Archive for Economics & Fundamentals – Page 130

04 Jan

3 potential winners in 2023

By ForexTime 

The outlook for the new year is dominated by this one fear: recession.

Major economies such as the UK and Eurozone are believed to be already going through an economic contraction. The US – the world’s largest economy – expected to experience a downturn later this year.

Yet amidst all these recession fears at the onset of 2023, the financial markets still do present opportunities for investors and traders.

 

Here are 3 assets that may see a stellar year:

 

1) Gold to hit $2000?

Gold has long been seen as a safe haven asset: a way for investors to protect their money in times of heightened fear and uncertainty.

As proof, here’s a list of how gold performed during the US recessions (as listed by the NBER) that have occurred since 1990:

  • Gulf War Recession (July 1990 – March 1991) = gold soared by as much as 17.5% at its peak on 21 August 1990.
  • Dot Com Recession (March 2001 – Nov 2001) = gold up by as much as 10.4% at its peak on 26 Septembe 2001.
  • The Great Recession (Dec 2007 – June 2009) = gold rose by as much as 28% by March 2008 when it traded over $1000 per ounce for the first time ever in the US futures market.
  • Covid-19 Recession (Feb 2020 – April 2020) = gold hit a record high at $2075.47 in August 2020

Using such past performances as a guide, the prospects of gold’s prospects of climbing by another 9% from today’s prices ($1848 at the time of writing) to reach $2000 doesn’t seem too farfetched.

Fundamental perspective: What needs to happen?

Besides a US recession, the key component for gold’s ability to climb higher rests on this key factor:

  • The US dollar has to weaken further as markets brace for the Fed eventually cutting interest rates to help support the US economy.

As bullion’s “enemy” becomes less potent in the face of a looming recession, that could encourage gold bulls to push the precious metal even higher in 2023.

At the time of writing, markets are predicting a 71% chance that we could see $2000 gold once more in 2023.

What could go wrong?

  • If gold’s enemy #1 from 2022 makes a return: US inflation remains stubbornly higher, forcing the Fed to continue hiking interest rates aggressively, which in turn restores demand for the US dollar.

    That may force a major rethink among gold bulls, perhaps accompanied by the unwinding of some of bullion’s gains of late.

 

 

 

2) Japanese Yen: USDJPY back down to 125?

Last year, the Yen fell by 12.2% against the US dollar, making JPY the second-worst performing G10 currency against the greenback in 2022.

That’s all about to change, with the Yen ready to catch up.

Fundamental perspective: What needs to happen?

It all depends on what the central banks in the US and Japan do in relation to one another.

  • Fed pivot: If the Federal Reserve “pivots” and is forced to lower US interest rates later in 2023 in order to offset a US recession, that should spell more weakness for the dollar.
  • BoJ pivot: If the Bank of Japan also does its own “pivot” but instead of cutting, it actually raises its own interest rates, that should spell more gains for JPY.

Such expectations will come into sharper focus once the new central bank governor takes over when current BoJ Governor Haruhiko Kuroda’s term expires in April.

Keep in mind that the BoJ’s policy balance rate now still rests at negative 0.10%, making it a clear laggard across major central bankers that had been busy hiking their own rates throughout 2022.

In short, if the BoJ hikes rates at a time when the Fed is cutting its own rates (or perhaps even just thinking about making such a move), that should help pave the way for the Yen’s speedy recovery.

For now, markets predict a 53% that USDJPY would eventually trade below 125 sometime over the next 12 months.

 

What could go wrong?

  • Still-dovish BoJ: the incoming BoJ Governor keeps Japan’s benchmark rate mired in negative territory on signs that inflation is not as sticky as hoped.

This scenario would be made worse if the Fed stays hawkish and keeps sending US interest rates much higher than the currently forecasted peak of around 5%.

A still-dovish BoJ + a still-hawkish Fed = USDJPY’s downside severely capped.

 

 

 

3) FTSE China A50 Index back above 14,000?

There is much hope surrounding the reopening of the Chinese economy this year, with the government essentially having abandoned its Covid Zero campaign.

And such optimism has already been playing out in Chinese stocks in recent months.

Here’s a comparison between the FTSE China A50 Index against its global peers since end-October through the present day:

  • FTSE China A50 Index: +15.9%
  • Europe’s STOXX 50: +7.3%
  • MSCI ACWI Index (stocks across developed and emerging markets): +3.26%
  • S&P 500: -1.24%

 

Fundamental perspective: What needs to happen?

  • The world’s second largest economy needs to finally break off the Covid shackles that have hampered it over the past 3 years.

Once the economy can overcome the recent snags of skyrocketing Covid cases and hospitalizations, consumers need to eventually feel confident once more about going out their economic activities, be it returning to the office, spending money at physical stores, and even going on vacations.

Assuming that China can find a steady footing and follow in the rest-of-the-world’s footsteps in terms of the post-pandemic recovery, that promises to help restore the earnings of China’s public-listed companies, which in turn should entice more investors into pushing these stock prices higher.

