Investors should also keep a close eye on US factory inflation data (PPI), which is considered a leading indicator of consumer inflation. Britain will publish its annual budget, which might give some hints about the economic forecasts for 2023.
Main events of the day:
  • – Japan BoJ Monetary Policy Meeting Minutes at 01:50 (GMT+2);
  • – China Retail Sales (m/m) at 04:00 (GMT+2);
  • – China Industrial Production (m/m) at 04:00 (GMT+2);
  • – China Unemployment Rate (m/m) at 04:00 (GMT+2);
  • – French Consumer Price Index (m/m) at 12:00 (GMT+2);
  • – Eurozone Industrial Production (m/m) at 12:00 (GMT+2);
  • – UK Annual Budget Release at 14:30 (GMT+2);
  • – US Producer Price Index (m/m) at 14:30 (GMT+2);
  • – US Retail Sales (m/m) at 14:30 (GMT+2);
  • – US NY Empire State Manufacturing Index (m/m) at 14:30 (GMT+2);
  • – US Crude Oil Reserves (w/w) at 16:30 (GMT+2);
  • – New Zealand GDP (q/q) at 23:45 (GMT+2).
Thursday, March 16
Thursday’s main event will be the interest rate decision from the European Central Bank. Analysts are predicting a 0.5% rate hike, but the most important will be the press conference, where investors will look for clues regarding the ECB’s next steps. Traders should also pay attention to the Australian labor market data. The RBA is on its way to raising rates, but weak labor market data could affect further RBA decisions.
Main events of the day:
  • – Japan Trade Balance (m/m) at 01:50 (GMT+2);
  • – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
  • – Italian Consumer Price Index (m/m) at 11:00 (GMT+2);
  • – US Building Permits (m/m) at 14:30 (GMT+2);
  • – US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
  • – US Philadelphia Fed Manufacturing Index (m/m) at 14:30 (GMT+2);
  • – Eurozone ECB Interest Rate Decision at 15:15 (GMT+2);
  • – Eurozone ECB Monetary Policy Statement at 15:15 (GMT+2);
  • – Eurozone ECB Press Conference at 15:45 (GMT+2);
  • – US Natural Gas Storage (w/w) at 16:30 (GMT+2).
Friday, March 17
Friday’s most important release for investors will be the Eurozone Consumer Price Index. The focus will be on core inflation, which excludes food and energy prices. ECB policymakers have repeatedly said to moderate their hawkishness if core inflation begins to decline. Traders will also keep a close eye on consumer sentiment data. This report is a good indicator of how consumers feel about the current economic situation.
Main events of the day:
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
  • – US Industrial Production (m/m) at 15:15 (GMT+2);
  • – US Michigan Consumer Sentiment (m/m) at 16:00 (GMT+2).

by JustMarkets, 2023.03.13

We advise you to get acquainted with the daily forecasts for the major currency pairs.

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

 

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
10 Mar

Economic growth doesn’t have to mean ‘more’ – consuming ‘better’ will also protect the planet

By Renaud Foucart, Lancaster University 

Around 30 years ago, many developed countries started a process of absolute decoupling of their emissions of CO₂ and energy use from economic growth. This means keeping emissions stable, or better yet, shrinking them, while still growing the economy.

As a result, GDP is now much higher than it was in 1990 in the UK, France, Germany and the US, but CO2 emissions are lower. This is not just because of the deindustrialisation of the west: emissions decrease even if we include our imports from countries like China.

This trend may be too little too late to avoid the worst consequences of climate change and the destruction of wildlife. But it is a testimony of perhaps the biggest misunderstanding about economics: that growth is a measure of how much an economy produces, rather than an imperfect account of the value of this production.

Emissions versus GDP

Fighting climate change requires a radical transformation of the economy to use less energy and resources. This means it could cause economic growth by making us consume “better”, not more. Putting a monetary value on protecting the Earth means people will pay the true cost of their consumption.

