InvestMacro

By ForexTime

Some of the world’s largest central banks are about to make their final rate decisions of the year, while offering their updated policy outlooks for 2023.

Throw into that mix: the latest inflation data out of major economies such as the US and the UK.

All that could make for some spicy market action, with FX pairs involving the US dollar, euro, and the British Pound perhaps feeling the burn going into 2023.

Here’s a list of the main economic data releases and events that could rock markets next week:

Monday, December 12

• JPY: Japan November PPI
• GBP: UK October monthly GDP, industrial production, manufacturing production

Tuesday, December 13

• AUD: Australia November household spending, December consumer confidence
• EUR: Germany November CPI (final print), December ZEW survey expectations
• GBP: UK October unemployment rate, November jobless claims
• USD: US November CPI – consumer price index

Wednesday, December 14

• GBP: UK November CPI
• EUR: Eurozone October industrial production
• USD: Fed rate decision
• Crude: EIA weekly oil inventories

Thursday, December 15

• NZD: New Zealand Q3 GDP
• AUD: Australia November unemployment, December inflation expectations
• CNH: China medium-term lending rate; November industrial production, retail sales, jobless rate
• CHF: Swiss National Bank rate decision
• NOK: Norway’s Norges Bank rate decision
• GBP: Bank of England rate decision
• EUR: European Central Bank rate decision
• USD: US weekly initial jobless claims, November retail sales, industrial production

Friday, December 16

• AUD: Australia December PMIs
• GBP: UK November retail sales; December PMIs and consumer confidence
• S&P 500: ‘Triple witching day’ for US markets
• USD: Deadline for avoiding US government shutdown

Markets are widely expecting a 50-bps hike respectively by the US Federal Reserve, the European Central Bank, and the Bank of England.

Anything other than a 50bps hike would be a surprise for markets, and likely translating into shock moves for USD, EUR, and/or GBP currency pairs.

A 50bps adjustment would also mark a “downshift” for these big 3 central banks, who had each hiked by 75bps at their previous meetings.

Focus on the Fed

As always, the Fed remains front and centre, given that it’s the most influential central bank in the world.

Consider how the rest of the FX world has found some relief from the US dollar’s declines over the past couple of months.

That’s largely due to markets becoming increasingly hopeful the eventual “downshift” (opting for smaller-sized rate hikes) by the Fed.

Such expectations have halved the benchmark US Dollar index’s year-to-date gains, from as much as 20% now down to 9.3% at the time of writing.

Watch what central bankers say and do

Markets are ready to react not just to what these central banks will do to their respective benchmark rates next week, but also to what each of these central banks say about their intentions on rate adjustments in 2023.

These policy outlooks will of course be informed by the latest figures on inflation, which we know is enemy #1 for these central bankers.

READ MORE: Why FX markets react to central banks? (September 22nd article)

Hence, if we do see a higher-than-7.3% US CPI print next week, that should pave the way for the Fed to keep hiking its benchmark rates for longer.

Such a narrative could fuel a rebound for the US dollar, especially if Fed Chair Jerome Powell can convince markets once more of the central bank’s ultra-hawkish intentions.

Yet, we note that such a rebound for the greenback may prove limited and fleeting.

Looking back at the earlier DXY chart, the dollar’s rebound may be capped once more at its 200-day simple moving average (SMA).

From a fundamental perspective, the dollar’s rebound may run out of steam especially if markets persist with hopes on the eventual Fed “pivot”, despite what Powell may say to the contrary.

Brace for potentially imminent volatility

Overall, it remains to be seen which central bank can sound the most hawkish (intend to send its own benchmark rate higher) between the Fed, ECB, or the BOE.

And it’s the currency of that more-hawkish central bank that may outperform next week, and through year-end.

Article by ForexTime

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

By JustMarkets

The US indices rose on Thursday amid a technology sector recovery, despite rising Treasury bond yields. By Thursday’s close, the Dow Jones Index (US30) increased by 0.55%, and the S&P 500 Index (US500) added 0.75%. The technology index NASDAQ (US100) gained 1.13% yesterday. All three indices closed on the plus side.

Initial jobless claims jumped to the highest level since February, an indication that unemployed people need more time to find work. These are the first signs that the labor market is beginning to “cool down,” which in turn will influence the Fed’s monetary policy to slow the pace of rate hikes. The end of the tightening cycle is close. The steep inversion of the Treasury yield curve is a harbinger of recession, which also raises the possibility that the US Federal Reserve will soon take a pause.

