Economics & Fundamentals

Archive for Economics & Fundamentals – Page 136

Butter, garage doors and SUVs: Why shortages remain common 2½ years into the pandemic

By Michael Okrent, Colorado State University Global

Shortages of basic goods still plague the U.S. economy – 2½ years after the pandemic’s onset turned global supply chains upside down.

Want a new car? You may have to wait as long as six months, depending on the model you order. Looking for a spicy condiment? Supplies of Sriracha hot sauce have been running dangerously low. And if you feed your cat or dog dry pet food, expect empty shelves or elevated prices.

These aren’t isolated products. Baby formula, wine and spirits, lawn chairs, garage doors, butter, cream cheese, breakfast cereal and many more items have also been facing shortages in the U.S. during 2022 – and popcorn and tomatoes are expected to be in short supply soon.

In fact, global supply chains have been under the most strain in at least a quarter-century, and have been pretty much ever since the COVID-19 pandemic began.

I have been immersed in supply chain management for over 35 years, both as a manager and consultant in the private sector and as an adjunct professor at Colorado State University – Global Campus.

While each product experiencing a shortage has its own story as to what went wrong, at the root of most is a concept people in my field call the “bullwhip effect.”

What is the ‘bullwhip effect’?

The term bullwhip effect was coined in 1961 by MIT computer scientist Jay Forrester in his seminal book “Industrial Dynamics.” It describes what happens when fluctuations in demand reverberate and amplify throughout the supply chain, leading to worsening problems and shortages.

Imagine the physics of cracking a whip. It starts with a small flick of the wrist, but the whip’s wave patterns grow exponentially in a chain reaction, leading to the tip, a snap – and a sharp pain for anyone on the receiving end.

The same thing can happen in supply chains when orders for a product from a retailer, say, go up or down by some amount and that gets amplified by wholesalers, distributors and raw material suppliers.

The onset of the COVID-19 pandemic, which led to lengthy lockdowns, massive unemployment and a whole host of other effects that messed up global supply chains, essentially supercharged the bullwhip’s snap.

How the bullwhip effect works.

Cars and chips

The supply of autos is one such example.

New as well as used vehicles have been in short supply throughout the pandemic, at times forcing consumers to wait as long as a year for the most popular models.

In early 2020, when the pandemic put most Americans in lockdown, carmakers began to anticipate a fall in demand, so they significantly scaled back production. This sent a signal to suppliers, especially of computer chips, that they would need to find different buyers for their products.

Computer chips aren’t one size fits all; they are designed differently depending on their end use. So chipmakers began making fewer chips intended for use in cars and trucks and more for computers and smart refrigerators.

So when demand for vehicles suddenly returned in early 2021, carmakers were unable to secure enough chips to ramp up production. Production last year was down about 13% from 2019 levels. Since then, chipmakers have began to produce more car-specific chips, and Congress even passed a law to beef up U.S. manufacturing of semiconductors. Some carmakers, such as Ford and General Motors, have decided to sell incomplete cars, without chips and the special features they power like touchscreens, to relieve delays.

But shortages remain. You could chalk this up to poor planning, but it’s also the bullwhip effect in action.

The bullwhip is everywhere

And this is a problem for a heck of a lot of goods and parts, especially if they, like semiconductors, come from Asia.

In fact, pretty much everything Americans get from Asia – about 40% of all U.S. imports – could be affected by the bullwhip effect.

Most of this stuff travels to the U.S. by container ships, the cheapest means of transportation. That means goods must typically spend a week or longer traversing the Pacific Ocean.

The bullwhip effect comes in when a disruption in the information flow from customer to supplier happens.

For example, let’s say a customer sees that an order of lawn chairs has not been delivered by the expected date, perhaps because of a minor transportation delay. So the customer complains to the retailer, which in turn orders more from the manufacturer. Manufacturers see orders increase and pass the orders on to the suppliers with a little added, just in case.

What started out as a delay in transportation now has become a major increase in orders all down the supply chain. Now the retailer gets delivery of all the products it overordered and reduces the next order to the factory, which reduces its order to suppliers, and so on.

Now try to visualize the bullwhip of orders going up and down at the suppliers’ end.

The pandemic caused all kinds of transportation disruptions – whether due to a lack of workers, problems at a port or something else – most of which triggered the bullwhip effect.

The end isn’t nigh

When will these problems end? The answer will likely disappoint you.

As the world continues to become more interconnected, a minor problem can become larger if information is not available. Even with the right information at the right time, life happens. A storm might cause a ship carrying new cars from Europe to be lost at sea. Having only a few sources of baby formula causes a shortage when a safety issue shuts down the largest producer. Russia invades Ukraine, and 10% of the world’s grain is held hostage.

The early effects of the pandemic in 2020 led to a sharp drop in demand, which rippled through supply chains and decreased production. A strong U.S. economy and consumers flush with coronavirus cash led to a surge in demand in 2021, and the system had a hard time catching up. Now the impact of soaring inflation and a looming recession will reverse that effect, leading to a glut of stuff and a drop in orders. And the cycle will repeat.

As best as I can tell, these disruptions will take many years to recover from. And as recent inflation reduces demand for goods, and consumers begin cutting back, the bullwhip will again work its way through the supply chain – and you’ll see more shortages as it does.

About the Author:

Michael Okrent, Part-Time Faculty in Project Management, Colorado State University Global

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

Economics & Fundamentals Financial News

30 Sep

Bank of England bonds rescue has two ugly implications: more inflation and an even weaker pound

By Costas Milas, University of Liverpool

With UK government bonds and sterling both falling hard in recent days, the Bank of England has been forced to step in. Only a few months after it started tightening monetary policy to fight inflation by raising benchmark interest rates and ending its programme to “create” money through quantitative easing (QE), it has made a U-turn.

It plans to create perhaps £65 billion over a two-week period to buy long-dated government bonds to shore up that market, as well as temporarily putting on hold plans to start unwinding its £838 billion of QE money. So will this work?

The specific reason for the intervention appears to be UK pension funds, which suddenly became very vulnerable because of the bonds plunge. This was because pension funds rely on financial schemes known as liability-driven investment strategies or LDIs.

LDIs are essentially an insurance policy to ensure that funds have enough money to pay people’s pensions, even when bonds are paying very low returns. But when bond prices plunged after the government’s mini-budget, funds were forced to find extra money to cover their LDIs. This forced them to sell more bonds and threatened a domino effect where bond prices would keep falling and some funds could have collapsed.