  • Additionally, policymakers on both the fiscal (government) and monetary (central bank) sides must continue adopting a supportive stance to shore up China’s economic momentum.

All of the above should position China as an attractive investment destination for foreign investors, especially within the context of a looming global recession.

 

What could go wrong?

  • If China continues to struggle with the Covid menace, that would only worsen the expected global recession and deal a massive blow to hopes for a sustained recovery in Chinese stock markets.
  • Also, if China’s inflation starts to run too hot a la the rest of the world, that may force policymakers into a restrictive stance to curb inflation at the expense of economic growth.
  • If 2023 also sees a return of heightened geopolitical tensions between the West and China, that could also sour sentiment surrounding Chinese assets.

 

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 Opinions
03 Jan

Inflation, unemployment, the housing crisis and a possible recession: Two economists forecast what’s ahead in 2023

By D. Brian Blank, Mississippi State University and Rodney Ramcharan, University of Southern California 

With the current U.S. inflation rate at 7.1%, interest rates rising and housing costs up, many Americans are wondering if a recession is looming.

Two economists discussed that and more in a recent wide-ranging and exclusive interview for The Conversation.
Brian Blank is a finance professor at Mississippi State University who specializes in the study of corporations and how they respond to economic downturns. Rodney Ramcharan is an economist at the University of Southern California who previously held posts with the Federal Reserve and the International Monetary Fund.

Both were interviewed by Bryan Keogh, deputy managing editor and senior editor of economy and business for The Conversation.

Below are some highlights from the discussion. Answers have been edited for brevity and clarity.

Brian Blank and Rodney Ramcharan talk about the economic outlook for 2023.

Are we headed for a recession in 2023?

Brian Blank: The consensus view among most forecasters is that there is a recession coming at some point, maybe in the middle of next year. I’m a little bit more optimistic than that consensus.

People have been calling for a recession for months now, and this seems to be the most anticipated recession on record. I think that it could still be a ways off. Consumer balance sheets are still relatively strong, stronger than we’ve seen them for most periods.

I think that the labor market is going to remain hotter than people have expected. Right now, over the last eight months, the labor market has added more jobs than anticipated, which is one of the strongest streaks on record. And I think that until consumer balance sheets weaken considerably, we can expect consumer spending, which is the largest part of the economy, to continue to grow quickly.

[But this] doesn’t mean that a recession is not coming. There’s always a recession somewhere down the road.

Rodney Ramcharan: Indeed, yes, there’s a likelihood that the economy is going to contract in the next nine months. The president of the New York Fed expects the unemployment rate to go up from 3.5% currently to somewhere between 4% to 5% in the next year. And I think that will be consistent with a recession.

In terms of how much worse it can be beyond that, it’s going to depend on a number of things. It could depend on whether the Fed is going to accept a higher inflation rate over the medium term or whether it’s really committed to getting the inflation rate down to the 2% rate. So I think that’s the trade-off.

Will unemployment go up?

Blank: [Unemployment] hasn’t risen much, and maybe it’ll pick up to somewhere close to 4%. Many are expecting something like four and a half percent. And I think that’s certainly possible. And I think that we can see small upticks in the coming months.

But I don’t think it’s going to rise as quickly as some people are expecting, in part because what we’ve seen so far is a lack of labor force participation. Until more people enter the labor market, I think there are going to be plenty of jobs to go around.

What is your outlook on interest rates?

Ramcharan: As people find it more and more difficult to find jobs, or to get jobs as they begin to lose jobs, I think that’s going to dampen spending. And we’re seeing that now as the cost of borrowing has gone up sharply, and the Fed is expecting that.

The expectation is the federal funds rate will go up to 5% by next year. If you tack on another couple of points, because of the risk involved, then the cost to borrow to buy a home could potentially get up to 8% for some people. And that could be very expensive.

And the flip side of this for businesses is there’s potentially going to be a slowdown in cash flow. If consumers are not spending, then the revenues that businesses depend on to make investments might not be there.

The additional piece in this puzzle is what the banks will then do. I think banks are going to begin to curtail the extension of credit. So not only will interest rates go up for the typical consumer and the typical business, it’s also likely that they are more likely to experience denial of credit, and so that should together begin to slow spending quite a bit.

After massive increases in housing prices, what caused them to suddenly drop?

Ramcharan: As the Fed lowered interest rates, there was a massive shift among the population for various reasons. They decided that housing was the right investment or the right thing. And so when 50 million people all collectively decide to buy homes, the supply of homes is reasonably constrained in the short run. And so that led to this massive increase in house prices and in rents.

In the last three months, the housing market has cooled sharply. We’re now seeing house prices beginning to fall. I would imagine, going forward, the housing market cooling is going to be a major driver behind the slowdown in the inflation rate and in real estate investment trusts. So that’s positive.

Our recent election just changed the composition of Congress. How will that affect the economy?