Equity markets in Europe traded yesterday without a single trend. German DAX (DE30) gained 0.02%, French CAC 40 (FR 40) declined by 0.20%, Spanish IBEX 35 (ES35) declined by 0.79%, and British FTSE 100 (UK100) closed on Thursday down by 0.23%.

According to analysts, after underestimating the structural uptrend in inflation that began in 2017 amid an emerging labor shortage, the ECB now appears to be overestimating inflationary pressures. The slight decline in euro area inflation to 10% in November from 10.6% in October, largely due to lower oil prices, suggests that the worst of the inflation-induced shocks may be coming soon. So a 50 basis point rate hike on December 15 to 2.5% on the main refinancing rate makes sense. But it does not make sense to keep raising rates in 2023 because the winter recession in Europe will be disinflationary. Falling private consumption will play a big role in this downturn. Germany’s 2.8% monthly drop in retail sales in October may be a harbinger of recession.

Crude oil prices hit a near-one-year low on Thursday. Oil prices will continue to fall as President Vladimir Putin’s administration shows no serious signs of responding to the price cap, leading traders to believe that oil prices will eventually trade close to the $ 60-a-barrel limit.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.40%, Hong Kong’s Hang Seng (HK50) ended the day up by 3.38%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.75%.

According to the National Bureau of Statistics of China, the Producer Price Index (PPI) remained unchanged compared to the previous month. November’s Consumer Price Index (CPI) fell to 1.6% year-on-year from 2.1%. This data suggests that economic growth continues to weaken. Growth in the world’s second-largest economy has slowed this year, largely under the influence of uncompromising COVID-19 restrictions.

Australia’s economy is likely to slow in the second half of 2023. Analysts project the Australian economy to contract from 2.6% in 2022 to 1.0% in 2023. Household consumption is projected to decline from about 2% in the first half of 2023 to nearly zero in the second half. Inflation will be 3% lower in 2024 than the RBA’s current forecast of 3.25%, allowing the RBA to cut rates by about 100 basis points in late 2023 and early 2024. The sharp slowdown in economic growth in 2023 will be due in part to the RBA continuing to raise interest rates in the first half of 2023 as wage growth and inflation remain high.

S&P 500 (F) (US500) 3,963.51 +29.59 (+0.75%)

Dow Jones (US30) 33,781.48 +183.56 (+0.55%)

DAX (DE40) 14,264.56 +3.37 (+0.024%)

FTSE 100 (UK100) 7,472.17 −17.02 (−0.23%)

USD Index 104.81 -0.29 (-0.28%)

• – China Consumer Price Index (m/m) at 03:30 (GMT+3);
• – China Producer Price Index (m/m) at 03:30 (GMT+3);
• – US Producer Price Index (m/m) at 15:30 (GMT+3);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

By JustMarkets

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

By Liam Collins, United States Military Academy West Point 

With Russian troops digging trenches to prepare for an expected winter standoff, it would be easy to conclude that fighting will slow in Ukraine until after the ground thaws in the spring.

But evidence from the Ukrainian battlefields point to a different trajectory.

As a career U.S. special forces officer who conducted field research on the 2008 and 2014 wars in Georgia and Ukraine, it is my view that this war has demonstrated that only one side, the Ukrainians, can execute effective combat maneuvers. I believe that the Ukrainians will attempt to launch a large-scale counteroffensive in late winter when the ground is still frozen.

Winter’s impact on war

Historically, the pace of fighting does slow in the winter.

Weapons and other equipment can freeze up in extreme cold, and it’s much more difficult to shoot a weapon while wearing thick gloves.

Shorter days are a factor. Despite technological advances, most of the fighting during this war has occurred during the day.

But this winter may be different for the Ukrainian military.

First, Ukrainian winters are not nearly as cold and snowy as many believe.

Donetsk, for example, has an average temperature of nearly 25 degrees Fahrenheit (-4 degrees Celsius) in January and February.

Its snowiest month, January, averages only 4.9 inches of snow, or .12 meters. Both January and February average just as many rainy days as snowy days – roughly two days of each.

A brief history of Russian attack

Since the invasion began in February 2022, Russia made most of its gains in the first month of the war when it seized Kherson, surrounded Mariupol, and was on the doorsteps of Kyiv and Kharkiv.