The bank’s intervention has important implications for the wider economy. It comes when people are under increased financial stress because of higher interest rates, climbing energy bills, wages not keeping up with inflation and volatility in the financial markets.

The economy is growing only weakly and may well tip into recession. According to my recent co-authored work, a recession could depress the UK economy for as many as 20 months – longer than the 15 months predicted by the Bank of England.

Stress in the UK markets

Chart measuring UK financial stress — This chart measures the volatility in the shares, bond and currency markets.
ECB

These conditions are likely to be an additional reason for the bank’s intervention – despite contradicting its efforts at tightening. Since the interest rates (or yields) on bonds rise as their prices fall, stepping into the market to buy bonds aims to push down these rates.

So far it has worked: yields on UK 20-year and 30-year bonds were both north of 5% before the intervention and are now respectively 4.1% and 3.9%. Since the level of these yields sets the tone for borrowing costs in the rest of the economy, this should encourage more consumer spending and business investment.

Yields on 20-year and 30-year UK bonds

Chart showing yields on long-dated uk gilts — Yellow = 30-year and blue = 20-year.
TradingView

The downsides

The bank’s intervention, without even consulting its Monetary Policy Committee (MPC), is a form of what is known as yield curve control. This is a variety of QE in which, instead of just creating a certain amount of money with which to buy bonds, the central bank wants to achieve a specific yield. Such a policy is mainly associated with Japan, where the central bank has been buying bonds to keep yields at very low levels since 2016.

So far the Bank of Japan has achieved its objective, but the yen has lost a lot of value because the bank is having to create more and more money via QE: it now owns some US$3.8 trillion (£3.4 trillion) of Japanese government bonds, over half the total market. Meanwhile, the yen has virtually halved since 2010, and in recent weeks the Bank of Japan had to act to prop it up.

While Japan and the UK’s moves to control bond yields are somewhat different, the Bank of England intervention is also likely to put additional downward pressure on sterling. It is also going to be inflationary. This shows how unappealing the policy options are at present.

The implications

Will the intervention work? The impact of QE on interest rates is the subject of voluminous research. It is difficult to estimate because it depends on the level of the interest rate, as well as the economic conditions. Things are complicated further because central bank studies find QE to be more effective than academic papers do.

But going roughly by the findings in this co-authored paper of mine, an additional £50 billion of QE purchases in the UK might lower bond yields by 12 basis points (0.12 percentage points). That suggests that unless the bank continues with this new scheme far beyond the current October 14 end date, it is unlikely to have much effect.

Moreover, QE partly works by signalling to the markets that it will keep interest rates low for a protracted period. By setting a time limit and also saying that it plans to return to QT in due course, the bank is undermining its new policy.

Also, the credit ratings agencies may well downgrade UK sovereign debt. They usually reduce a country’s credit score when economic policy uncertainty rises significantly, or debt rises to unsustainable levels, or the quality of governance is on the slide.

We’re certainly seeing a big rise in uncertainty. At the same time, the latest World Bank data reveals that in terms of government effectiveness, the UK is down from the top 7% of countries to the top 13% over five years. What remains to be seen is how UK debt will rise, since we currently don’t have official forecasts following the mini-budget.

With no such estimates due to be published until November 23, not to mention the Bank of England’s failure to consult the MPC, the credit ratings agencies will be seriously tempted to downgrade. Such a move would push UK bond yields upwards again, therefore undermining the bank’s intervention.

It’s worth bearing in mind that the main source of the current instability remains the government’s mini-budget and unfunded tax cuts. This is what undermined investor confidence and caused the sell-offs of UK bonds and sterling in the first place, so the best way to reverse this is to tackle the problem at source by the government modifying its plans.

Having said that, such a U-turn would also leave investors very uneasy about economic management. One way or the other, a rocky economic road looks likely until at least the next general election.

About the Author:

Costas Milas, Professor of Finance, University of Liverpool

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

Economics & Fundamentals Opinions

30 Sep

Why IMF comments on the UK economy spooked traders and investors

By Bernhard Reinsberg, University of Glasgow and Andreas Kern, Georgetown University

Everyone from political pundits to people on the street have issued forth on the new UK government’s tax cut-laden growth plan recently. But it was a rare public rebuke from the International Monetary Fund (IMF) that really impacted financial markets.

Days after the government made its mini-budget announcement, the IMF warned that “large and untargeted fiscal packages” could work at “cross purposes” to monetary policy, referring to current efforts by central banks around the world to fight rampant inflation. It also suggested the government should reevaluate its tax measures and provide more targeted energy crisis support at its next budget, currently scheduled for November 23.

Investors responded by beating an even hastier exit from government bond markets and sending the pound plummeting. Within hours of the IMF statement, the Bank of England had announced a plan to try to calm the markets.

The IMF’s decision to comment on UK tax policy was significant and clearly had an impact on traders and investors. And while the uninitiated may be blissfully unaware of the IMF’s existence, it has played a key role in supporting economies in trouble since the middle of the last century.

Upholding global financial stability

The IMF was established in 1944 at the Bretton Woods Conference, which sought to stabilise global finances after the second world war. Based in Washington D.C., it is an international organisation with 190 member states – from Afghanistan to the UK and US, right through to Zimbabwe.

Its mandate is to uphold international financial stability, which it tries to do by monitoring global macroeconomic developments and providing governments with advice and training on economic policy management.

Most importantly, perhaps, the IMF frequently acts as a “lender of last resort” for its members. This means it provides countries in dire financial straits with much-needed money in the form of loans.

In return, these countries must agree to certain austerity measures. Depending on the situation, this can include tax hikes and drastic spending cuts, alongside other substantial economic reforms.

In the last few years, governments in Ecuador and Pakistan, among others, have hiked interest rates, cut back on public spending programmes, and reduced subsidies on household essentials such as fuel and food to meet the IMF’s performance criteria. As a result, the IMF has become one of the world’s most controversial organisations.

Since the performance criteria it uses are based on the IMF’s worldview, the question of whether its advice is adequate, proportionate, and effective is often subject to debate.

For IMF advocates, the sometimes draconian measures it mandates are necessary to restore investor confidence, boost economic growth and help countries become more competitive in the long run. As such, the IMF can work like a seal of approval for a country’s policy plans, helping governments to shore up international confidence in their economies.

To its critics, the IMF has used its policy leverage to advance reforms that have increased poverty and inequality, leaving countries with deep social and political scars for years after accepting its help. For example, during the Ebola crisis in 2014-15, the IMF was criticised for contributing to underfunded health systems that prevented effective government responses to the epidemic.

