InvestMacro

By JustMarkets

The US stock market ended Friday’s trading higher on the back of a dollar Index drop after key data on the US labor market. The non-farm report showed the US economy added 223,000 jobs, higher than the expected 200,000. The unemployment rate fell to 3.5% from 3.7%, while average hourly earnings fell to 4.6% from a revised decline of 4.8%. As the US labor market remains resilient, the Fed can count on further rate hikes to keep inflation in check. The dollar index unexpectedly fell on a strong US labor market report, and this could be a “false” move as a strong labor market, along with further rate hikes, is the foundation for a stronger dollar. At the close of the stock market on Friday, the Dow Jones index (US30) increased by 2.13% (+1.54% for the week), and the S&P 500 index (US500) added 2.28% (+1.72% for the week). The NASDAQ Technology Index (US100) gained 2.56% on Friday (+1.94% for the week). All three indices closed in positive territory last week.

Last week’s FOMC report showed that Fed policymakers increased the final interest rate range, and the non-farm payrolls report showed that the labor market remains resilient. Together, these 2 factors point to further interest rate hikes in the first half of 2023. A key factor will be the inflation data on January 12.

On Sunday in California, hundreds of thousands of homes and businesses were without power due to a severe storm. On Saturday, the NWS Weather Alert warned that the cumulative effect of successive heavy rains since late December could cause rivers to reach record highs and cause flooding in much of central California.

Stock markets in Europe were mostly up Friday. German DAX (DE30) gained 1.20% (+4.41% for the week), French CAC 40 (FR40) added 1.47% (+5.21% for the week), Spanish IBEX 35 (ES35) jumped by 1.00% (+4.78% for the week), British FTSE 100 (UK100) was up 0.87% (+2.49% for the week).

Falling energy prices in the Eurozone (especially natural gas prices) helped weaken the overall inflation rate. The overall inflation rate fell from 10.1% to 9.2% on an annualized basis. Core inflation (which excludes food and energy prices) also fell from 5.1% to 5.0% year over year. But the detailed report indicates that price pressures in non-energy sectors are rising, especially for food. This indicates that inflation is still strong. The next two months will be critical, as many businesses traditionally change prices early in the year.

Consequently, it is possible that core inflation will continue to rise. Consumption remains under pressure, and retail sales have been declining for quite some time, businesses continue to adjust their prices upward. The ECB has taken a very hawkish stance and is likely to keep the pace of rate hikes at 50 bp in February and March.

Asian markets traded mixed last week. Japan’s Nikkei 225 (JP225) decreased by 0.39%, China’s FTSE China A50  CHA50) was up 0.81%, Hong Kong’s Hang Seng (HK50) ended the week up 4.80%, India’s NIFTY 50 (IND50) decreased by 1.34%, and Australia’s S&P/ASX 200 (AU200) ended the week up 1.24% positive.

China on Saturday marked the first day of “Chun Yun,” the 40-day lunar New Year period. This Lunar New Year public holiday, which officially begins on January 21, will be the first since 2020 with no restrictions on domestic travel. Also, on Sunday, China will reopen its border with Hong Kong. China’s Ministry of Transportation expects more than 2 billion passengers to travel over the next 40 days. Investors hope the reopening will eventually revive the economy. Ultimately, it is likely to have an impact on oil prices. Demand for oil in China usually rises every year after the Lunar New Year. The increase in demand is a signal for rising oil prices.

In the commodities market, futures on copper (+2.97%), cotton (+2.76%), gold (+2.43%), and platinum (+1.99%) showed the biggest gains last week. Futures on natural gas (-15.96%), gasoline (-9.05%), Brent oil (-8.51%), WTI oil (-8.14%), wheat (-6.19%), sugar (-5.34%), coffee (-5.29%), corn (-3.72%) and lumber (-2.95%) showed the biggest drop.

S&P 500 (F) (US500) 3,895.08 +66.02  (+1.72%)

Dow Jones (US30) 33,630.61 +509.00 (+1.54%)

DAX (DE40) 14,610.02 +173.71 (+1.20%)

FTSE 100 (UK100) 7,699.49 +66.04 (+0.87%)

USD Index 103.91 -1.13 (-1.08%)

• – Switzerland Unemployment Rate (m/m) at 08:45 (GMT+2);
• – German Industrial Production (m/m) at 09:00 (GMT+2);
• – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+2);
• – Canada Building Permits (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.