“Better” consumption of goods and services

The things we buy typically become more valuable if the perceived quality of a product increases. And research shows that consumers are willing to pay more if they believe a brand is more valuable, for example, because it is more ethical or environmentally friendly. This is the case for low-carbon energy sources, fairtrade chocolate, organic and local products – and it’s even more the case for people that care about how others see them. So if this means replacing a £1.89 pack of beef burgers with £12 bean and mushroom patties, economic growth will certainly be good for the planet.

The same can be said for the services people spend money on. In fact, as the economy becomes more dependent on services than products, this part of our consumption is even more important to “green”.

This is because much of today’s economic growth is not about measuring the value of the objects we buy. Two-thirds of the world’s GDP is constituted of services, and those are increasingly provided from our own homes as we work remotely. The environmental cost is then almost entirely composed of the energy needed to make the internet work – and there is a way to make that greener.

Sci-fi authors and futurists of the 1960s correctly predicted that we would live in a world of wireless communications, flat-screen TVs and sophisticated kitchen appliances, while fewer foresaw that younger generations would celebrate the return of sleeper trains in Europe. They would probably also be surprised at how many people find love via their phone, using online dating services. The fact that Match.com is worth more than car companies Mitsubishi and Mazda combined shows how our economy is changing towards consumption of services rather than traditional goods.

This does not mean that free markets and technology alone can save the world from climate change. Government intervention is also needed. In fact, one of the oldest and most accepted ideas in economics is the principle that consumers should not only pay for the cost of producing what they buy, but also for its cost to society. This means taxing pollution, the destruction of wildlife, unhealthy food, traffic congestion and the depletion of natural resources, rather than raising the same amount by taxing income.

This could also be a source of economic growth. Research shows taxing pollution generates a “double dividend”: it restores fair competition between polluting and non-polluting products, and it generates tax revenue to invest for everyone’s benefit. If the prohibitive cost of pollution and limited natural resources forces us to innovate, we can actually create value instead of destroying it.

Green policies as the future of growth

In this kind of world, sustained growth for the next century would mean the phasing out of fossil fuels and increased energy efficiency, and largely replacing meat production with plant and lab-based alternatives. But also more value created by services, addressing wellbeing, and creating cleaner air and water, healthier food and safer cities.

Indeed, 15-minute cities are more of an economist’s dream than a socialist utopia. Charging for the true cost of car use by heavily taxing noise and air pollution is textbook introductory economics. Reallocating public land towards humans and public transport saves time for everyone. On the other hand, adding roads simply creates more congestion, while public transport gets more efficient as more people use it. Less time spent in a car means more time for work and leisure.

And when it comes to artificial intelligence, just like machines and robots in the past, it will not kill jobs but give us more time and money to spend on leisure. This is economic growth.

The real challenge for growth is not defying the laws of physics with technology that magically allows us to produce more with the same or fewer resources. It is the ability of our societies to tax polluting activities and regulate the use of land and natural resources, while still being able to redistribute wealth. This is the ability to do better with less.

We also need to work out how to correctly account for everything we value. What is counted under GDP figures has already started to change over time to include things not directly measured by traditional markets.

Making the case for the preservation of nature means being able to put a number on it: taxing social costs but also recording the value of the use of our parks, forests and mountains. If those who care about protecting the environment do not fight to put the highest possible number on nature because they find the idea of valuing it in monetary terms repugnant, someone who does not care will do it.The Conversation

About the Author:

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

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

Economics & Fundamentals Opinions
10 Mar

The Bank of Japan kept its monetary policy unchanged. The US banking sector is under pressure

By JustMarkets

Yesterday, the US stock indices fell sharply, mainly due to falling banking sector shares. Shares of SVB Financial Group (SIVB) fell more than 55% after the bank disclosed a net loss of $1.8 billion and gave a negative outlook for the year on the impact of higher interest rates. SVB Financial Group said it was taking aggressive measures to shore up its balance sheet, including selling shares and liquidating its securities portfolio. The SIVB’s fall has dampened sentiment toward bank stocks, which have been pressured by a deeper inversion of the yield curve, a harbinger of recession. As the stock market closed Thursday, the Dow Jones Index (US30) decreased by 1.66%, and the S&P 500 Index (US500) lost 1.85%. The NASDAQ Technology Index (US100) fell by 2.05%.