Blank: Certainly, when we have a divided Congress, we’re less likely to see decisions made that involve passing legislation that might support the economy. And I think it’s likely the Republican House is going to become a little bit more conservative with spending.

And so if we do start to see a downturn, I think you’re less likely to see legislation that might help support an economy that could be in need of it. That is going to make the job of the Federal Reserve more important.

How certain are these predictions?

Ramcharan: I just want to be careful here and let your viewers know that we’re making these statements based on theory, because the inflation that we’re experiencing now comes about from a pandemic, and there really is no evidence, there’s no data available, that people can look to to say, “What happens to an economy after a pandemic?” That data does not exist.

So we’re trying to piece together the data we do have with the theories we do have, but there’s a huge band of uncertainty about what’s going to happen.

Watch the full interview here.The Conversation

About the Author:

D. Brian Blank, Assistant Professor of Finance, Mississippi State University and Rodney Ramcharan, Professor of Finance and Business Economics, University of Southern California

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

 

Economics & Fundamentals Opinions
03 Jan

2023 Outlook: Is the worst behind us?

By ForexTime

As we emerge out of a rough year dominated by soaring inflation, slowing global growth, heightened geopolitical risks and Covid-19, the early part of 2023 looks like it could be more of the same story.

Financial markets were hit by negative market themes in 2022, with the S&P 500 shedding almost 20%. We also witnessed the dollar experience a sharp change of fortune during the fourth quarter after dominating the FX space for most of the year. Even cryptocurrencies were treated without mercy, including Bitcoin which depreciated by 64%!

The harsh reality is that markets and investors across the world have accepted the idea of a global recession in 2023. Financial heavyweights like the IMF and World Bank have all lowered their world growth forecasts amid the uncertain outlook. The United States is expected to sink into a recession while things remain gloomy for China due to surging Covid-19 cases. On top of this, Britain may already be in a recession along with the Eurozone as they pay the expensive price of taming inflation.

Beware of China Covid threat…

2023 may kick of on a cautious note as countries across the globe express unease over China’s growing Covid-19 threat. The Covid menace has torn through the world’s second largest economy after the government’s decision to relax its zero covid policy back in early December. With cases exploding in China, countries such as the United States, Italy and Japan among others have announced mandatory tests for Chinese travellers. Regardless, the threat of infections spreading across the world and resulting in disruptions may weigh heavily on sentiment as painful memories of 2020 & 2021 resurface.

Inflation beast tamed?

Has inflation truly peaked? This is the 20 trillion-dollar question and a central theme that will influence global financial markets in the new year. It is worth keeping in mind that US inflation slowed for a fifth straight month to 7.1% in November, the lowest level since December 2021. We saw a similar pattern in the United Kingdom, Europe, and China among other countries across the globe. Should consumer prices continue to cool well into 2023, this may set the stage for a series of major developments that impact currency, commodity, and equity markets.

Will Central Banks be forced to pivot?

Persistent signs of cooling inflation could encourage central banks to slow down their pace of hikes, pause, and then eventually start cutting interest rates by the end of 2023 to promote growth. Despite concluding the year on a hawkish note, the Federal Reserve has already shifted into lower gear on rates, hiking by only 50bps in December. We saw the same development with the Bank of England who concluded their last policy meeting of 2022 by slowing the pace of rate hikes. It may be wise to keep a close eye on the Bank of Japan (BoJ) which sent shockwaves across markets in December by tweaking its monetary policy. This fuelled speculation around a hawkish policy pivot down the road – ultimately boosting the Yen. Should the BoJ pivot from ultra-dovish in 2023, Yen bulls could dominate the scene.

USD: Even the mighty fall

King dollar could be in store for further pain in the New Year as fundamental forces work against the world’s reserve currency. During the final quarter of 2022, the dollar weakened against every single G10 currency as cooling inflation reduced the pressure for the Fed to remain aggressive on rates. Concerns over the US economy along with falling Treasury yields left the currency unloved and depressed. Dollar weakness has the potential to become a key theme in 2023 as rate hikes slow and eventually become rate cuts in the face of cooling inflation.

A vulnerable dollar should provide an opportunity for G10 and emerging market currencies to fight back after many months of oppression. Although each currency will have its domestic trials to overcome, a depreciating dollar could provide a breath of fresh air, creating potential reversals across currency and commodity markets.

The Euro’s great rebound

Since we are talking FX, how can we leave out the most popular and liquid currency pair? After dipping below parity in 2022, EURUSD has staged an impressive rebound. Upside momentum remains powered by a weaker dollar which has taken prices back above 1.0600 after sinking as low as 0.9535 in late September. However, with both the ECB and Fed shifting into different gears on rate hikes, things could get choppy in the medium term. Should geopolitical risk and the energy crisis in Europe remain a major theme, this could cap EURUSD’s bullish momentum. However, further dollar weakness could propel the pair to levels not seen since 2021.

S&P 500 to experience major reversal?