Moving markets

Regardless, as the recent case of the UK shows, an IMF verdict on government policy proposals can significantly affect financial markets. For countries with immediate financing needs – typically developing economies – restoring investor confidence with an IMF intervention can be critical to the successful resolution of financial crises.

But the IMF has also used its “magic shield” to rescue UK governments from global financial woes in the past. In fact, since the Fund’s creation, the UK has called upon the IMF 11 times.

Its last IMF rescue happened in 1976 when stagflation and political stalemate forced the UK government to ask for a loan to halt speculative pressures on the British pound. The IMF provided not only financial relief, but also stability to a newly elected British administration by helping to calm market nerves about the UK economy.

This time, the IMF offered up its thoughts on the current economic situation in Britain, rather than being invited to intervene. But instead of curbing speculation about the UK’s financial viability, the statement had the opposite effect: markets panicked.

Mortgage lenders continued to pull their offerings and investors kept unloading government bonds, forcing up yields and the cost of government borrowing. Add the plummeting British pound in the mix and the current situation is in danger of becoming a textbook financial crisis.

But the IMF’s assessment is in line with international experts and ratings agencies in doubting that tax cuts will help reignite UK economic growth. Instead, it argues that the cuts will further expand the budget deficit.

Without a sound fiscal plan, this will increase the need for new government debt. At a time of rampant inflation, deteriorating global economic conditions and rising interest rates – which affect the cost of financing for the government – such debts may become unsustainable for the UK.

Taking into account the reaction of market participants to the IMF’s statement, and that the Bank of England felt the need to intervene in the bond market afterwards, the IMF assessment seems to have carried weight.

Certainly, the UK in debt distress is the last thing the world needs. Many governments in developing and emerging markets are struggling to keep their own economies afloat right now while awaiting financial relief from western banks and the IMF.

But the UK’s central position in global financial markets means any panic in the City of London can spread quickly to global financial markets. From this perspective, the IMF’s recent comments about the UK can be seen an attempt to prevent the world from slipping further into a winter of despair.

About the Author:

Bernhard Reinsberg, Reader in Politics, University of Glasgow and Andreas Kern, Associate Teaching Professor, McCourt School of Public Policy, Georgetown University

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

Economics & Fundamentals Opinions

30 Sep

Nobel Prizes, election outcomes and sports championships – prediction markets try to foresee the future

By Daniel O’Leary, University of Southern California

Who will win Nobel Prizes in 2022? Wikipedia posits a handful of contenders for Physiology or Medicine, about 20 different possible winners for the Peace Prize and several dozen potential winners of the Literature Prize. But since the Swedish Academy never announces nominees in advance, there are few insights indicating who will win, or even if the eventual winner is on a given list.

Are there ways to predict the future winners?

The Delphi approach, named after the oracle in ancient Greece, gathers multiple rounds of opinions from a group of experts to generate a prediction. Gambling firms provide betting odds on the likelihood that specific competitors will win. Crowdsourced competitions, such as the Yahoo Soccer World Cup “Pick-Em,” have participants predict individual contest winners and then aggregate the results.

Another approach is a prediction market that provides insight into what people expect will happen in the future by creating a stock market-like environment to capture the “wisdom of the crowd.” Groups and crowds often are collectively smarter than individuals when many independent opinions are combined.

As an accounting and information systems professor at the University of Southern California, I investigate issues related to the crowd both in my research and in my teaching. Here’s how prediction markets harness what the crowd thinks to forecast the future.

The wisdom of the market

In prediction markets, participants buy and sell stocks. Each stock’s price is tied to a different event happening in the future. Information about the future is captured in the stock prices.

For instance, in a prediction market focused on the Nobel Peace Prize, maybe Greta Thunberg is trading at $0.10 while Pope Francis is trading at $0.15, and the stocks for the entire group of candidates add up to sum to $1. The prices reflect the traders’ aggregated beliefs about the probability of their winning – a higher price means a higher perceived likelihood of winning.

Prediction markets have various ways of setting stock prices. The Iowa Electronic Markets took following approach during the 2020 U.S. presidential election:

Stock DEM2020 pays off $1 if the Democratic candidate wins, and $0 otherwise,
Stock REP2020 pays off $1 if the Republican candidate wins, and $0 otherwise.

The stock prices capture the probabilities of each candidate winning, in two mutually exclusive events. If the price of DEM2020 is $0.52, then that is treated as the probability of that event occurring – a 52% chance. If DEM2020 is $0.52, then REP2020 is $0.48.

Prediction markets may use real money, or they can use play money. Google’s market used what it called “Goobles,” while the Hollywood Stock Exchange uses Hollywood Dollars. The Iowa Electronic Markets and PredictIt, both sponsored by universities, use real money. Researchers have found that there are no differences in the performance of markets using real money versus those using play money.

Although using play money makes it possible for many people to participate, one potential challenge for prediction markets that don’t use real money is gaining and maintaining interested participants. Despite using different devices to keep up engagement, such as leader boards indicating who has accumulated the biggest portfolio, there is literally no money on the table to keep participants interested in the market.

Participants bring their knowledge to the market

Prediction markets and crowdsourcing do not function in a vacuum.

Researchers have found that information about events finds its way into the prediction processes from various sources. For example, when I analyzed the relationship between the betting odds and the Yahoo Pick-Em crowd’s guesses for the 2014 FIFA World Cup, I found that there was no statistical difference between the proportion of correct guesses in each. My conclusion is that either the crowd’s guesses incorporated the betting odds information or the crowd’s guesses added up to the same result by some other means.

Generally, prediction markets use play money or are run by non-profit universities to study markets, elections and human decision making. Although gambling houses can take bets for many activities, external prediction markets are more restricted in the activities they can be used to investigate, and are typically limited to elections. However, internal prediction markets – run within a corporation, for instance – can explore almost any topic of interest.

Typically, prediction markets function better with informed participants. Although using so-called inside information is illegal in some markets, including the New York Stock Exchange, there generally are no such limitations in prediction markets, or other crowdsourcing approaches. If those with inside information were to participate in a prediction market, it would likely lead to more accurate stock prices, as insiders make trades informed by their knowledge. However, if others find out that a participant has inside information, then they may very well try to gain access to that info, follow the insider’s actions or even decide to leave the unfair market.

The accuracy of prediction markets depends on many factors, including who is in the market, what their biases are and how heterogeneous the participants are. Accuracy can also depend on how many people are in the market – more is generally better – and the extent to which they are informed about the events of interest.