By JustMarkets

The US indices declined on Thursday due to rising Treasury yields as preliminary data from ADP continued to point to a robust labor market, fueling fears of aggressive tightening by the Federal Reserve. At the close of the US stock market yesterday, the Dow Jones Index (US30) decreased by 1.02%, and the S&P 500 Index (US500) lost 1.16%. Technology Index NASDAQ (US100) fell by 1.47. By the end of the day, all three indices were negative.

Today, the US will release an important Nonfarm Payroll report. Analysts expect the data to show the number of 200,000 jobs while the unemployment rate will remain unchanged. Such data could return strength to the dollar index, which is negative for stock indices. A worsening labor market data, on the other hand, would indicate that the US Federal Reserve will act more softly, which is negative for the dollar and could be a boost to indices. Currently, the Fed is forecasting an increase in the unemployment rate to about 4.6% from the current 3.7% by the end of 2023.

Equity markets in Europe traded yesterday without a single dynamic. German DAX (DE30) decreased by 0.38%, French CAC 40 (FR40) was 0.22% lower, Spanish IBEX 35 (ES35) added 0.51%, and British FTSE 100 (UK100) closed up by 0.64% on Thursday.

The inflation report will be released in Europe today. The December CPI figure is expected to be 9.7% annualized, down from the current level of 10.1%. But there is some confidence in the markets that there may be a positive surprise in the form of a stronger decline in inflation. Falling inflation indicators tend to be a growth booster for stock indices.

Gold prices fell sharply on Thursday due to a rising dollar index and US government bond yields. Recession risks and expectations of a strong labor market report are forcing investors to buy dollars. Precious metals are inversely correlated to the dollar index, so a decline in gold and silver usually accompanies a rise in the dollar.

Asian indices were mostly on the rise yesterday. Japan’s Nikkei 225 (JP225) gained 0.40%, China’s FTSE China A50 (CHA50) added 2.47%, Hong Kong’s Hang Seng (HK50) jumped by 1.25%, India’s NIFTY 50 (IND50) was down by 0.28% and Australia’s S&P/ASX 200 (AU200) was up by 0.06% on the day.

Tokyo’s main Consumer Price Index rose to 3.8% in December, a new 40-year record. This index is a leading indicator of national inflation trends. Rising inflation increases the likelihood that the Bank of Japan will abandon its soft monetary policy this spring.

S&P 500 (F) (US500) 3,808.10 −44.87 (−1.16%)

Dow Jones (US30) 32,930.08 −339.69 (−1.02%)

DAX (DE40) 14,436.31 −54.47 (−0.38%)

FTSE 100 (UK100) 7,633.45 +48.26 (+0.64%)

USD Index 105.12 +0.87 (+0.84%)

• – Japan Services PMI (m/m) at 02:30 (GMT+2);
• – German Retail Sales (m/m) at 09:00 (GMT+2);
• – Switzerland Retail Sales (m/m) at 09:30 (GMT+2);
• – UK Construction PMI (m/m) at 11:30 (GMT+2);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
• – Eurozone Retail Sales (m/m) at 12:00 (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);
• – Canada Ivey PMI (m/m) at 17:00 (GMT+2);
• – US ISM Services PMI (m/m) at 17:00 (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.

By JustMarkets

At the close of the US stock market yesterday, the Dow Jones Index (US30) increased by 0.40%, and the S&P 500 Index (US500) added 0.75%. The Technology Index NASDAQ (US100) gained 0.69% on Wednesday. All three indices closed the day in positive territory.

The Open Market Committee (FOMC) raised its rate target to a range of 5% to 5.25%. The markets expect the Fed to raise the rate by 0.25% at its next meeting on February 1. The probability of such a scenario is 84%. Goldman Sachs analysts expect three rate hikes of 25 bps in February, March, and May, with a peak funds rate of 5-5.25%.