But Russia soon gave up on Kyiv and withdrew all its forces from the north.

Failing to achieve quick victory, Russia instead settled on making incremental gains in the east and south. Over the next five months, Russia captured Mariupol, but little else of tactical or strategic value.

During this time, Ukraine built up its combat power with new weaponry from the West and planned a large counteroffensive, which it initiated on Aug. 28, 2022.

In the first week of the counteroffensive, Ukraine liberated more territory than Russia had captured in the previous five months.

The success of the counteroffensive showed that Ukraine’s military was superior to Russia’s in every category with the exception of size. It had better doctrine, leaders, strategy, culture and will – and it had just proved that it could effectively fight battles with a combination of artillery, tanks, soldiers and air attacks.

By Sept. 12, 2022, Ukraine had liberated much of Kharkiv Oblast as Russian troops routinely fled from their positions.

After liberating the entirety of Kharkiv Oblast in early October 2022, Ukraine turned its attention to Kherson in the south. This was a different fight, and in some ways Ukraine’s military followed Chinese military strategist Sun Tzu’s axiom of “winning without fighting.”

The Ukrainians were able to conquer much of the territory without using many troops on the ground.

Instead, Ukraine used long-range rockets supplied by the U.S. and NATO allies to bombard Russian bases and supply lines that were previously unreachable. These attacks left Russian forces west of the Dnipro River in an untenable position.

Realizing this, Russia shockingly announced on Nov. 9, 2022, that it was withdrawing from Kherson. Two days later, Russia had completed its withdrawal from the west bank of the river.

What to expect from Russia

Over the course of the war, Russia has demonstrated little ability to conduct effective combat operations. This is not something that Russia can change overnight or over the course of the winter.

Russia’s best forces have been decimated throughout the conflict, and it is now increasingly relying on untrained conscripts.

Likewise, Russia is exhausting much of its weaponry as international sanctions against them are limiting Russia’s wartime production. Aside from Iran, few nations are providing military aid to Russia.

Russia’s military is now less trained, has lower morale, and has significantly fewer weapons and less ammunition than it had at the beginning of the current war.

As a result, Russia lacks the ability to conduct large-scale attacks, and it is left with little option but to continue what it has been doing: conducting missile strikes against targets that are either defenseless or offer little strategic value.

Limiting Russia’s options further, these strikes have been less effective as the war has progressed.

Early in the war, most of Russia’s missiles made it through Ukraine’s limited air defenses. With the help of western air defense systems, Ukraine was shooting down 50% of Russian missiles in October and is now intercepting over 80% of them.

Winter should not affect these types of combat operations.

But snow will have an impact on Russia’s already stressed and underperforming logistical system, and the cold will further lower – if that is possible – the already low morale of Russia’s poorly outfitted and undertrained soldiers.

What to expect from Ukraine

As the smaller military, Ukraine cannot afford to take heavy losses.

Thus far, it has used a strategy of defending territory when it could, retreating when it should to preserve combat power, and attacking when the opportunities have presented themselves.

Ukraine effectively employed this strategy to defend Kyiv in the first month of the war and during the September 2022 counteroffensive to reclaim the Kharkiv and Kherson oblasts.

An important question must be asked. Why did it take six months for Ukraine to launch its counteroffensive?

One reason is that Ukraine had to wait several months for promised Western aid to arrive at its bases. In my view, a significant factor is the lengthy amount of time it takes to plan large counteroffensives and to position supplies, equipment and forces.

The fact that Ukraine conducted the counterattacks in succession suggests that Ukraine lacks the combat power to conduct two large-scale counterattacks at the same time.

Ukraine is going to need time to regroup, refit and plan for its next large-scale operation.

Thus, it seems reasonable that Ukraine will have to wait at least 30 to 45 days – maybe more – before it is ready to execute its next counteroffensive, which would be in the heart of winter.

While conducting an attack in winter may be difficult, off-road movement in the spring could become impossible, as the Russians discovered during their initial invasion in muddy and wet terrain.

It seems reasonable to conclude that Ukraine may wish to initiate its next counteroffensive while the ground is still frozen – and Russian troop morale is at its lowest point since the invasion.