Investors remain tense ahead of Friday’s jobs report. The US economy is expected to grow by 200,000 jobs last month, well below January’s 517,000. The unemployment rate is forecast at 3.4%. Yesterday’s weekly labor market data showed that US employers announced 77,770 job cuts in February, down 24% from the 102,943 cuts announced in January. This indicates a resilient labor market. Many fear that a strong Nonfarm Payrolls report could solidify the return of aggressive rate hikes by the Federal Reserve.

On Thursday, President Joe Biden unveiled a $6.9 trillion budget proposal. The proposal, which the Republican-controlled House of Representatives will undoubtedly reject, showed little inclination to compromise. The president’s proposal would increase funding for a number of government programs, increase Medicare solvency, lower prescription drug prices, and reduce the deficit by $3 trillion over the next decade. Biden also proposes adding $77 billion for defense spending.

Stock markets in Europe were mostly down yesterday. Germany’s DAX (DE30) gained 0.01%, France’s CAC 40 (FR40) fell by 0.12%, Spain’s IBEX 35 (ES35) decreased by 0.45%, and Britain’s FTSE 100 (UK100) closed down 0.63%.

The ECB will raise rates by 50 basis points at its March meeting, and analysts expect the central bank to signal the next such move, probably in May. Executive Board spokeswoman Isabel Schnabel recently said that in order to slow the pace of rate hikes, she needs to see the ECB’s monetary policy become restrictive, which should show up in credit markets, labor markets, and various components of aggregate demand. But there is disagreement within the ECB. On the hawkish side, Holzmann argued that the ECB should raise the rate by 50 basis points at all the next four meetings. On the other hand, Visco did not appreciate such comments from his colleagues and said that decisions should be made meeting by meeting in an environment of high uncertainty. But in any scenario, the ECB will remain hawkish until the summer.

On Wednesday, crude oil prices fell for a second straight day, even as oil inventories fell. Inventories fell by 1.694 million barrels last week, the first weekly drop in inventories since December. The rise in the dollar index on the back of the US Federal Reserve’s aggressiveness outweighs the factors of falling inventories and rising demand from China.

Oil prices continued to fall Friday due to fears of more aggressive interest rate hikes by the US Federal Reserve and disappointing data from China. Markets are worried that a potential US recession triggered by tighter monetary conditions could hit oil demand this year. China’s weak economic signals also upset oil markets, as the world’s largest oil importer recorded a drop in oil imports between January and February. Expectations of higher interest rates are strengthening the dollar, putting pressure on commodities priced in the currency, mainly oil. A stronger dollar makes oil more expensive for international buyers, which reduces demand.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped 0.63%, China’s FTSE China A50 (CHA50) fell by 0.61%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.63%, India’s NIFTY 50 (IND50) fell by 0.93%, and Australia’s S&P/ASX 200 (AU200) ended the day up by 0.05%.

The Bank of Japan kept interest rates at record lows on Friday and said it would continue the current rate of Yield Curve Control (YCC). The BOJ said in a statement that inflation is likely to slow by mid-2023, thanks to government subsidies on energy prices and easing pressure from high commodity rates. But the Bank of Japan also said that prices would rise again by the end of the year and that growing uncertainty about the economy underscored the need to maintain the adaptive monetary policy. This was the last meeting in the office for Haruhiko Kuroda.