The ISM Manufacturing Index has long been considered one of the best indicators of the health of the US economy. The December report showed that the manufacturing PMI fell to 48.4 from 49.0. This is the second consecutive month of contraction and the fourth consecutive month below the level of 50. Export orders are down, and new orders are unacceptably low, so there seems little chance of a quick manufacturing recovery.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE30) gained 2.18%, France’s CAC 40 (FR40) added 2.30%, Spain’s IBEX 35 (ES35) jumped by 1.89%, and the British FTSE 100 (UK100) closed up by 0.41% on Wednesday.

Consulting firm KPMG predicts that UK real GDP will contract by 1.3% in 2023. KPMG expects the UK Central Bank to raise the bank rate to 4% during the first quarter of this year before taking a pause. The labor market will begin to deteriorate in the first half of 2023, with the unemployment rate reaching 5.6% by mid-2024, meaning an increase of about 680,000 unemployed people. The jump in food and energy prices and higher overall inflation have already reduced the purchasing power of households.

Switzerland’s annual inflation rate has fallen from 3% to 2.8%. Although the inflation rate has declined, this is the highest inflation rate the country has experienced in decades. From 2008 to 2022, the annual average inflation in Switzerland was between 0.6 and 0.7%.

Global growth problems, along with growing COVID-19 problems in China (the biggest oil importer), have caused the price of “black gold” to fall by another 5%. In addition, leading oil exporter Saudi Arabia may further reduce the price of its flagship Arab Light crude to Asia. The US WTI crude decreased by 5.3% to $72.84 a barrel. British benchmark Brent Crude fell by 5.2% to $77.84 a barrel. The total decline in quotes was almost 10% during the last two days. Considering the fact that China increased export quotas for oil products in the first batch for 2023, which indicates the expectations of low domestic demand, oil quotes may fall even more.

Asian indices traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.45%, China’s FTSE China A50 (CHA50) gained 0.25%, Hong Kong’s Hang Seng (HK50) ended the day up 3.22%, India’s NIFTY 50 (IND50) decreased by 1.04%, and Australia’s S&P/ASX 200 (AU200) ended Wednesday with a 1.63% gain.

The World Health Organization (WHO) criticized China’s definition of COVID-19 deaths and warned that official statistics do not show the true impact of the outbreak. China’s eagerness to move away from a zero-COVID policy is also alarming in the financial markets. Data on Tuesday showed that manufacturing activity in China contracted for the fifth straight month in December.

S&P 500 (F) (US500) 3,852.97 +28.83  (+0.75%)

Dow Jones (US30) 33,269.77 +133.40 (+0.40%)

DAX (DE40) 14,490.78 +309.11 (+2.18%)

FTSE 100 (UK100) 7,585.19 +31.10 (+0.41%)

USD Index 104.24 −0.28 (−0.27%)

• – China Caixin Services PMI (m/m) at 03:45 (GMT+2);
• – UK Services PMI (m/m) at 11:30 (GMT+2);
• – Italian Consumer Price Index (m/m) at 12:00 (GMT+2);
• – US ADP Non-Farm Employment Change (m/m) at 15:15 (GMT+2);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+2);
• – US Crude Oil Reserves (w/w) at 18:00 (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.

“The Federal Reserve is forging ahead with its balance sheet reduction”

By Elliott Wave International

I know — inflation has been grabbing all the headlines for a good while now — so you may wonder why the subject of deflation is relevant.

First, the definitions of inflation and deflation go beyond commonly accepted meanings.

As Robert Prechter’s Last Chance to Conquer the Crash says:

Inflation is an increase in the total amount of money and credit, and deflation is a decrease in the total amount of money and credit. …

The most common misunderstanding about inflation and deflation … is the idea that inflation is rising prices and deflation is falling prices. General price changes, though, are simply effects.

That said, let’s start off with an occurrence which is quite rare. Here’s a chart and commentary from the December Elliott Wave Theorist, a monthly publication which covers major financial and cultural trends:

The chart, published by the Fed, shows that absolute M2 has been declining on a month-by-month basis for the first time in many decades, probably since the 1930s or 1940s. This trend is deflationary.

Keep in mind that M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers’ checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds.

Another factor regarding deflation has to do with the Fed.