Researchers have found that prediction markets have outperformed polls in presidential elections roughly 75% of the time. But accurate results are not guaranteed. For example, prediction markets did not correctly predict that Donald Trump would win the U.S. presidency in 2016.

Who will be in Stockholm for the ceremony?

In 2011, Harvard University economics faculty had a real-money prediction market site, referred to as “the world’s most accurate prediction market.” The site had been used for predicting the Nobel Prize in Economics, but Harvard advised the site to shut down.

I couldn’t find any current public prediction markets active for the 2022 Nobel Prizes.

For the moment, perhaps the closest to participating in a Nobel prediction market would be to place a bet at one of the gambling houses that takes bets on the Nobel Prizes. Or find a Nobel Prize Pick-Em site, propose such an event to an existing prediction market or build your own prediction market using some of the available software.

If you know of one, let me know, I want to play.

About the Author:

Daniel O’Leary, Professor of Accounting and Information Systems, University of Southern California

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

Economics & Fundamentals Opinions

30 Sep

Week Ahead: Robust US jobs data to restore USD Index to 1.28?

By ForexTime

We’re about to enter the final quarter of what’s already been a tumultuous year for global financial markets.

And as it’s been for most of the year, it’s set to be yet another dollar-centric week for global markets.

Global investors and traders are awaiting the next US jobs report as well as potential policy clues by Fed officials who are scheduled to make public comments over the coming week:

Monday, October 3

Mainland Chinese markets closed this week
JPY: Japan 3Q Tankan
EUR: Eurozone September manufacturing PMI (final)
GBP: UK September manufacturing PMI (final)
USD: US September ISM manufacturing and manufacturing PMI (final)
USD: Speeches by Atlanta Fed President Raphael Bostic, New York Fed President John Williams

Tuesday, October 4

JPY: Tokyo September CPI
AUD: Reserve Bank of Australia rate decision
EUR: Eurozone August PPI
USD: Speeches by New York Fed President John Williams, Dallas Fed President Lorie Logan, Cleveland Fed President Loretta Mester, and San Francisco Fed President Mary Daly

Wednesday, October 5

NZD: Reserve Bank of New Zealand rate decision
EUR: Eurozone September services PMI (final)
Brent: OPEC+ meeting
US crude: EIA weekly oil inventory report
USD: Speech by Atlanta Fed President Raphael Bostic

Thursday, October 6

AUD: Australia August external trade
EUR: Eurozone August retail sales, Germany August factory orders
USD: US weekly initial jobless claims
USD: Speeches by Chicago Fed President Charles Evans, Fed Governor Lisa Cook, Cleveland Fed President Loretta Mester

Friday, October 7

EUR: Germany August retail sales, industrial production
GBP: Speech by BOE Deputy Governor Dave Ramsden
CAD: Canada September unemployment
USD: US September nonfarm payrolls, speech by New York Fed President John Williams

Recently, the equally-weighted USD index soared past 1.28, well above the 1.25 level cited in our previous Week Ahead article (posted every Friday). 1.25 also marked the early-April 2020 cycle high.

However, this dollar index then swiftly unwound gains, as it pulled away from ‘overbought’ conditions, with its 14-day relative strength index moving back below the 70 level.

The upcoming US jobs report may help determine whether this USD index can be restored to its recent peak above 1.28, or at least remain at these elevated levels.

Here are the market forecasts at present:

August nonfarm payrolls: 250,000 increase (median estimate)
If so, this would be the lowest monthly jobs growth since December 2019.
August US unemployment rate: 3.7% (median estimate)
If so, this would mark s slight uptick, but still hovering close to the pre-pandemic low of 3.5%.
75-basis point hike by the Fed in November: 69%

If the US labour market continues to demonstrate its resilience, either by way of a higher-than-expected headline NFP figure or a lower-than-expected unemployment rate, that should ramp up market expectations for yet another 75-basis point hike by the Fed at its next policy decision due November 2nd.

Such ramped-up expectations may then restore the USD Index back up to 1.28.

Also, keep an eye on the slate of Fed officials who are scheduled to make public comments in the coming week.

Should they offer fresh signs that they’re willing to take bolder measures to quell stubbornly elevated US inflation, that may translate into more USD strength as well.

Alternatively, if market fears over an ultra-aggressive Fed further subside, that may in turn see the US dollar unwinding more of its recent gains.

Article by ForexTime

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

Economics & Fundamentals Financial News

30 Sep

The US economy is in recession. Inflation in Germany hit another record

By JustForex

According to the US Department of Labor, initial jobless claims for the week unexpectedly fell to 193,000, down from 209,000 the previous week. This is the lowest level in four months. Other data showed that US real Gross Domestic Product (GDP) declined at an annualized rate of 0.6% in the second quarter of 2022. In the first quarter, real GDP was down 1.6%. Thus, the US economy has already had two official quarters of declining GDP, indicating a recession in the economy. The Dow Jones Index (US30) decreased by 1.54% at the stock market’s close yesterday, and the S&P 500 Index (US500) lost 2.11%. The Technology Index NASDAQ (US100) was down by 2.07% by the end of the day.

Apple shares fell by 5% after Bank of America downgraded the company from “Buy” to “Neutral,” citing concerns about slowing consumer spending. The downgrade worsened the sentiment of all semiconductor stocks. Rising Treasury bond yields, the enemy of growth sectors such as tech stocks, also added pressure to the overall market.

Cleveland Fed President Loretta J. Mester said inflation was “unacceptably high” and reiterated the Fed’s willingness to return inflation to the 2% target, even if the economy slows.

Equity markets in Europe were also mostly down yesterday. German DAX (DE30) lost 1.71%, French CAC 40 (FR40) decreased by 1.53%, Spanish IBEX 35 (ES35) fell by 1.91%, British FTSE 100 (UK100) closed yesterday down by 1.77%

Germany continues accumulating gas in storage, with the occupancy level at 91.5% of capacity. But according to the German Federal Network Agency, the population is consuming too much natural gas, and it is recommended to reduce consumption to avoid shortages. In order to avoid a gas shortage this winter, consumption must be reduced by at least 20%, which is almost impossible to achieve when considering that the country’s total gas consumption last week was 14.5% higher than the 2018-2021 average.

