Archive for Economics & Fundamentals – Page 145

26 Jul

Cross-pollination among neuroscience, psychology and AI research yields a foundational understanding of thinking

By Paul S. Rosenbloom, University of Southern California; Christian Lebiere, Carnegie Mellon University, and John E. Laird, University of Michigan 

Progress in artificial intelligence has enabled the creation of AIs that perform tasks previously thought only possible for humans, such as translating languages, driving cars, playing board games at world-champion level and extracting the structure of proteins. However, each of these AIs has been designed and exhaustively trained for a single task and has the ability to learn only what’s needed for that specific task.

Recent AIs that produce fluent text, including in conversation with humans, and generate impressive and unique art can give the false impression of a mind at work. But even these are specialized systems that carry out narrowly defined tasks and require massive amounts of training.

It still remains a daunting challenge to combine multiple AIs into one that can learn and perform many different tasks, much less pursue the full breadth of tasks performed by humans or leverage the range of experiences available to humans that reduce the amount of data otherwise required to learn how to perform these tasks. The best current AIs in this respect, such as AlphaZero and Gato, can handle a variety of tasks that fit a single mold, like game-playing. Artificial general intelligence (AGI) that is capable of a breadth of tasks remains elusive.

Ultimately, AGIs need to be able to interact effectively with each other and people in various physical environments and social contexts, integrate the wide varieties of skill and knowledge needed to do so, and learn flexibly and efficiently from these interactions.

Building AGIs comes down to building artificial minds, albeit greatly simplified compared to human minds. And to build an artificial mind, you need to start with a model of cognition.

a robot with a single arm grasps one of five colored blocks on a small table
This robot, powered by an AI called Rosie, learned how to solve this puzzle from a human who communicated to the robot using natural language.
James Kirk, CC BY-ND

From human to Artificial General Intelligence

Humans have an almost unbounded set of skills and knowledge, and quickly learn new information without needing to be re-engineered to do so. It is conceivable that an AGI can be built using an approach that is fundamentally different from human intelligence. However, as three longtime researchers in AI and cognitive science, our approach is to draw inspiration and insights from the structure of the human mind. We are working toward AGI by trying to better understand the human mind, and better understand the human mind by working toward AGI.

From research in neuroscience, cognitive science and psychology, we know that the human brain is neither a huge homogeneous set of neurons nor a massive set of task-specific programs that each solves a single problem. Instead, it is a set of regions with different properties that support the basic cognitive capabilities that together form the human mind.

These capabilities include perception and action; short-term memory for what is relevant in the current situation; long-term memories for skills, experience and knowledge; reasoning and decision making; emotion and motivation; and learning new skills and knowledge from the full range of what a person perceives and experiences.

Instead of focusing on specific capabilities in isolation, AI pioneer Allen Newell in 1990 suggested developing Unified Theories of Cognition that integrate all aspects of human thought. Researchers have been able to build software programs called cognitive architectures that embody such theories, making it possible to test and refine them.

Cognitive architectures are grounded in multiple scientific fields with distinct perspectives. Neuroscience focuses on the organization of the human brain, cognitive psychology on human behavior in controlled experiments, and artificial intelligence on useful capabilities.

The Common Model of Cognition

We have been involved in the development of three cognitive architectures: ACT-R, Soar and Sigma. Other researchers have also been busy on alternative approaches. One paper identified nearly 50 active cognitive architectures. This proliferation of architectures is partly a direct reflection of the multiple perspectives involved, and partly an exploration of a wide array of potential solutions. Yet, whatever the cause, it raises awkward questions both scientifically and with respect to finding a coherent path to AGI.

Fortunately, this proliferation has brought the field to a major inflection point. The three of us have identified a striking convergence among architectures, reflecting a combination of neural, behavioral and computational studies. In response, we initiated a communitywide effort to capture this convergence in a manner akin to the Standard Model of Particle Physics that emerged in the second half of the 20th century.

a graphic showing a human head and brain on the left, a robot head with circuits on the right, and a chart with five colored blocks and arrows connecting the blocks
This basic model of cognition both explains human thinking and provides a blueprint for true artificial intelligence.
Andrea Stocco, CC BY-ND

This Common Model of Cognition divides humanlike thought into multiple modules, with a short-term memory module at the center of the model. The other modules – perception, action, skills and knowledge – interact through it.

Learning, rather than occurring intentionally, happens automatically as a side effect of processing. In other words, you don’t decide what is stored in long-term memory. Instead, the architecture determines what is learned based on whatever you do think about. This can yield learning of new facts you are exposed to or new skills that you attempt. It can also yield refinements to existing facts and skills.