About the Author:

Liam Collins, Founding Director, Modern War Institute, United States Military Academy West Point

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

Source: Streetwise Reports  (12/5/22)

With inflation on the rise, investor attention has shifted to more tangible assets such as zinc-lead. With a positive relationship with locals and good ESG, Slave Lake Zinc Corp. may be one company you want to add to your radar.

Slave Lake’s name comes from the lake itself, and the company’s large claim lies somewhat south of this eponymous feature of the northern Canadian landscape.

The claim is in an area briefly mined for lead and zinc at the end of the second world war, but the owners at the time halted production after the market for the metals cratered in the 1950s.

American Yellowknife Mines, which operated the mine then, identified 67,950 tons grading 7.64% Zinc, 3.12% lead, 0.13% copper, and 8.22 grams per tonne (8.22 g/pt) silver near the Shaft Zone, an area that includes a headframe and underground drifting of over 400 meters into various smaller pits.

This zone includes drilling down to 200 meters, with complete mineralization found the whole way down. Samples from the pits contained 10% to 27% zinc plus lead. The existing 55-meter deep three-compartment shaft has a drift station at 45 meters providing access to a seam assayed at 55% lead, 13.5% zinc, and 84.4 g/t silver.

The Catalyst: Zinc Growing in Popularity

Unlike in the 1950s, zinc is now a money metal. It’s used to make pennies, is an important element of nutrition, and is a prime candidate to replace lithium in batteries as part of the green revolution.

Technical analyst Clive Maund opined that “with the company looking set to move forward, the move looks like the beginning of a new uptrend following the tedious downtrend from the highs of last April, and it is viewed as a speculative Buy here.”

Of course, these uses are all somewhat niche compared to the metal’s primary industrial use in the galvanization process. Zinc is important enough that governments in both the U.S. and Canada designate it as a critical material.

Currently, Slave Lake is fully permitted with a has a Type A Land Use permit and Type B Water license to have a 49-person, 3-drill operation to begin with, which allows it to move forward immediately, further de-risking the company’s plans moving forward. Funding-dependent, the company could potentially start drilling tomorrow.

However, as it stands, Slave Lake Zinc Corp. is not producing any materials for sale.

Instead, the company is continuing to expand its claim as it does further geological work to map out the footprint of a large, high-quality hydrothermal formation.

“At this stage, we are highly focused on diminishing risk,” explained Slave Lake Zinc Corp.’s CEO, Ritch Wigham. He’s recently overseen the company’s expansion from a 600-acre claim to one that’s over 18,000 acres or 76.25 sqkm and has been busy acquiring permits and developing a strong “right of first refusal” working relationship with members of the local community.

Positive Relationships and ESG

Slave Lake Zinc Corp. is one of only two companies that have successfully negotiated the multi-year, international process required to allow tribal lands in Canada to revert to Crown ownership and be claimed by commercial producers.

“We can confirm that Slave Lake Zinc and the NWTMN have a positive working relationship, as provided for in the Collaboration Agreement between the NWTMN and Slave Lake Zinc,” explained Dr. Ronald Yaworsky of KHL Consulting, speaking on behalf of the nation itself. “Slave Lake Zinc has been respectful and proactive in [its] engagement

In addition to the considerable goodwill and rich in-ground reserves he has ferreted out, Wigham says the claim’s close proximity (about 37 miles) to the Taltson hydroelectric plant will allow for an ESG-forward, hydrocarbon-free operation once the mine is up and running.

Wigham’s strategy is to continue building the claim’s value by mitigating the risks any processor would face when taking on the site and ramping up to full production.

As it currently stands, Slave Lake Zinc Corp. is a basic buy-and-hold play for those interested in buying unexploited base metal reserves to hedge against either inflation or an equities market downturn. The company plans to start a comprehensive drilling program early next year to quantify in-ground reserves better and explore claim expansion opportunities.

On November 9, 2022, technical analyst Clive Maund opined that “with the company looking set to move forward, the move [up on Nov 8th, 2022] looks like the beginning of a new uptrend following the tedious downtrend from the highs of last April, and it is viewed as a speculative Buy here, and especially on any near-term dips.”

Ownership, Coverage, and Share Structure

Company management owns approximately 20.8 million shares — 40% of outstanding shares, or 27% on a fully diluted basis. There are no institutional investors on record, and all of the outstanding stock is retail except for the CA$150,000.00 balance of the debenture outstanding.

Technical analyst Clive Maund of Clivemaund.com follows this stock. Click See More Live Data” to view more of what he is saying.