Inflation data showed yesterday that consumer prices in Germany reached their highest level in decades. On an annualized basis, the inflation rate reached 10%, up from 7.4% the previous month. In Spain, on the other hand, the numbers were more positive. Spain’s annual inflation rate fell to 9.0% from 10.5%. According to analysts, the inflation data, along with 15 ECB speeches this week, bolstered expectations of a tentative 0.75% interest rate hike at the next meeting.

The Bank of England began a historic intervention to stabilize the UK economy by announcing a two-week buying program for long-term bonds and postponing planned sales of securities until late October. The bank said it would start buying up to £5 billion worth of long-term securities (with maturities of more than 20 years) on the secondary market from Wednesday until October 14. This helped stabilize the British pound.

The Russian-backed authorities organized elections in the occupied regions in eastern and southern Ukraine, which have been widely condemned as a bogus attempt to justify land grabs after recent military setbacks. The Kremlin announced Thursday that Russia is officially annexing four regions of Ukraine partially controlled by its military, a major political escalation. Kremlin spokesman Dmitry Peskov said Russian President Vladimir Putin would attend the annexation ceremony of the four Ukrainian regions on Friday. The Ukrainian Foreign Ministry called the referendums an illegal “propaganda show.” The United States and its Western allies also pledged not to recognize Russia’s claims to the occupied territories. During the voting, armed forces accompanied election officials who went door to door asking people to vote. The international community was concerned that Moscow might try to defend “its new” claimed territory with nuclear weapons. The US responded that any use of nuclear weapons by Russia would be met with a “catastrophic” response.

According to preliminary reports, OPEC+ countries will discuss production cuts at a meeting on October 5. Hurricane “Ian” did not touch oil production platforms on the US Gulf Coast, which caused oil prices to decline after two days of gains.

Asia’s major stock indices mostly strengthened yesterday. Japan’s Nikkei 225 (JP225) gained 0.95%, Hong Kong’s Hang Seng (HK50) ended the day 0.49% lower, while Australia’s S&P/ASX 200 (AU200) ended the day up by 1.44%.

The Chinese yuan broke an eight-day losing streak after the People’s Bank of China (PBOC) warned against speculative trading and large unilateral bets on the currency. The central bank also said that stabilizing the currency market is a top priority and reiterated that the yuan has a solid foundation to be basically stable.

S&P 500 (F) (US500) 3,640.47 −78.57 (−2.11%)

Dow Jones (US30) 29,225.61 −458.13 (−1.54%)

DAX (DE40) 11,975.55 −207.73 (−1.71%)

FTSE 100 (UK100) 6,881.59 −123.80 (−1.77%)

USD Index 111.95 −0.66 (−0.58%)

Important events for today:

– Japan Industrial Production (m/m) at 02:30 (GMT+3);
– Japan Unemployment Rate (m/m) at 02:50 (GMT+3);
– Japan Retail Sales (m/m) at 02:50 (GMT+3);
– China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
– Japan Consumer Confidence (m/m) at 08:00 (GMT+3);
– UK GDP (q/q) at 09:00 (GMT+3);
– Eurozone German Retail Sales (m/m) at 09:00 (GMT+3);
– Switzerland Retail Sales (m/m) at 09:30 (GMT+3);
– Eurozone French CPI (m/m) at 09:45 (GMT+3);
– Eurozone German Unemployment Rate (m/m) at 10:55 (GMT+3);
– Eurozone Italian CPI (m/m) at 12:00 (GMT+3);
– Eurozone CPI (m/m) at 12:00 (GMT+3);
– Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
– US PCE Price index (m/m) at 15:30 (GMT+3);
– US FOMC Member Brainard Speaks at 16:00 (GMT+3);
– US Chicago PMI (m/m) at 16:45 (GMT+3);
– US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3);
– US FOMC Member Bowman Speaks at 18:00 (GMT+3);
– US FOMC Member Williams Speaks at 3:15 (GMT+3).

By JustForex

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

28 Sep

There is a 98% chance of an imminent global recession

By JustForex

The Dow Jones Index (US30) decreased by 0.43% at the close of the stock market yesterday, while the S&P 500 (US500) fell by 0.23%. NASDAQ Technology Index (US100) added 0.69% by the end of the day. The decline is getting deeper on Wall Street despite rising consumer confidence in September. The S&P 500 fell yesterday to its lowest level since December 2020, bringing this month’s loss nearly 8%. Ned Davis Research now thinks there is a 98% chance of an impending global recession.

At his speech yesterday, Fed spokesman Bullard said that the US has a serious problem with inflation, calling for further rate hikes. The committee will continue to raise rates, with a target peak of 4.5%. Bullard also added that the Fed would need to keep rates high for some time. Federal Reserve Bank of Minneapolis President Neel Kashkari said that the current pace of rate hikes is “appropriate” and reiterated the Fed’s commitment to lower inflation.

Stock markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.72%, France’s CAC 40 (FR40) fell by 0.27%, Spain’s IBEX 35 (ES35) lost 0.84%, Britain’s FTSE 100 (UK100) closed down by 0.52%.

Based on a model of the European energy market and economy, Bloomberg Economics offers a baseline scenario of Eurozone GDP falling 1%, with the decline starting in Q4. If the coming months turn out to be particularly cold and countries fail to allocate scarce fuel supplies efficiently, the decline could be as much as 5%. Another study (BloombergNEF) shows that Europe is ready for a winter without Russian gas. Europe’s rush to buy LNG means that Europe will likely have enough fuel for power generation this winter to offset supplies from Russia. The region could import nearly 40% more LNG this coming winter than last year, and next summer, it could increase purchases by about 14% to recover lost supplies.

According to analysts, the most important signal to calm the markets now may come from the United Kingdom. The Bank of England may raise the rate sharply by 125-150 bps at an emergency meeting. However, the problem with a sharp increase by the Bank of England is that markets may perceive such action as a sign of desperation and aggravation of Britain’s perceived financial problems. Given that the government’s energy and budget plans have caused the market to collapse further, the authorities must back up any action by the Bank of England with a fiscal response. This could mean a partial reversal of the measures the new Liz Truss-led government has just put at the center of its economic reform strategy.

The Baltic Pipe gas pipeline, which connects Polish territory with the Norwegian offshore via Denmark, was launched at a ceremony in Poland. At the same time, both strings of the Nord Stream pipeline experienced a drastic drop in pressure. The German government is not ruling out that the pressure drop could have been caused by deliberate sabotage aimed at creating uncertainty in the European gas markets. The Danish prime minister said sabotage could not be ruled out. “We are talking about three leaks with some distance between them, so it is difficult to imagine that it is a coincidence.” None of the pipelines were delivering gas to Europe when the leaks were discovered, but the incidents would dash any remaining hopes that Europe could get gas through Nord Stream 1 before winter arrives. Gas prices in Europe jumped by 9% percent after the news.