The modules themselves operate in parallel; for example, allowing you to remember something while listening and looking around your environment. Each module’s computations are massively parallel, meaning many small computational steps happening at the same time. For example, in retrieving a relevant fact from a vast trove of prior experiences, the long-term memory module can determine the relevance of all known facts simultaneously, in a single step.

Guiding the way to Artificial General Intelligence

The Common Model is based on the current consensus in research in cognitive architectures and has the potential to guide research on both natural and artificial general intelligence. When used to model communication patterns in the brain, the Common Model yields more accurate results than leading models from neuroscience. This extends its ability to model humans – the one system proven capable of general intelligence – beyond cognitive considerations to include the organization of the brain itself.

We are starting to see efforts to relate existing cognitive architectures to the Common Model and to use it as a baseline for new work – for example, an interactive AI designed to coach people toward better health behavior. One of us was involved in developing an AI based on Soar, dubbed Rosie, that learns new tasks via instructions in English from human teachers. It learns 60 different puzzles and games and can transfer what it learns from one game to another. It also learns to control a mobile robot for tasks such as fetching and delivering packages and patrolling buildings.

Rosie is just one example of how to build an AI that approaches AGI via a cognitive architecture that is well characterized by the Common Model. In this case, the AI automatically learns new skills and knowledge during general reasoning that combines natural language instruction from humans and a minimal amount of experience – in other words, an AI that functions more like a human mind than today’s AIs, which learn via brute computing force and massive amounts of data.

From a broader AGI perspective, we look to the Common Model both as a guide in developing such architectures and AIs, and as a means for integrating the insights derived from those attempts into a consensus that ultimately leads to AGI.The Conversation

About the Author:

Paul S. Rosenbloom, Professor Emeritus of Computer Science, University of Southern California; Christian Lebiere, Research Psychologist, Carnegie Mellon University, and John E. Laird, John L. Tishman Professor of Engineering, University of Michigan

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

 

Economics & Fundamentals Opinions
25 Jul

Dispirited homebuyers show why Fed’s unprecedented fight against inflation is beginning to succeed

By Mark Flannery, University of Florida 

– I’ve studied finance and financial markets since the 1970s, and I have never seen the Federal Reserve’s monetary policy get such prominent news coverage as it has this past year.

And with good reason. What the Fed does has profound implications for companies, consumers and the U.S. economy, especially now as the U.S. central bank tries to tame the fastest jump in consumer prices in decades. In short, the Fed is jacking up interest rates in hopes that doing so slows the economy enough to bring down inflation.

The housing market is the sector most substantially influenced by interest rate changes, and as such, it’s a key indicator of whether the Fed’s plans are succeeding. To see why, I need only consider the experience of my son – or the many other Americans hunting for a new home at a time of rising interest rates.

What the Fed is doing

First, a little background.

The Federal Reserve is raising interest rates at the fastest pace in its 108-year history as part of its inflation battle. Today’s big policy steps are needed in part because the Fed and many others took awhile to understand what was causing the rise in inflation.

In fall 2021, while the pace of inflation was accelerating past 4% – double the Fed’s targeted rate – the prevailing view at the central bank and elsewhere was that it reflected temporary disruptions following two years of COVID-19-related slowdowns. The assumption was that inflation would abate automatically as supply chains worked themselves out.

Unfortunately, that assumption proved wrong because it did not recognize how much government COVID-19 relief spending had stimulated what economists call “aggregate demand” – in other words, the total demand for goods and services produced in an economy. Put another way, consumer spending spurred by government aid created strong demand across the economy.

And so consumer prices continued to accelerate. Russia’s war in Ukraine made the problem worse, especially by driving up global food and energy prices. As of June 2022, inflation was surging at 9.1%, the fastest pace since 1981.

While the Fed can’t do much about the war or other supply-chain issues, it can address domestic aggregate demand. That’s where higher interest rates come in.

Higher borrowing costs choke off consumer demand for homes, cars and other goods and services that typically require a loan, while companies pare back their investments in factories and hiring, which should ease overall inflation.

The Fed began its most recent tightening policy in March 2022 with a 0.25 percentage point increase in its target interest rate, which acts as a benchmark for other borrowing costs in the U.S. and around the world. Since then, the central bank has raised its target rate twice more – by 0.5 percentage point in May and 0.75 percentage point in June.