The November Global Forecast Service, an Elliott Wave International publication which analyzes 50-plus worldwide financial markets, showed this chart and noted:

The Federal Reserve is forging ahead with its balance sheet reduction, as the chart shows. This reduction in the central bank’s assets which were paid for by money created out of thin air constitutes disinflation, and deflation (when the balance sheet is contracting on an annualized basis) will likely come by the end of the year.

So, now you see why deflation is very much on the radar screen of Elliott Wave International’s Global Forecast Service, which can help you to prepare for what may be next.

Understanding the Elliott wave price patterns of global stock market indexes can also be of help in anticipating what’s next for major economies around the globe.

You see, the economy tends to follow the stock market, in each country.

Getting back to the Wave Principle, here are some insights from Frost & Prechter’s book, Elliott Wave Principle: Key to Market Behavior:

The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.

The market’s progression unfolds in waves. Waves are patterns of directional movement.

Would you like to read the entire online version of this Wall Street classic — for free?

You may do so once you become a member of Club EWI, the world’s largest Elliott wave educational community.

A Club EWI membership is also free (no obligations whatsoever) and allows for complimentary access to a wealth of Elliott wave resources on investing and trading.

So, get started now by following this link: Elliott Wave Principle: Key to Market Behavior.

By JustMarkets

As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 0.04%, and the S&P 500 Index (US500) fell by 0.41%. The Technology Index NASDAQ (US100) lost 0.76% on Tuesday. At the end of the day, all three indices closed with losses.

Apple (AAPL) lost more than 4%, approaching a $2 trillion market value for the first time since 2021. Shares of electric carmaker Tesla Inc (TSLA) fell more than 13% Tuesday after the company reported lower-than-expected deliveries for the quarter and year.

The US stocks ended 2022 with their worst performance since 2008, as interest rates rose throughout the year, putting pressure on once-high growth rates and shares of large tech companies.

In the United States, this week’s focus will be on Friday’s US Nonfarm Payrolls report for December. The jobs report is crucial as the Federal Reserve faces the dilemma of whether to continue tightening monetary policy to bring inflation to desired levels or to abandon aggressive rate hikes to protect the economy from slowing. Higher inflation and rising interest rates have hit the housing sector and could next hit the labor market.

The FOMC minutes will also be released today. Given Powell’s hawkish tone after the last meeting and the general market expectation that the Fed will now level rates, there is speculation that the minutes may be more dovish this time. The market is currently pricing in a final rate below 5.0%, while the Fed is pushing for a final rate above 5.0%.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE30) gained 0.80%, France’s CAC 40 (FR40) added 0.44%, Spain’s IBEX 35 (ES35) jumped by 0.42%, Britain’s FTSE 100 (UK100) closed Tuesday in plus 1.37%.

European Central Bank Governing Council spokesman Martins Kazaks expects interest rates to rise significantly in February and March 2023. We are talking about a 0.5% ECB rate hike at each of the meetings. Kazaks, who heads Latvia’s Central Bank, is considered one of the hawkish officials.

Oil starts in 2023 with declining 4%. The US West Texas Intermediate (WTI) crude for February delivery fell by 4.1% to $76.93 a barrel. Brent Crude oil of British origin for delivery in February dropped by 4.4% to $82.10 per barrel. Decreasing activity at factories in China (the biggest oil importer) and IMF warnings about global recession put pressure on oil quotes. The outlook for crude oil remains very uncertain, so high volatility will persist.

Gold showed a strong start in the new year as concerns about an impending recession and a potential slowdown in US interest rates led to increased demand for safe-haven assets other than the dollar.

Asian indices traded flat yesterday. Japan’s Nikkei 225 (JP225) did not trade yesterday, China’s FTSE China A50 (CHA50) fell by 0.69%, Hong Kong’s Hang Seng (HK50) ended the day up by 1.84%, India’s NIFTY 50 (IND50) added 0.19%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday with a minus 1.31%.

China’s repeal of strict antivirus controls last month caused COVID-19 to spread to 1.4 billion people. Funeral companies are reporting a surge in demand for their services, and international health experts are predicting that at least a million people in China will die from COVID-19 this year. But officially, China reports few COVID-19 deaths and downplays concerns about the disease.