Oil prices rose slightly yesterday as investors raised their bets on oil supply disruptions as Hurricane Ian is expected to hit Florida on Wednesday.

Chinese authorities will continue to actively buy goods from other countries, including oil and gas from Russia, China’s deputy commerce minister said.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) gained 0.53%, Hong Kong’s Hang Seng (HK50) gained 0.03% for the day, and Australia’s S&P/ASX 200 (AU200) was up by 0.41% on Tuesday.

Independent research shows that deflation risks in China are rising amid the real estate crisis. Companies are reporting the weakest price growth since late 2020. Winter lockdowns may intensify deflation fears. The World Bank worsened China’s GDP growth forecast for 2022 and 2023 due to the real estate crisis and the country’s authorities’ tough policies to curb the spread of COVID-19. According to the new forecast, China’s GDP will increase by 2.8% in 2022 and by 4.5% next year.

S&P 500 (F) (US500) 3,647.29 −7.75 (−0.21%)

Dow Jones (US30) 29,134.99 −125.82 (−0.43%)

DAX (DE40) 12,139.68 −88.24 (−0.72%)

FTSE 100 (UK100) 6,984.59 −36.36 (−0.52%)

USD Index 114.11 +0.01 (0.00%)

Important events for today:

– Japan Monetary Policy Meeting Minutes (m/m) at 02:50 (GMT+3);
– Australia Retail Sales (m/m) at 04:30 (GMT+3);
– Eurozone ECB President Lagarde Speaks at 10:15 (GMT+3);
– US Pending Home Sales (m/m) at 17:00 (GMT+3);
– US FOMC Member Bullard Speaks at 17:10 (GMT+3);
– US Fed Chair Powell Speaks at 17:15 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
– US FOMC Member Bowman Speaks at 18:00 (GMT+3).

By JustForex

Economics & Fundamentals Financial News

27 Sep

5 steps you can take to manage a hike in interest rates

By Bomikazi Zeka, University of Canberra

The governor of the South African Reserve Bank recently announced an increase in the lending rate by 75 basis points. This means the repo rate (the rate at which the central bank lends money to commercial banks) will increase from 5.5% to 6.25% and the prime rate (the rate commercial banks charge their clients when lending them money) rises from 9.0% to 9.75%.

South Africa isn’t alone. Countries across the continent – and the world – have also been hiking rates to manage rising prices. South Africa is the most recent African country to hike rates. Others have included Ghana and Nigeria. And more hikes are expected in the coming weeks.

From a personal finance perspective, increased interest rates have implications for anyone with a mortgage, vehicle financing, student loan or any other form of debt. Higher interest rates translate to higher debt repayments. For instance, in South Africa the monthly repayment on a R1 million home loan, with a repayment term of 20 years, will increase from R8,997 to R9,485.

Many households are feeling the financial pinch caused by the rising cost of living. Low-income households are the most vulnerable to high food costs. But middle-income earners don’t fare any better. A recent report on South Africa by the consultancy PwC highlighted that 40% of this cohort’s expenditure is allocated to food and 20% goes towards housing and utilities.

But the time to fix the roof is indeed while the sun is still shining. Before the economic situation goes from bad to worse, the impact of rising prices – and rising interest rates – can be mitigated in a combination of ways. Here are five steps you should consider taking.

Five things you can do

Debt: Try to pay off as much of your debt as possible. As interest rates rise, so do debt repayments. Loans could be tying up funds that could better service another area of your finances.

Another important consideration is that the risk of defaulting on your debt repayments increases during financially difficult times. If default occurs, it would spell bad news for your credit rating, which would jeopardise the ability to take out a loan in the future.

If taking on more debt is necessary, knowing your credit score and assessing whether the debt works for you or against you may be the tipping point in the decision to take on more debt, particularly when interest rates are up.

Shop around for the best rate: Investing in the property market is a lifelong goal for many. New entrants in the housing market should resist the temptation to accept the first mortgage offer that comes their way. Many banks are not explicit in sharing this information but your “home bank” should give you the best offer because they want to keep all your business in house.

Banks are in competition with one another to be your home loan provider and the better offer is, more often than not, the one that’s below prime.

Track your finances: Many may think of budgeting as the equivalent of wearing a financial straitjacket. But tracking your finances provides another way for finding opportunities to cut expenses and increase savings. Consider the opportunity cost of not budgeting. Without monitoring your cashflow, it becomes nearly impossible to make contingencies for unplanned expenses. Most people also save what’s left after spending, instead of spending what remains after saving. While the intention to save may exist, intentions alone won’t get the job done.

Clearly demarcating how much you will put away in savings can make a huge difference in the long run. Many households are more financially vulnerable than they think. In fact, most families are one medical emergency away from being financially devastated. Just think of the doctor’s consultation fees (or worse, specialist referral fees), ambulance call-out fees and out-of-pocket expenditure. With or without medical aid, making provisions for the unforeseen occurs through budgeting.

Negotiate insurance premiums: Another unspoken financial hack that could save a little is negotiating the increase in your annual insurance premiums. If you haven’t claimed from your insurer within the financial year, you can turn this to your favour in stalling the premium increase. And if you have many assets covered by the same insurer (for example, vehicle and household contents), then this too can work for you. While it may not make a world of a difference, as the expression goes, “a single grain of rice can tip the scale”.

Think savings-plus: Opportunities exist to generate a second income stream from financial markets despite poor investor sentiment. Investments in interest-earning securities can be a useful method of generating passive income from idle cash. Interest-earning securities provide income based on market-related fixed interest rates throughout the investment period until the investment period comes to an end, while also guaranteeing that the capital amount invested is protected.

While you’re encouraged to have a savings fund, it’s also important to consider the trade-off between how much you have in short-term versus long-term savings instruments. For example, in the case of South Africa, with a minimum investment amount of R1,000, and a fixed interest rate of 8.25% for a two-year investment period, local retail bonds are a safe investment alternative for those with low risk appetites and looking to put idle cash at work.

The point here is not to promote one savings product over another, but to re-think how to earn passive income from existing funds.

Long-term game

It may be too soon to tell whether the economy will go into a recession, but if it does happen, we will eventually get out it. The long-term social and economic effects of the hike in interest rates can be persistent, which is why planning and preparation are paramount to remaining financially afloat during these challenging times.