The company has roughly CA$300,000 in the bank and is burning CA$25,000/month at current operating levels.

Slave Lake also has 6,652,000 options in the CA$0.10 to CA$0.15 price range expiring between Feb 22, 2023, and Nov 7, 2024, as well as 16,095,000 warrants ranging from CA$0.15 to CA$0.18 expiring between March 25, 2023, and Feb 18, 2025.

An additional CA$150,000 in CA$0.08 convertible debenture financing adds another 1,875,000 potential claims. The total outstanding fully diluted share count is 76,131,500.

Slave Lake Zinc Corp. has a market cap of around US$3.153 million, with 51,509,500 shares outstanding, and it trades in the 52-week range of US$0.0115 and US$0.1429.

Disclosures:
1) Owen Ferguson wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Slave Lake Zinc Corp. Please click here for more information.

3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.

4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Slave Lake Zinc Corp., a company mentioned in this article.

By JustMarkets

Instead of a Santa Claus rally, the US stock indices have been under selling pressure in recent days. As the stock market closed Tuesday, the Dow Jones Index (US30) decreased by 1.03%, and the S&P 500 Index (US500) lost 1.44%. The technology Index NASDAQ (US100) was down by 2.00% yesterday. All three indices closed negative.

After strong jobs and services data in recent days, traders and investors are reassessing the risks and probabilities of how the Fed will act next and how much it will raise rates in the future. Analysts point to a 91% chance that the US central bank could raise rates by 50 basis points at its December 13-14 meeting, with rates expected to peak at 4.98% in May 2023. Concerns about lower economic growth come amid disappointing forecasts from banks such as Bank of America, J.P. Morgan, and BlackRock, which predict a recession in 2023.

The CEO of Bank of America Corp (BAC) predicted moderate negative growth for three-quarters of next year, while JPMorgan Chase (JPM) Governor Jamie Dimon said inflation would reduce consumer purchasing power and that inflation will be moderate or more pronounced. That said, there is a recession ahead of everyone. Analysts at BlackRock (BLK) believe an aggressive tightening of monetary policy by the US Federal Reserve to combat stubbornly high price increases could trigger an economic slowdown in 2023.

Shares of Meta Platforms Inc (META) fell by 6.8% yesterday after reports that European Union regulators ruled that the company should not require users to consent to personalized advertising based on their digital activity.

Stock markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.72%, French CAC 40 (FR40) lost 0.14%, Spanish IBEX 35 (ES35) fell by 0.46%, and British FTSE 100 (UK100) closed on Tuesday down by 0.61%.

The UK Construction Business Activity Index fell to a three-month low. Business expectations were the weakest since May 2020. Rising interest rates, higher borrowing costs, and worries about the economic outlook reduced construction activity. The UK economic outlook remains bleak, but the new government is doing everything it can to cushion the falling economy. Analysts believe that economic indicators will decline until spring-summer 2023, after which they will reach a low point and then begin a slow recovery.

The Eurozone will have revised GDP data today. Growth in the region has slowed in recent months due to high energy costs and rising interest rates, and this trend is likely to continue until the end of the first quarter of 2023. On the other hand, the imposition of a ceiling on Russian oil, which went into effect on Monday, may soon begin to show its impact on Europe’s energy market in the direction of lower prices.

Europe’s energy market in the direction of lower prices. Tuesday’s drop was the biggest daily drop in oil prices since late September. Russia has said it will not sell oil to anyone who signs up to a price ceiling. Oil markets are likely to remain volatile in the near term due to news about COVID in China and the policies of the US and European central banks.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) gained 0.24%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.40%, and Australia’s S&P/ASX 200 (AU200) fell by 0.47%.

Major Chinese cities have already loosened some travel restrictions and testing requirements in the face of a pronounced economic slowdown. Data released earlier Wednesday showed that the country’s foreign trade is in its worst condition since 2020.

Bank of Japan Governor Kuroda stated that the Bank of Japan is aiming for a steady and stable inflation target of 2%, accompanied by wage growth. Japan’s largest labor union decided last week to call for a wage increase of about 5% next spring, the highest demand in 28 years. The move indicates that Japan intends to fight rising prices by regulating wage levels rather than by changing monetary policy.