S&P 500 (F) (US500) 3,918.32 −73.69 (−1.85%)

Dow Jones (US30)32,254.86 −543.54 (−1.66%)

DAX (DE40) 15,653.58 +75.19 (+0.01%)

FTSE 100 (UK100) 7,879.98 −49.94 (−0.63%)

USD Index 105.28 −0.38 (−0.36%)

Important events for today:
  • – Japan BoJ Interest Rate Decision at 05:00 (GMT+2);
  • – Japan BoJ Rate Statement at 05:00 (GMT+2);
  • – Japan BoJ Press Conference at 07:00 (GMT+2);
  • – UK GDP (m/m) at 09:00 (GMT+2);
  • – UK Industrial Production (m/m) at 09:00 (GMT+2);
  • – UK Manufacturing Production (m/m) at 09:00 (GMT+2);
  • – US Nonfarm Payrolls (m/m) at 15:30 (GMT+2);
  • – US Unemployment Rate (m/m) at 15:30 (GMT+2);
  • – Canada Unemployment Rate (m/m) at 15:30 (GMT+2).

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
10 Mar

Fed hawks won’t be satisfied with cooler February jobs report: deVere CEO

By George Prior

Even a cooler jobs report on Friday is unlikely to stop the Federal Reserve hiking interest rates further on March 22, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The warning from Nigel Green of deVere Group comes as domestic and global financial markets hold their breath for the monthly US jobs report published on Friday 8:30 a.m. ET by the US Bureau of Labor Statistics.

He says: “This jobs report is being closely watched by investors around the world, after January’s gave analysts a massive surprise. It revealed the US economy had added more than half a million jobs and unemployment had fallen to a level not seen in more than five decades.

“All eyes are now on the February jobs data. We expect the US to have added around 225,000 in new jobs last month and the unemployment rate to remain at a 54-year low of 3.4%.

As this represents a cooling of the labor market, will the Fed impose only a quarter-point rate hike on March 22, rather than a half-point one?

“I doubt it,” says the deVere CEO. “Even a cooler jobs report on Friday is unlikely to stop the Federal Reserve hiking interest rates further later this month.

“Fed Chair Jerome Powell has been clear that officials are looking at ‘totality’ of the data. A couple of milder jobs reports won’t cut it for the central bank – especially following January’s bumper gains.  A drop of even 100,000 new jobs would not be enough to satisfy the Fed.

“We would need to have several months of weakening employment in order for the Fed to respond by taking its foot off the gas on rates.

“As such, we expect a half-point rate hike on March 22. Markets are set to tumble as a result.”

Whilst inflation remains a major headwind, Nigel Green says that investors should “remain alive to other metrics” in investment decision-making.

When costs are going up, investors should increasingly be looking at a company’s ability to maintain margin, he notes.

“Investors should be paying close attention to margin because it can indicate how well a company is managing costs and competing in its industry.

“It can also impact a corporation’s ability to invest in growth opportunities or pay dividends to shareholders.”

In a recent media note, the deVere chief said that sectors that can maintain margin, despite inflation and interest rate hikes are likely to include healthcare, luxury goods, energy and agriculture.

“A cooler February jobs report is not going to satisfy the Fed hawks, so investors must expect higher for longer rates and may need to rebalance their portfolios as a result.”

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 offices across the world, over 80,000 clients and $12bn under advisement.

Bonds Economics & Fundamentals Financial News
09 Mar

The Bank of Canada has officially taken a pause. China’s inflation numbers are down sharply

By JustMarkets

Analysts and investors struggled to find a reason to be optimistic about stocks yesterday. Still, stock indices remained under pressure Wednesday amid lingering fears of renewed aggressive rate hikes by the Federal Reserve. The latest labor market data showed that private-sector job gains in February exceeded economists’ estimates, increasing the likelihood that the Fed will be forced to accelerate the rate hikes at its March meeting. The probability of a return to raising rates by 50 basis points at the Fed meeting on March 21-22 rose to 80% compared to 71% the day before. As the stock market closed Wednesday, the Dow Jones Index (US30) decreased by 0.18%, while the S&P 500 Index (US500) added 0.14%. The NASDAQ Technology Index (US100) gained 0.40%.

The Bank of Canada left the interest rate unchanged at 4.5%. This was the first pause among major central banks. But the Bank of Canada reiterated its statement that it is willing to keep raising the interest rate if necessary to get back to its 2% target. But analysts believe this is just a formality, and officials have already hit the pause button for the rest of the year.