About the Author:

Bomikazi Zeka, Assistant Professor in Finance and Financial Planning, University of Canberra

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

Economics & Fundamentals Opinions

27 Sep

Hurricane hunters are flying through Ian’s powerful winds to get the forecasts you rely on – here’s what happens when the plane plunges into the eyewall of a storm

By Jason Dunion, University of Miami

As Hurricane Ian intensifies on its way toward the Florida coast, hurricane hunters are in the sky doing something almost unimaginable: flying through the center of the storm. With each pass, the scientists aboard these planes take measurements that satellites can’t and send them to forecasters at the National Hurricane Center.

Jason Dunion, a University of Miami meteorologist, leads the National Oceanic and Atmospheric Administration’s 2022 hurricane field program. He described the technology the team is using to gauge hurricane behavior in real time and the experience aboard a P-3 Orion as it plunges through the eyewall of a hurricane.

Flying into Hurricane Harvey aboard a a P-3 Hurricane Hunter nicknamed Kermit in 2018.
Lt. Kevin Doreumus/NOAA

What happens aboard a hurricane hunter when you fly into a storm?

Basically, we’re take a flying laboratory into the heart of the hurricane, all the way up to Category 5s. While we’re flying, we’re crunching data and sending it to forecasters and climate modelers.

In the P-3s, we routinely cut through the middle of the storm, right into the eye. Picture an X pattern – we keep cutting through the storm multiple times during a mission. These might be developing storms, or they might be Category 5s.

In the eye of Hurricane Teddy in 2020. The eye is the calmest part of the storm, but it’s surrounded by the most intense part: the eyewall.
Lt. Cmdr. Robert Mitchell/NOAA Corps

We’re typically flying at an altitude of around 10,000 feet, about a quarter of the way between the ocean surface and the top of the storm. We want to cut through the roughest part of the storm because we’re trying to measure the strongest winds for the Hurricane Center.

That has to be intense. Can you describe what scientists are experiencing on these flights?

My most intense flight was Dorian in 2019. The storm was near the Bahamas and rapidly intensifying to a very strong Category 5 storm, with winds around 185 mph. It felt like being a feather in the wind.

When we were coming through the eyewall of Dorian, it was all seat belts. You can lose a few hundred feet in a couple of seconds if you have a down draft, or you can hit an updraft and gain a few hundred feet in a matter of seconds. It’s a lot like a rollercoaster ride, only you don’t know exactly when the next up or down is coming.

Hurricane Dorian seen from the International Space Station.
NASA

At one point, we had G-forces of 3 to 4 Gs. That’s what astronauts experience during a rocket launch. We can also get zero G for a few seconds, and anything that’s not strapped down will float off.

Even in the rough parts of the storm, scientists like myself are busy on computers working up the data. A technician in the back may have launched a dropsonde from the belly of the plane, and we’re checking the quality of the data and sending it off to modeling centers and the National Hurricane Center.

NOAA’s P-3 Orion nicknamed ‘Kermit’ prepares to take off.
Lt. Cmdr Rannenberg/NOAA Corps

What are you learning about hurricanes from these flights?

One of our goals is to better understand why storms rapidly intensify.

Rapid intensification is when a storm increases in speed by 35 mph in just a day. That equates to going from Category 1 to a major Category 3 storm in a short period of time. Ida (2021), Dorian (2019) and Michael (2018) are just a few recent hurricanes that rapidly intensified. When that happens near land, it can catch people unprepared, and that gets dangerous fast.

Since rapid intensification can happen in a really short time span, we have to be out there with the hurricane hunters taking measurements while the storm is coming together.

A hurricane hunter flies through Hurricane Ida in 2021.
Lt. Cmdr. Kevin Doremus/NOAA Corps

So far, rapid intensification is hard to predict. We might start to see the ingredients quickly coming together: Is the ocean warm to a great depth? Is the atmosphere nice and juicy, with a lot of moisture around the storm? Are the winds favorable? We also look at the inner core: What does the structure of the storm look like, and is it starting to consolidate?

Satellites can offer forecasters a basic view, but we need to get our hurricane hunters into the storm itself to really pick the hurricane apart.

What does a storm look like when it’s rapidly intensifying?

Hurricanes like to stand up straight – think of a spinning top. So, one thing we look for is alignment.

A storm that isn’t yet fully together might have low-level circulation, a few kilometers above the ocean, that isn’t lined up with its mid-level circulation 6 or 7 kilometers up. That isn’t a very healthy storm. But a few hours later, we might fly back into the storm and notice that the two centers are more lined up. That’s a sign that it could rapidly intensify.

We also look at the boundary layer, the area just above the ocean. Hurricanes breathe: They draw air in at low levels, the air rushes up at the eyewall, and then it vents out at the top of the storm and away from the center. That’s why we get those huge updrafts in the eyewall.

So we might watch our dropsonde or tail doppler radar data for how the winds are flowing at the boundary layer. Is that really moist air rushing in toward the center of the storm? If the boundary layer is deep, the storm can also take a bigger inhale.

Cross-section of a hurricane.
National Weather Service

We also look at the structure. A lot of times the storm looks healthy on satellite, but we’ll get in with the radar and the structure is sloppy or the eye may be filled with clouds, which tells us the storm isn’t quite ready to rapidly intensify. But, during that flight, we might start to see the structure change pretty quickly.

Air in, up and out – the breathing – is a great way to diagnose a storm. If that breathing looks healthy, it can be a good sign of an intensifying storm.

What instruments do you use to measure and forecast hurricane behavior?

We need instruments that not only measure the atmosphere but also the ocean. The winds can steer a storm or tear it apart, but the ocean heat and moisture are its fuel.

We use dropsondes to measure temperature, humidity, pressure and wind speed, and send back data every 15 feet or so all the way to the ocean surface. All of that data goes to the National Hurricane Center and to modeling centers so they can get a better representation of the atmosphere.

A NOAA technician deploys an airborne expendable bathythermograph.
Paul Chang/NOAA

One P-3 has a laser – a CRL, or compact rotational raman LiDAR – that can measure temperature, humidity and aerosols from the aircraft all the way down to the ocean surface. It can give us a sense of how juicy the atmosphere is, so how conducive it is for feeding a storm. The CRL operates continuously over the entire flight track, so you get this beautiful curtain below the aircraft showing the temperature and humidity.

The planes also have tail doppler radars, which measure how moisture droplets in the air are blowing to determine how the wind is behaving. That gives us a 3D look at the wind field, like an X-ray of the storm. You can’t get that from a satellite.