S&P 500 (F) (US500) 3,823.95 −15.55 (−0.41%)

Dow Jones (US30) 33,134.79 −12.46 (−0.038%)

DAX (DE40) 14,181.67 +112.41 (+0.80%)

FTSE 100 (UK100) 7,554.09 +102.35 (+1.37%)

USD Index 104.61 +1.09 (+1.05%)

• – Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
• – Switzerland Consumer Price index (m/m) at 09:30 (GMT+2);
• – French Consumer Price index (m/m) at 09:45 (GMT+2);
• – Spanish Services PMI (m/m) at 10:00 (GMT+2);
• – Italian Services PMI (m/m) at 10:45 (GMT+2);
• – French Services PMI (m/m) at 10:50 (GMT+2);
• – Germany Services PMI (m/m) at 10:55 (GMT+2);
• – Eurozone Services PMI (m/m) at 11:00 (GMT+2);
• – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+2);
• – US JOLTs Job Openings (m/m) at 17:00 (GMT+2);
• – US FOMC minutes at 21:00 (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.

By JustMarkets

The shadow of a Santa Claus rally has returned to the markets. At the close of the stock market on Thursday, the Dow Jones (US30) increased by 1.05%, and the S&P 500 (US500) added 1.75%. Technology Index NASDAQ (US100) jumped by 2.39%.

According to the US Department of Labor, the number of Americans filing for unemployment insurance rose in line with expectations last week. Seasonally adjusted initial jobless claims for the week rose from 216,000 to 225,000.

Stock markets in Europe were mostly up yesterday. Germany’s DAX (DE30) gained 1.05%, France’s CAC 40 (FR40) added 0.97%, Spain’s IBEX 35 (ES35) closed up by 0.68%, and Britain’s FTSE 100 (UK100) gained 0.22%.

The European Union’s Health Safety Committee called for joint action on a potential spike in COVID-19 cases as China begins to lift its long-standing strict restrictions on the pandemic. The statement came after the US and Italy on Wednesday joined a list of countries, including Japan, India, South Korea, and Taiwan, requiring confirmation of negative COVID tests for arriving air passengers from China. Shares of German Deutsche Lufthansa (LHAG), as well as other airlines Air France KLM (AIRF) and International Consolidated Airlines Group (ICAG), fell sharply on the trading day.

Inflation data will be released today in Spain. Annualized consumer prices are expected to fall from 6.8% to 6.1%. Spain is one of the few European countries that have seen a monthly and gradual decline in inflationary pressures.

China’s loosening of the Covid Zero policy has led to a significant increase in oil prices over the past few weeks, but the recent rise in cases has raised concerns worldwide. There are fears that Covid could start to spread again, as some countries are already announcing special requirements for Chinese travelers. In addition, crude oil inventories increased by 700 thousand barrels last week, which put further pressure on oil prices yesterday.

Asian indices were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.94%, China’s FTSE China A50 (CHA50) fell by 0.68%, India’s NIFTY 50 (IND50) gained 0.38%, Hong Kong’s Hang Seng (HK50) decreased by 0.79%, and S&P/ASX 200 (AU200) closed down by 0.94%.

The Bank of Japan announced two additional rounds of unscheduled bond purchases, suggesting that measures aimed at doubling the yield cap on government bonds are leading to continued stimulus rather than a change in the trajectory of monetary policy. On the other hand, a broader and more frequent Bank of Japan presence in the market risks damaging liquidity and further distorting the yield curve. Analysts believe that control of the yield curve is approaching its limit, but the central bank does not acknowledge this.

Hong Kong’s exports fell to their lowest levels in nearly seven decades in November as China’s economic slowdown and global demand worsened. Shipments overseas last month fell by 24.1% from a year earlier. Imports fell by 20.3% in November from a year earlier, the biggest drop since 2009.

S&P 500 (F) (US500) 3,849.32 +66.10 (+1.75%)

Dow Jones (US30) 33,220.87 +345.16 (+1.05%)

DAX (DE40) 14,071.72 146.12 (+1.05%)

FTSE 100 (UK100) 7,512.72 +15.53 (+0.21%)

USD Index 103.89 -0.57 (-0.55%)

• – Switzerland KOF Leading Indicators (m/m) at 10:00 (GMT+2);
• – Spanish Consumer Price Index (m/m) at 10:00 (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.