Australia’s GDP grew just 0.6% in the third quarter, below the previous figure of 0.9% and below the expected 0.7%. On the one hand, this is the fourth consecutive quarter of positive growth; on the other hand, it is the weakest over the past year. Annual GDP rose by 5.9% but below the 6.2% forecast. According to RBA forecasts, GDP is expected to continue to decline through 2024.

S&P 500 (F) (US500) 3,941.26 −57.58 (−1.44%)

Dow Jones (US30) 33,596.34 −350.76 (−1.03%)

DAX (DE40) 14,343.19 −104.42 (−0.72%)

FTSE 100 (UK100) 7,521.39 −46.15 (−0.61%)

USD Index 105.58 +0.29 (+0.28%)

• – Australia GDP (q/q) at 02:30 (GMT+3);
• – China Trade Balance (m/m) at 05:00 (GMT+3);
• – Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
• – German Industrial Production (m/m) at 09:00 (GMT+3);
• – Eurozone GDP (q/q) at 12:00 (GMT+3);
• – Canada BoC Interest Rate Decision at 17:00 (GMT+3);
• – Canada BoC Rate Statement at 17:00 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustMarkets

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

By ForexTime 

Article by ForexTime

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

By Edouard Wemy, Clark University 

In any other time, the jobs news that came down on Dec. 2, 2022, would be reason for cheer.

The U.S. added 263,000 nonfarm jobs in November, leaving the unemployment rate at a low 3.7%. Moreover, wages are up – with average hourly pay jumping 5.1% compared with a year earlier.

So why am I not celebrating? Oh, yes: inflation.

The rosy employment figures come despite repeated efforts by the Federal Reserve to tame the job market and the wider economy in general in its fight against the worst inflation in decades. The Fed has now increased the base interest rate six times in 2022, going from a historic low of about zero to a range of 3.75% to 4% today. Another hike is expected on Dec. 13. Yet inflation remains stubbornly high, and currently sits at an annual rate of 7.7%.

The economic rationale behind hiking rates is that it increases the cost of doing business for companies. This in turn acts as brake on the economy, which should cool inflation.

But that doesn’t appear to be happening. A closer dive into November’s jobs report reveals why.

It shows that the labor force participation rate – how many working-age Americans have a job or are seeking one – is stuck at just over 62.1%. As the report notes, that figure is “little changed” in November and has shown “little net change since early this year.” In fact, it is down 1.3 percentage points from pre-COVID-19 pandemic levels.

This suggests that the heating up of the labor market is being driven by supply-side issues. That is, there aren’t enough people to fill the jobs being advertised.

Companies still want to hire – as the above-expected job gains indicate. But with fewer people actively looking for work in the U.S., companies are having to go the extra yard to be attractive to job seekers. And that means offering higher wages. And higher wages – they were up 5.1% in November from a year earlier – contribute to spiraling inflation.

This puts the Fed in a very difficult position. Simply put, there is not an awful lot it can do about supply-side issues in the labor market. The main monetary tool it has to affect jobs is rate hikes, which make it more costly to do business, which should have an impact on hiring. But that only affects the demand side – that is, employers and recruitment policies.

So where does this leave the possibility of further rate hikes? Viewing this as an economist, it suggests that the Fed might be eyeing a base rate jump of more than 75 basis points on Dec. 13, rather than a softening of its policies as Chair Jerome Powell had suggested as recently as Nov. 30. Yes, this still would not ease the labor supply problem that is encouraging wage growth, but it might serve to cool the wider economy nonetheless.

The problem is, this would increase the chances of also pushing the U.S. economy into a recession – and it could be a pretty nasty recession.

Wage growth still trails behind inflation, and for one reason or another people have been opting out of the labor market. The logical assumption to make is that to make up for both these factors, American families have been dipping into their savings.

Statistics back this up. The personal saving rate – that is, the chunk of income left after paying taxes and spending money – has fallen steeply, down to 2.3% in December from 9.3% before the pandemic. In fact, it is at its lowest rate since 2005.

So, yes, employment is robust. But the money being earned is eroded by soaring inflation. Meanwhile, the safety net of savings that families might need is getting smaller.

In short, people are not prepared for the recession that might be lurking around the corner.

And this is why I am gloomy.