Things could become even more interesting for global equity markets as shifting fundamental themes influence sentiment. In 2022, stock markets were a battleground with the S&P 500 concluding almost 20% lower thanks to rising interest rates and growth concerns. Equity bulls could fight back with a vengeance in the second half of 2023 as slowing inflation encourages central banks to pivot. Any signs of rates being cut down the road could sweeten appetite for stocks, with the S&P500 and Nasdaq among others experiencing bullish reversals. Falling interest rates would offer consumers some relief, by encouraging spending and investment, and ultimately stimulating economic activity. Looking at the technicals, the S&P 500 remains in a bearish channel on the monthly charts. A solid breakout above 4,300 could open a path back to towards the all-time high at 4,819.5.

Watch out for 2024 presidential buzz

We expect some buzz around the 2024 US presidential elections, especially after Donald Trump announced his presidential bid, “In order to make America great and glorious again”. The news flow around the US elections may intensify with every passing quarter, translating into bursts of volatility across global financial markets. With Elon Musk reinstating Trump’s account on Twitter in November, the former President’s tweets have the potential to influence markets. In the past, price action has displayed high sensitivity to Trump’s tweets and history could repeat itself as the focus slowly turns to the 2024 elections.

Oil markets battleground for bulls & bears

Looking at commodities, it could be a volatile year for oil if the supply and demand dynamics clash. OPEC expect to see robust global oil demand growth in 2023 with potential economic upside coming from a relaxation of China’s zero Covid policies. Indeed, back in December, the world’s largest energy consumer issued new guidelines lifting its most severe Covid policies. To global investors, these guidelines represented a fresh of breath air and offered hope for strong future China demand. On the supply side, the European Union has capped Russian crude oil in an attempt to limit its earnings, ultimately impacting Moscow’s budget. Given how this could have uncertain effects on the price of oil as concerns over lost supply through the price cap clash with lingering fears over gloomy demand outlook, volatility may become a major theme. Interestingly, both brent and crude concluded 2022 higher, will the story be different in the New Year?

Watch out for gold!

Gold could be one of the biggest winners in 2023 as cooling rate hike bets hit the dollar along with Treasury yields. Possible geopolitical flare-ups and concerns over world growth could stimulate appetite for the zero-yielding metal. If Chinese economic growth improves, this could also boost consumer demand, adding to the growing list of positive themes supporting gold bugs. After ending 2022 practically flat, gold has the potential to shine with the fundamentals potential elevating prices towards the psychological $2000 level.

In a nutshell…

The overall outlook for 2023 may heavily depend on the interaction between inflation and central bank intervention.  While other fundamental forces and themes are expected to influence global sentiment, if central banks successfully tame the inflation beast, the worst could be behind us.

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 Opinions
30 Dec

Stock indices are rising on the eve of the New Year holidays

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%)

Important events for today:
  • – 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.

Economics & Fundamentals Financial News
30 Dec

Major Fed Myth: Debunked

The Fed is reactive in setting rates – not proactive

By Elliott Wave International

The days of near-zero interest rates are long gone — at least for now.

As we look back on 2022, we know that it’s been a year of rising interest rates, and many observers say it’s all due to the Fed.

But it’s a flat-out myth that the Fed determines the trend of interest rates. The market does. The Fed merely follows.

Here’s a chart and commentary from the December Elliott Wave Theorist, a monthly publication since 1979 which covers major financial and cultural trends:

The chart updates the Fed’s interest-rate activity since mid-2021. As you can see, the Fed’s rate changes have continued to lag rate changes in T-bills as set by the market. The Board’s decisions are not magical or even thoughtful. They look at the market rate, and they adjust the Fed Funds Rate accordingly. That’s all there is to it. That’s all there ever has been to it.

So, given that the market sets rates and the Fed follows, a key takeaway is that the Fed’s interest-rate actions produce no outcomes (for example, “stepping on the brakes” of the economy) that wouldn’t have happened through regular market forces.

Other central banks around the world also lag the market. Consider the European Union. Here’s a historical snapshot from Robert Prechter’s book, The Socionomic Theory of Finance:

The chart plots monthly data for the interest rate of the freely-traded, 3-month euro generic government bond versus the European Central Bank’s (ECB’s) main refinancing operations rate, which is Europe’s equivalent to the U.S. federal funds rate. As these graphs show, rate-setting actions by the ECB have lagged the freely traded debt market at all seven major turning points in interest rates since 1999. The lags vary from one to ten months, and the average lag is 5.3 months.

You can find the same principle at work in the United Kingdom, Australia and other global central banks.

It may be difficult for central bank watchers to latch onto the idea that markets guide central banks rather than the other way around. Yet, no data show otherwise.

The December Elliott Wave Theorist provides you with more financial insights, including warning signs about the stock market.

And, speaking of warning signs about the stock market, you may want to become familiar with the Dow Industrials’ Elliott wave pattern — which can help you to anticipate what’s next.

As Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior, notes:

The Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failures in financial affairs.

If you’d like to learn the details of the Wave Principle, here’s good news: You can access the entire online version of the book for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

Joining Club EWI is a great way to start 2023 because all the free Elliott wave resources which accompany a Club EWI membership will help to provide you with an independent perspective on financial markets which you may not be getting from other sources.

And, by the way, a Club EWI membership itself is also free.

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

This article was syndicated by Elliott Wave International and was originally published under the headline Major Fed Myth: Debunked. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Economics & Fundamentals Financial News
29 Dec

Volatility declines, investors shift to safe-haven assets ahead of New Year holidays

By JustMarkets

Investors continue to get rid of stocks before the end of the trading year. As the stock market closed Wednesday, the Dow Jones Index (US30) decreased by 1.10%, and the S&P 500 Index (US500) was down by 1.20%. The NASDAQ Technology Index (US100) fell by 1.35%. The Nasdaq (US100) fell to a two-month low as the technology downturn continues, and the S&P 500 (US500) is poised for its biggest annual loss since the 2008 financial crisis. Recession fears are highly likely to continue in the market in early 2023, but analysts believe equity markets will begin to recover in the second half of 2023.

The US Real Estate Market continues to show signs of weakness. Pending home sales fell in all regions this month. On a year-over-year basis, unfinished home sales fell by 38.60%, the largest year-over-year drop on record. Pending home sales are often seen as a leading indicator of purchases of existing homes, given that real estate contracts are usually entered into a month or two before they are sold.

Shares of Southwest Airlines (LUV) decreased by 3% after a warning that airlines continue to cancel flights due to bad weather. Shares of AAL (AAL) and DAL (DAL) were down more than 1% yesterday.

Tesla (TSLA) plans to cut production at its Shanghai plant due to an increase in the incidence of coronavirus.

Equity markets in Europe traded flat yesterday. German DAX (DE30) gained 0.32%, French CAC 40 (FR40) was 0.61% lower, Spanish IBEX 35 (ES35) decreased by 0.12%, and British FTSE 100 (UK100) gained 0.32%.

Analysts believe that the energy crisis will lead to a significant slowdown of the European economy in 2023. At the same time, real estate prices will collapse, and unemployment will rise substantially. The main risk comes from the energy crisis amid falling temperatures in winter. And suppose Europe manages to get through this winter without significant problems in the energy system. In that case, it will be possible to say with certainty that the peak of inflation is over.

The EU replaced Russian and Ukrainian steel with supplies from Taiwan and South Korea.

Oil prices fell Wednesday because of the likelihood that China’s easing of pandemic restrictions will boost demand for fuel. China said it would stop requiring quarantine for arriving travelers starting January 8, an important step toward easing strict restrictions. But falling oil inventories could bring back bullish sentiment in the oil market. A preliminary Reuters poll showed that US crude inventories fell by 1.6 million barrels last week.

Gold and silver are inversely correlated to the dollar index and US government bond yields. As monetary policy tightens, the dollar index and government bond yields go up, and gold and silver prices go down, which they have been doing for 2022. But the first signs of a slowdown in rate hikes have returned investor interest in precious metals. The US Federal Reserve will peak rates in 2023, potentially setting the stage for a new medium-term or even long-term uptrend in gold.

Asian indices traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.41%, China’s FTSE China A50 (CHA50) was down by 0.08%, India’s NIFTY 50 (IND50) lost 0.05%, Hong Kong’s Hang Seng (HK50) jumped by 1.56%, and S&P/ASX 200 (AU200) closed down by 0.3%.

Chinese energy companies began constructing a power plant with a capacity of 16 million kW in northern China. The solar and wind power project will be the largest power plant of its kind built in the desert.

S&P 500 (F) (US500) 3,783.22 −46.03 (−1.20%)

Dow Jones (US30) 32,875.71 −365.85 (−1.10%)

DAX (DE40) 13,925.60 −69.50 (−0.50%)

FTSE 100 (UK100) 7,497.19 +24.18 (+0.32%)

USD Index 104.55 +0.37 (+0.35%)

Important events for today:
  • – 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 Inventories (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.

Economics & Fundamentals Financial News
29 Dec

Three ‘F’ words to sum up 2022

By ForexTime 

This year has been fraught with market volatility, to say the least.

As we bid goodbye to 2022, let’s recap 3 major themes, each being an F-word, that rocked major assets over the past 12 months:

 

  1. Fed

The primary driver of global markets in 2022 has been the most aggressive Federal Reserve – the US central bank – that we’ve seen since the 1980s.

Recall that a central bank’s primary weapon in cooling down inflation is to move interest rates higher. After all, the US was experiencing its fastest inflation in 40 years!

To be more specific, markets were caught off guard particularly by the speed at which the Fed raised interest rates this year (to be fair, many Fed officials themselves didn’t think they’d have to hike rates so much so soon either).