Stock markets in Europe were mostly up Wednesday. German DAX (DE30) gained 0.46%, French CAC 40 (FR40) shed by 0.20%, Spanish IBEX 35 (ES35) added 0.67%, and British FTSE 100 (UK100) closed yesterday on the plus side by 0.13%.

The increase in short-term rates in the US influenced the prospects of the European Central Bank. The swap market is showing more confidence (85%) in a 50 basis point rate hike in May, which would raise the deposit rate to 3.50%. Nomura raised its forecast for the ECB, predicting that the final rate will reach 4.25% — with changes of 50 basis points in March, May, and June, followed by a final quarter-point increase in July.

On Wednesday, crude oil prices fell for a second straight day, even as oil inventories fell. Inventories fell by 1.694 million barrels last week, the first weekly drop in inventories since December. The rise in the dollar index on the back of the US Federal Reserve’s aggressiveness outweighs the factors of falling inventories and rising demand from China.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped by 0.48%, China’s FTSE China A50 (CHA50) fell by 0.80%, Hong Kong’s Hang Seng (HK50) ended the day down by 2.35%, India’s NIFTY 50 (IND50) gained 0.24%, and Australia’s S&P/ASX 200 (AU200) ended the day negative by 0.77%.

Japan’s economy is suffering from slowing demand overseas due to worsening global growth, leading to a record trade deficit and the largest output contraction in eight months in January. Japan reported a record trade deficit for January (~3.2 trillion yen, or ~$23.7 billion). Japan’s gross domestic product (GDP) increased by 0.1% year-over-year in the last quarter against a preliminary estimate of 0.6% growth and well below economists’ average forecast of 0.8% growth. In an effort to boost household purchasing power, the government and the Bank of Japan (BOJ) are urging firms to raise workers’ wages at the annual spring wage talks, which conclude this month.

China’s annualized consumer price index fell from 2.1% to 1%, well below the 1.9% forecast. The factory inflation fell to 1.4% on an annualized basis. The data show that despite a rebound in business activity, China’s economic recovery is still in its infancy as the country struggles to recover from three years of strict COVID-19 restrictions.

S&P 500 (F) (US500) 3,992.01 +5.64 (+0.14%)

Dow Jones (US30)32,798.40 −58.06 (−0.18%)

DAX (DE40) 15,631.87 +72.34 (+0.46%)

FTSE 100 (UK100) 7,929.92 +10.44 (+0.13%)

USD Index 105.69 +0.08 (+0.07%)

Important events for today:
  • – Japan GDP (q/q) at 01:50 (GMT+2);
  • – China Consumer Price Index (m/m) at 03:30 (GMT+2);
  • – China Producer Price Index (m/m) at 03:30 (GMT+2);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+2).

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
08 Mar

The US Federal Reserve is back on an aggressive rate hike course. RBA plans to take a pause

By JustMarkets

The stock market fell on Tuesday as hawkish remarks from Federal Reserve Chairman Jerome Powell increased the odds that the Fed will return to an aggressive rate hike course. The main talking points from Powell’s speech yesterday were:

  • The Fed is poised to accelerate rate hikes if economic data comes in strong;
  • The rate hike is likely to be higher than many expect;
  • Further rate hikes are appropriate;
  • Premature easing is undesirable at this point;
  • It is appropriate to hold the rate at an elevated level for some time.

The likelihood of a 50 basis point interest rate hike at the March 21-22 Fed meeting jumped to nearly 70% from 24% the day before. The hawkish statements pushed Treasury yields higher, with 2-year bond yields exceeding 5% for the first time since 2007. The rise in yields led to a sharp rise in the dollar index and a decline in the major indices. At the close of the stock market on Tuesday, the Dow Jones index (US30) decreased by 0.72%, and the S&P 500 index (US500) lost 1.53%. NASDAQ Technology Index (US100) fell by 1.25%.