About the Author:

Edouard Wemy, Assistant Professor of Economics, Clark University

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

By JustMarkets

Fed Chairman Jerome Powell said last week that it might be time to slow rate hikes, raising hopes that the Central Bank is near the end of its tightening cycle. But Friday’s jobs report that hiring remained high last month while average hourly earnings rose. The US non-farm payrolls report (NFP) beat market expectations with 263,000 new jobs created compared to the expected 200,000. The unemployment rate remained unchanged at 3.7%, while average hourly earnings rose to 5.1% year-over-year against expectations of 4.6% and a revised higher October rate of 4.9%. This suggests that the labor market remains strong, giving the Fed room for another major hike, although there is less than a 20% chance of such a scenario.

At the close of the stock market on Friday, the Dow Jones Index (US30) increased by 0.10% (+0.45% for the week), while the S&P 500 Index (US500) decreased by 0.12% (+1.66% for the week). Tech Index NASDAQ (US100) was down by 0.18% (+2.82% for the week). Despite the slight decline on Friday, all three indices closed the week on a profit.

Equity markets in Europe mostly rallied last week. German DAX (DE30) gained 0.27% (+0.40% for the week), French CAC 40 (FR40) lost 0.17% (+0.96% for the week), Spanish IBEX 35 (ES35) was down 0.30% (+0.06% for the week), British FTSE 100 (UK100) closed 0.03% (+0.93% for the week).

European Central Bank President Christine Lagarde is scheduled to appear twice this week ahead of this year’s key ECB policy meeting on December 15. Markets are leaning toward a 50 basis point rate hike at the ECB’s upcoming meeting after data last week showed that Eurozone inflation fell much more than expected in November. European Central Bank officials in Germany and France said over the weekend that the ECB would return inflation to 2% by the end of 2024 or 2025. National governments have used hundreds of billions of euros to protect companies and households from rising energy prices, which bankers said could undermine their efforts to rein in inflation. Nagel and Villeroy called for a return to a more balanced budget in the near future.

Representatives of OPEC+, which includes the Organization of the Petroleum Exporting Countries, and its allies, including Russia, met Sunday to discuss production targets after the G7 countries agreed to cap Russian oil prices. On Friday, the G7 nations and Australia agreed to cap the price of Russian offshore crude at $60 a barrel to deprive President Vladimir Putin of revenue to fund the invasion of Ukraine. Many OPEC analysts and ministers say the cap is ineffective because Moscow sells most of its oil to countries such as China and India. So far, OPEC+ countries have agreed to stick to their oil production targets at a meeting on Sunday. Russian Deputy Prime Minister Alexander Novak said Sunday that Russia would rather cut production than deliver oil under a price cap.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) declined 1.57% over the week, Hong Kong’s Hang Seng (HK50) jumped by 9.85% last week, and Australia’s S&P/ASX 200 (AU200) was up 0.58%. Most Asian markets are trading sideways on Monday amid some uncertainty over US monetary policy after strong wage data, while Chinese stocks are rising as the government loosened restrictions imposed on COVID. Hong Kong stocks have also significantly outperformed their Chinese counterparts in the last month as the city rolled back its COVID policies early.

In the commodities market, futures on silver (+8.98%), copper (+6.27), WTI oil (+5.32%), palladium (+4.56%), platinum (+3.8%), cotton (+3.68%), and gold (+3.27%) showed the biggest gains over the week. Futures on natural gas (-15.12%), lumber (-6.23%), wheat (-4.64%), corn (-3.69%), and orange juice (-3.18%) showed the biggest drops.

S&P 500 (F) (US500) 4,071.70 −4.87 (−0.12%)

Dow Jones (US30) 34,429.88 +34.87 (+0.10%)

DAX (DE40) 14,529.39 +39.09 (+0.27%)

FTSE 100 (UK100) 7,556.23 −2.266 (−0.030%)

USD Index 104.51 −0.22 (−0.21%)

• – Japan Services PMI (m/m) at 03:30 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 03:45 (GMT+3);
• – China Caixin Services PMI (m/m) at 04:45 (GMT+3);
• – Spanish Services PMI (m/m) at 10:15 (GMT+3);
• – Italian Services PMI (m/m) at 10:45 (GMT+3);
• – French Services PMI (m/m) at 10:50 (GMT+3);
• – German Services PMI (m/m) at 10:55 (GMT+3);
• – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
• – UK Services PMI (m/m) at 11:30 (GMT+3);
• – Eurozone Retail Sales (m/m) at 12:00 (GMT+3);
• – US ISM Services PMI (m/m) at 17:00 (GMT+3).

By JustMarkets

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