  • This time last year, markets only forecasted that US interest rates would be hiked by a maximum of 75 basis points for all of 2022.
  • Fast forward 12 months later, we have seen US interest rates skyrocket by 425 basis points, bringing the benchmark rate from near-zero now up to 4.5% – its highest level since 2007!

 

Gold’s enemy #1 for 2022 proved to be US interest rates climbing at that speed, and the US dollar soaring in tandem.

 

The market’s fixation on soaring US interest rates, coupled with the fact that gold is a zero-yielding asset (does not pay interest/generate income for investors who hold on to this asset) to drag down prices, despite the precious metal’s traditional roles as:

  • Inflation hedge: a way to protect investors’ wealth against the corrosive effects of skyrocketing inflation
  • Safe haven: a way to protect investors’ wealth in times of great uncertainty.

Hence, bullion was dragged down by as much as 22% from its post-Russian invasion peak to its lowest levels since 2020.

Though to be fair, spot gold has embarked on a remarkable recovery since early November on hopes that the “worst” of the Fed rate hikes are over.

READ MORE:

 

 

Now, here’s the second F-word …

  1. Fear

From the Russia-Ukraine war that’s still raging on, to the UK’s worst cost-of-living crisis in a generation, and even crypto’s collapse – there were many notable events that frightened investors and traders worldwide.

Such events hastened those in the markets to scrambling for ways to protect their money.

Amid all the FUD (fear, uncertainty, doubt), one particular asset reigned supreme = King Dollar.

Note how the benchmark Dollar index, DXY (used to measure the US dollar’s overall performance, though specifically the US dollar’s performance against 6 other major currencies) soared by as much as 20% this year.

READ MORE:

 

Though since late-September, the DXY has halved its year-to-date gains, on the hopes that the Fed is closer to being done with its interest rate hikes.

Still, to prove the US dollar’s dominance as the safe haven of choice for 2022, here’s a comparison of how the DXY fared against other traditional safe haven assets, as measured by their respective year-to-date performances on this penultimate day of the year:

  • DXY = +9%
  • Gold = -1%
  • Swiss Franc = -1.4%
  • US bonds = -13% (as measured by the Bloomberg USAgg Index)
  • Japanese Yen = -14%

 

 

And now, for the final F-word of this year-in-review article …

 

  1. Fundamentals

Remember the days when central banks were printing money out of thin air and just dishing it out?

Well, a lot of that money also made it into stock markets, which sent prices to record highs.

Recall how the S&P 500 set a record high on January 3rd, 2022?

Well, those days are now long gone.

Central banks sought to suck some of that money back out of the financial markets, either by hiking interest rates or by halting the purchase of bonds (quantitative tightening).

This year, companies had to wave bye-bye to easy money, with interest rates no longer at record lows.

Hence, investors demanded that these companies return to the fundamentals: show that it can continue churning out profits in the future.

Companies with weak fundamentals, whose future profitability or growth were in severe doubt, were roundly punished by the stock market:

  • Coinbase (crypto platform) = -87%
  • Snap (social media) = -82%
  • Tesla (EV maker) = -68%

(NOTE: It was a particularly brutal year for EV makers, with the likes of Lucid Group, Rivian and Nio each suffering even bigger annual losses than Tesla’s)

 

Even Big Tech giants such as, from Amazon to Meta, had to let go tens of thousands of employees this year.

Such layoffs were carried out in the name of making sure these companies remain financially sound amid these turbulent times.

 

Furthermore, with the Fed rate hikes threatening to send the US economy into a recession, such a contraction in the world’s largest economy is expected to negatively impact the earnings of these publicly-listed companies.

Amid all these woes, and the end of the easy-money era, no surprise that the S&P 500 may well end the year in a ‘bear market’ (a 20% drop from its recent high).

 

READ MORE:

 

 

So, there you have it.

3 ‘F’ words that encapsulated a year to remember.

 

But before we wrap up, here’s a “bonus” F-word for you to consider … “Future”.

After all, investors and traders are forward-looking creatures, with today’s prices reflecting what markets think/believe/hope will happen down the line.

With that in mind, do look out for our 2023 Preview that’ll be posted here on this “Market Analysis” section soon.

Thank you for reading our Daily Market Analysis throughout 2022.

We hope to continue keeping you up-to-date on all the major happenings happening across FX, commodities, precious metals, and stocks in the year ahead.

 

Have a happy new year, and may 2023 be a rewarding time in the markets for us all.

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 Opinions
27 Dec

Oil hit a 3-week-high. Tensions between China and Taiwan are rising again

By JustMarkets

In the US, the Personal Consumption Price Index (PCE) rose by 0.1% last month after rising 0.4% in October. The latest data signaled that the PCE index was slowing, reinforcing expectations for a smaller interest rate hike by the Federal Reserve and improving investor appetite for risk. At the close of the stock market on Friday, the Dow Jones Index (US30) increased by 0.53% (+0.86% for the week), and the S&P 500 Index (US500) added 0.59% (-0.23% for the week). The NASDAQ Technology Index (US100) was up 0.21% on Friday (-1.96% for the week).