We also launch ocean probes call AXBTs – aircraft expendable bathythermograph – out ahead of the storm. These probes measure the water temperature down several hundred feet. Typically, a surface temperature of 26.5 degrees Celsius (80 Fahrenheit) and above is favorable for a hurricane, but the depth of that heat is also important.

If you have warm ocean water that’s maybe 85 F at the surface, but just 50 feet down the water is quite a bit colder, the hurricane is going to mix in that cold water pretty quickly and weaken the storm. But deep warm water, like we find in eddies in the Gulf of Mexico, provides extra energy that can fuel a storm.

Map showing Ida's track and the depth of heat — The depth of ocean heat as Hurricane Ida headed for a warm eddy boundary on Aug. 28, 2021.
University of Miami, CC BY-ND

This year, we’re also testing a new technology – small drones that we can launch out of the belly of a P-3. They have about a 7- to 9-foot wingspan and are basically a weather station with wings.

One of these drones dropped in the eye could measuring pressure changes, which indicate whether a storm is getting stronger. If we could drop a drone in the eyewall and have it orbit there, it could measure where the strongest winds are – that’s another important detail for forecasters. We also don’t have a lot of measurements in the boundary layer because it’s not a safe place for a plane to fly.

You also targeted the Cabo Verde islands off Africa for the first time this year. What are you looking for there?

The Cabo Verde Islands are in the Atlantic’s hurricane nursery. The seedlings of hurricanes come off Africa, and we’re trying to determine the tipping points for theses disturbances to form into storms.

Over half the named storms we get in the Atlantic come from this nursery, including about 80% of the major hurricanes, so it’s important, even though the disturbances are maybe seven to 10 days ahead of a hurricane forming.

In Africa, a lot of thunderstorms develop along the Sahara desert’s southern border with the cooler, moister Sahel region in the summer. The temperature difference can cause ripples to develop in the atmosphere that we call tropical waves. Some of those tropical waves are the precursors for hurricanes. However, the Saharan air layer – huge dust storms that come rolling off Africa every three to five days or so – can suppress a hurricane. These storms peak from June to mid-August. After that, tropical disturbances have a better chance of reaching the Caribbean.

At some point not too far in the future, the National Hurricane Center will have to do a seven-day forecast, rather than just five days. We’re figuring out how to improve that early forecasting.

About the Author:

Jason Dunion, Research Meteorologist, University of Miami

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

Economics & Fundamentals Financial News

27 Sep

Germany’s economy is heading for a recession. Bank experts predict a further decline in stock indices

By JustForex

At yesterday’s stock market close, the Dow Jones index (US30) decreased by 1.11%, and the S&P 500 index (US500) fell by 1.03%. The NASDAQ Technology Index (US100) lost 0.63% on Monday. The Fed’s aggressive tightening campaign has pushed the US dollar to new multi-year highs, and many are worried about the consequences of such a strong dollar. Fed officials’ statements continue to be hawkish, with Boston Fed President Susan Collins saying Monday that additional tightening is needed. The US 2-year bond yields have reached 4.34%. In addition, a strong dollar could lead companies to release weak forecasts for the coming quarters, which could further exacerbate the drop in stock indices.

According to strategists at Morgan Stanley, a sharp rise in the dollar usually ends in a crisis. MS experts believe that a possible minimum for the benchmark S&P 500 index will come late this year or early next year at 3,000-3,400 points. That means an 8-13% decline from current prices.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.46%, France’s CAC 40 (FR40) fell by 0.24%, Spain’s IBEX 35 (ES35) lost 0.99%, Britain’s FTSE 100 (UK100) closed up to 0.03%.

Germany’s economy is heading for recession, the IFO Institute said Monday, reporting a stronger-than-forecast drop in business activity across all sectors. The business climate index fell to 84.3 from 88.6 in August. The decline was noticeable in all sectors of the German economy. The report said the energy price shock is dragging consumers’ purchasing power down and making production unprofitable for many companies. Germany is struggling to avoid gas shortages this winter.

ECB head Christine Lagarde said yesterday that the Governing Council intends to continue raising interest rates at its next meetings, even though the economic outlook is worsening.

Giorgia Meloni won a clear majority in Sunday’s elections in Italy, making her the country’s first female prime minister at the head of the most right-wing government since World War II. The center-right won 44.34% of the vote in the elections to the Chamber of Deputies.

EU countries plan to delay a cap on Russian oil prices because of the controversy.

Russia’s actions in Ukraine will cost the world economy $2.8 trillion in lost production by the end of next year – and even more if a harsh winter leads to rationing of energy consumption in Europe, the Organization for Economic Cooperation and Development (OECD) said Monday. Global financial companies, still reeling from multibillion-dollar losses due to their business withdrawal from Russia, are now reviewing the risks of doing business in China after escalating tensions over Taiwan.

Turkey and Kazakhstan do not recognize the results of the referendums in the DNR, LNR, Kherson, and Zaporizhzhia regions.

Oil prices hit a nine-month low on Monday amid choppy trade under pressure from a strengthening dollar and expectations of new sanctions against Russia. It also became known yesterday that more than 1 million barrels of oil from the US are scheduled to be delivered to Europe daily. Supplies from the US should come to replace oil from Russia.

Asian markets were trading lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 2.66%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.44%, and Australia’s S&P/ASX 200 (AU200) ended Monday down by 1.60%.

The Chinese economy will recover moderately in 2023 after sluggish growth in 2022. In June, the OECD projected the economy to grow 4.4% in 2022 but now expects growth to be only 3.2%. By 2023, growth is projected at 4.7%.

S&P 500 (F) (US500) 3,655.04 −38.19 (−1.03%)

Dow Jones (US30) 29,260.81 −329.60 (−1.11%)

DAX (DE40) 12,227.92 −56.27 (−0.46%)

FTSE 100 (UK100) 7,020.95 +2.35 (+0.033%)

USD Index 114.13 +0.93 (+0.82%)

Important events for today:

– US Fed Chair Powell Speaks at 14:30 (GMT+3);
– Eurozone ECB President Lagarde Speaks at 14:30 (GMT+3);
– US Core Durable Goods Orders (m/m) at 15:30 (GMT+3);
– US FOMC Member Bullard Speaks at 16:55 (GMT+3);
– US CB Consumer Confidence (m/m) at 17:00 (GMT+3);
– US New Home Sales (m/m) at 17:00 (GMT+3).

By JustForex

Economics & Fundamentals Financial News

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