The prospect of a US rate hike to 6% is becoming quite real. According to BlackRock Inc. and Schroders Plc, given a robust labor market and sustained inflation, there is a real possibility that the Fed will have to bring the federal funds rate to 6% and then hold it at that level for an extended period of time to slow the economy and bring inflation down to nearly 2%. Swap traders now estimate a full percentage point increase in Fed rates over the next four meetings. The Fed’s rhetoric also risks dampening the outlook for emerging market assets.

The OECD’s latest “Canadian Economic Outlook” says that faster growth in living standards will require a stronger business environment to bring Canada’s weak productivity and investment growth in line with the leading economies. As an open economy, Canada will be vulnerable to any sudden slowdown in global demand and to volatility in commodity and financial markets due to the war in Ukraine in the future. The review presents updated GDP growth forecasts of 1.3% for 2023 and 1.5% for 2024. The tight monetary policy last year will help bring inflation down to 2% by the end of 2024.

Stock markets in Europe were mostly down on Tuesday. Germany’s DAX (DE30) decreased by 0.60%, France’s CAC 40 (FR40) fell by 0.46%, Spain’s IBEX 35 (ES35) decreased by 1.07%, and the British FTSE 100 (UK100) closed yesterday down by 0.13%.

The European Central Bank (ECB) is increasingly concerned about the current level of inflation in the single bloc. There is now talk of an additional ECB interest rate hike of 200 basis points in the coming months to combat persistently high price pressures in the eurozone, raising the central bank rate to 4.5%.

Precious metal prices just collapsed yesterday on the back of Powell’s speech to Congress. Gold and silver are inversely correlated to government bond yields. As monetary policy tightens and interest rates rise, government bond yields go up, which puts downward pressure on gold and silver quotes. For the resumption of the uptrend in gold, it is very important that the US Federal Reserve stops tightening monetary policy.

Asian markets traded yesterday without a single trend. Japan’s Nikkei 225 (JP225) gained 0.25%, China’s FTSE China A50 (CHA50) shed by 1.17%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.33%, India’s NIFTY 50 (IND50) did not trade yesterday, while Australian S&P/ASX 200 (AU200) ended the day up by 0.49% gain.

Major Japanese companies are expected to hold the biggest wage hike in 26 years during next week’s wage negotiations, giving policymakers hope that the country will finally emerge from its deflationary stagnation. This will be crucial for the Bank of Japan (BOJ) as to how soon the bank can end its bond yield control policy under new Governor Kazuo Ueda. It will also be a test of Prime Minister Fumio Kishida’s flagship “new capitalism” policy, which aims to distribute wealth more widely to households by inducing firms to raise wages.

The Reserve Bank of Australia is close to pausing the process of tightening monetary policy. The main takeaway from yesterday’s speech by RBA Governor Lowe was:

  • We’ve done a lot in a short period of time;
  • At some point, it will be appropriate to sit still;
  • If the data before the next board suggests a pause, we will do that;
  • We will have a completely open mind at board meetings.

S&P 500 (F) (US500) 3,986.37 −62.05 (−1.53%)

Dow Jones (US30)32,856.46 −574.98 (−1.72%)

DAX (DE40) 15,559.53 −94.05 (−0.60%)

FTSE 100 (UK100) 7,919.48 −10.31 (−0.13%)

USD Index 105.61 +1.26 (+1.20%)

Important events for today:
  • – German Industrial Production (m/m) at 09:00 (GMT+2);
  • – German Retail Sales (m/m) at 09:00 (GMT+2);
  • – Eurozone ECB President Lagarde Speaks at 12:00 (GMT+2);
  • – Eurozone GDP (q/q) at 12:00 (GMT+2);
  • – US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+2);
  • – US Trade Balance (m/m) at 15:30 (GMT+2);
  • – Canada Trade Balance (m/m) at 15:30 (GMT+2);
  • – US Fed Chair Jerome Powell Testifies at 17:00 (GMT+2);
  • – US JOLTs Job Openings (m/m) at 17:00 (GMT+2);
  • – Canada BoC Interest Rate Decision at 17:00 (GMT+2);
  • – Canada BoC Rate Statement at 17:00 (GMT+2);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+2).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

Economics & Fundamentals Financial News
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