Holiday sales in the US rose by 7.6% despite inflationary pressures. Consumer spending accounts for nearly 70% of US economic activity, but Americans remain resilient. But problems began to appear, as higher prices for necessities are taking a larger share of total wages. The US durable goods orders fell by 2.1% in November, compared to an expected 0.6% decline.

According to CEBR (Center for Economic and Business Research), higher borrowing costs to fight inflation will cause several economies to contract next year. The report adds that the battle against inflation is not yet won. Analysts expect central banks to stick with their stance in 2023 despite the economic costs. The price of reducing inflation to a more comfortable level is the worst growth prospect for many years. The findings are more pessimistic than the International Monetary Fund’s latest forecast. CEBR takes its baseline data from the IMF’s World Economic Outlook and uses an internal model to forecast growth, inflation, and exchange rates.

Equity markets in Europe traded flat last week. German DAX (DE30) gained 0.19% on Friday (+0.04% for the week), French CAC 40 (FR40) lost 0.20% (+0.52% for the week), Spanish IBEX 35 (ES35) was down 0.01% (+1.84% for the week), British FTSE 100 (UK100) closed on Friday up by 0.05% (+1.92% for the week).

Britain’s turbulent year is coming to an end, and there are a few signs that 2023 will be more optimistic. Signs of a painful economic downturn in the UK continue to pile up. The options market is also showing skepticism, with traders still gloomy about the long-term outlook. Opportunities for growth next year may be limited by divergent central bank policies, as the Bank of England looks increasingly dovish compared to comparable banks. In addition, the UK economy is wobbly, budget deficits are skyrocketing, and double-digit inflation has caused the steepest drop in living standards in recorded history, curbing spending and causing the worst industrial turmoil in decades. The housing market also looks vulnerable. Yield spreads between two- and 10-year swaps tied to the overnight rate, an indicator of recession risks, also point to a longer recession in the UK than in other major economies.

Oil prices rose to a three-week high on Tuesday as China’s latest easing of COVID-19 restrictions raised hopes for fuel demand, and concerns that winter storms in the United States are affecting energy production continue to support prices. Cold freezing temperatures and a heavy snowstorm on Friday left thousands of homes in the United States without power, which not only increased heating and electricity prices but also increased the death toll. Airlines canceled about 2,700 flights in the United States after weather disrupted airports across the country.

Parts of the Asian market did not trade yesterday. Japan’s Nikkei 225 (JP225) gained 0.65%, China’s FTSE China A50 (CHA50) fell by 0.45%, Hong Kong’s Hang Seng (HK50) ended Friday down by 0.44%, India’s NIFTY 50 (IND50) rose by 1.17%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.63%.

On Monday, Bank of Japan (BOJ) Governor Haruhiko Kuroda denied the possibility of a short-term exit from the super-soft monetary policy but expressed hope that the growing labor shortage will force firms to raise wages. Kuroda said the Bank of Japan’s decision last week to widen the permissible range around its yield target was aimed at boosting the effect of its super-soft policy, not a first step toward canceling a massive stimulus program. The BoJ will aim for sustained and stable price targets accompanied by wage increases while continuing to ease monetary policy under yield curve control.

China sent 71 warplanes and 7 ships toward Taiwan. Of these, 43 planes also crossed the middle line of the Taiwan Strait, an unofficial buffer zone between the two sides. Taiwan’s official Central News Agency said it was the largest incursion by the Chinese Air Force to date. The White House said the United States was concerned about Chinese military activity near Taiwan, which it called “provocative” and “destabilizing,” adding that it could lead to miscalculation and undermine regional stability. China, for its part, is showing strength in response to the US defense bill, which authorizes increased security cooperation with Taiwan.

China infected 248 million people with COVID-19 in December. And last week, a new daily infection record was set, with 37 million Chinese infected in 24 hours. But despite such a surge in illness, Beijing and Shanghai returned to work on Monday. China raised its estimate of gross domestic product (GDP) growth in 2021 to 8.4% from 8.1% previously, the National Bureau of Statistics said Tuesday.

In the commodities market, futures on gasoline (+11.24%), WTI crude (+6.57%), cocoa (+6.55%), BRENT oil (+6.24%), sugar (+4.53%), coffee (+4.5%), cotton (+3.93%), platinum (+3.09%), wheat (+2.79%) and palladium (+2.69%) showed the biggest gains by the end of the week. Futures on natural gas futures (-24.02%) and orange juice futures (-3.35%) showed the biggest drop.

S&P 500 (F) (US500) 3,844.82 +22.43 (+0.59%)

Dow Jones (US30) 33,203.93 +176.44 (+0.53%)

DAX (DE40) 13,940.93 +26.86 (+0.19%)

FTSE 100 (UK100) 7,473.01 +3.73 (+0.050%)

USD Index 104.33 -0.11 (-0.10%)

Important events for today:
  • – Japan Unemployment Rate (m/m) at 01:30 (GMT+2);
  • – Japan Retail Sales (m/m) at 01:30 (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
27 Dec

Risk appetite picks up as China eases zero-Covid policy

By ForexTime

Stock markets are gaining while the US dollar is softening after China announced it would drop its quarantine requirements for inbound visitors. This further eases three-year border controls aimed at curbing Covid-19.

The authorities also downgraded the seriousness of the virus as it gradually evolves into a common respiratory infection. The latest policy moves from China indicated that economic activity in most major cities may return to normal very quickly which is positive for investors.

Asia-Pacific stocks are in the green while the aussie is the standout currency major. Some markets including in Hong Kong and Australia remain closed on Tuesday.

US stocks futures are showing decent gains with markets in holiday mode with thin volumes and liquidity.

 

Wall Street had closed higher on Friday with the benchmark S&P500 ending 0.6% higher but Friday’s gains were not enough to stop both the benchmark broader index and the tech-heavy Nasdaq closing lower for a third week in a row.

That is the first such losing streak since September and with four days of trading left this year, sees the S&P500 and Nasdaq losing around 20% and 33% respectively, which is the worst performance since the GFC 2008 crisis.

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
23 Dec

Strong economic data may force the Federal Reserve to return to a more hawkish pace

By JustMarkets

In the US, higher-than-expected Gross Domestic Product (GDP) growth of 3.2% in the third quarter – compared to forecasts of 2.9% growth – has returned fears of an interest rate hike to the market. This led to a strengthening of the dollar index and a selloff in the stock market. As the stock market closed, the Dow Jones Index (US30) decreased by 1.05%, and the S&P 500 Index (US500) lost 1.45%. The Technology Index NASDAQ (US100) closed the day at minus 2.18%.

Strong economic data may force the Federal Reserve back to a more hawkish mood. The Fed is especially concerned that a strong labor market gives more oxygen to inflation, which has declined slightly in recent months but is still at its highest level in decades. Therefore, the Fed may have to continue raising interest rates and keep them high for a long time.

Shares of Micron Technology Inc (MU) fell more than 3% after posting quarterly results that didn’t meet expectations. The gloomy macroeconomic backdrop continues to weigh on demand. Deutsche Bank estimates there is a risk of further declines as Micron estimates point to a recovery in demand by mid-2023.

Equity markets in Europe mostly fell yesterday. Germany’s DAX (DE30) decreased by 1.30%, France’s CAC 40 (FR40) lost 0.95%, Spain’s IBEX 35 (ES35) fell by 0.39%, and the British FTSE 100 (UK100) closed Thursday down by 0.37%.

ECB spokesman Luis De Guindos said yesterday that inflation in the Eurozone would be around current levels for the next 2-3 months. This coincides with other comments from ECB policymakers. In addition, de Guindos supported the hawkish stance, saying that 50 bps is now the new standard for suppressing rising inflationary pressures in the Eurozone. The ECB is expected to raise interest rates twice more with a 0.5% step.

China reiterated its focus on boosting economic growth in 2023, which helped revise the impact of crude oil demand upward. China, the world’s largest consumer and importer of crude oil, naturally influences the overall price depending on the state of the economy. Increasing demand for oil with limited supply will drive up oil prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 0.46%, China’s FTSE China A50 (CHA50) added 0.69%, Hong Kong’s Hang Seng (HK50) increased by 2.71%, India’s NIFTY 50 (IND50) was down by 0.39%, and Australia’s S&P/ASX 200 (AU200) was up 0.53% on the day.

In Japan, inflation data showed that consumer prices (excluding food energy prices) rose from 3.6% to 3.7% year-over-year, the highest since 1981. The Bank of Japan expects inflation to peak around 4% early next year. After the Bank of Japan’s shocking decision this week to let bond yields rise, higher inflation will support speculation that the central bank is nearing a policy reversal. A policy change could come in the spring of 2023 after a new governor takes the helm of the Central Bank.

S&P 500 (F) (US500) 3,822.39 −56.05 (−1.45%)

Dow Jones (US30) 33,027.49 −348.99 (−1.05%)

DAX (DE40) 13,914.07 −183.75 (−1.30%)

FTSE 100 (UK100) 7,469.28 −28.04 (−0.37%)

USD Index 104.43 +0.27 (+0.26%)

Important events for today:
  • – Japan National Core CPI (m/m) at 01:30 (GMT+2);
  • – Japan Monetary Policy Meeting Minutes at 01:50 (GMT+2);
  • – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
  • – US Core Durable Goods Orders (m/m) at 15:30 (GMT+2);
  • – US PCE Price index (m/m) at 15:30 (GMT+2);
  • – Canada GDP (m/m) at 15:30 (GMT+2);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2);
  • – US New Home Sales (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.

Economics & Fundamentals Financial News
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