On July 27, the Fed is expected to raise the rate by another 0.75 percentage point, though some observers have predicted an unprecedented 1 point increase after the June consumer prices report showed inflation was still accelerating.

Why the housing market matters

The trick to reducing inflation is to choke off enough aggregate demand to tame inflation without driving the economy into recession. One of the main ways to see whether this is happening is to look at housing, which has always been particularly sensitive to rate changes and constitutes more than one-quarter of total U.S. wealth.

Because buying a house or apartment is such a large expenditure, nearly all purchasers must borrow a pretty big share of the purchase price. And just as record-low mortgages borrowing costs in 2021 helped fuel a housing market boom by lowering the cost of servicing that debt, higher rates increase the cost, discouraging housing purchases.

The average rate on a 30-year mortgage hit 5.81% in June, the highest level since 2008 and up from less than 3% throughout most of 2021. The rate currently stands at 5.54%. On a $200,000 mortgage, a 5.54% rate translates into over $400 in extra interest costs every month compared with 3%.

Confronted with such an increase, some house hunters – like my son – have stepped back and reconsidered whether now is the right time to buy.

Housing starting to stall

In other words, higher mortgage rates lead individuals to invest less in housing. And the effect of falling demand doesn’t stop with the house. When people buy a new house, they also tend to purchase new furniture, lawn equipment, televisions and so on. And buying a used home often requires hiring contractors and others to remodel the kitchen or build a new closet in the kids’ room.

So if people are buying fewer homes, they also are purchasing less furniture, electronics and lawnmowers and have less need for electricians and plumbers.

The drop in demand for all these goods and services should take a meaningful bite out of inflation. While it’s still too early to say if this part of the Fed plan is working, we can already see the effects of rising mortgage rates in recent housing data.

In recent months, fewer new houses are being built, fewer existing homes are being sold and homebuyers are walking away from signed deals at the highest rate since the start of the COVID-19 pandemic.

At the same time, consumers and investors are beginning to anticipate less inflationary pressure in the next year or so.

What it means for homebuyers

So as the Fed prepares to hike benchmark rates again, what does all this mean for U.S. consumers, and especially my son and other people looking for a new home?

For one thing, don’t expect long-term interest rates, including for mortgages, to rise much, and certainly not by the same amount of the Fed’s interest rate hike.

Investors tend to factor expected Fed policy changes into its market rates. So unless there is a surprise from the Fed, like a full 1-point hike, long-term rates are unlikely to change much. And they may even begin to fall soon, either because inflation is subdued or the U.S. slips into recession.

And while it would be nice to know how tighter monetary policy – that is, higher interest rates – will affect today’s stratospheric house prices, this is hard to predict. The withdrawal of some buyers from the market should depress house prices by reducing demand, but sellers may also simply decide to delay selling rather than accept a lower price.

The challenge for would-be homebuyers like my son and his family is to find a seller who cannot hold their house off the market and to offer a lower price than the house would have attracted a few months ago to offset its higher financing cost. The more that happens, the more the Fed will know its rate hikes are working.The Conversation

About the Author:

Mark Flannery, Professor of Finance, University of Florida

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

 

Economics & Fundamentals Opinions
25 Jul

Is the world retracting from globalisation, setting it up for a fifth wave?

By Elsabe Loots, University of Pretoria 

– Over the past 25 years there has been lots of research and debate about the concept, the history and state of globalisation, its various dimensions and benefits.

The World Economic Forum has set out the case that the world has experienced four waves of globalisation. In a 2019 publication it summarised them as follows.

The first wave is seen as the period since the late 19th century, boosted by the industrial revolution associated with the improvements in transportation and communication, and ended in 1914. The second wave commenced after WW2 in 1945 and ended in 1989. The third commenced with the fall of the Berlin Wall in 1989 and the disbanding of the former Soviet Union in 1991, and ended with the global financial crises in 2008.

The fourth wave kicked off in 2010 with the recovery of the impact of the global financial crises, the rising of the digital economy, artificial intelligence and, among others, the increasing role of China as a global powerhouse.

More recent debates on the topic focus on whether the world is now experiencing a retraction from the fourth wave and whether it is ready for the take-off of the fifth wave.

The similarities between the retraction period of the first wave and the current global dynamics a century later are startling. But do these similarities mean that a retraction from globalisation is evident? Is there sufficient evidence of de-globalisation or rather “slowbalisation”?

Parallels

The drawn-out retreat from globalisation during the 30-year period – 1914 to 1945 – was characterised by the geopolitical and economic impact of WWI and WWII. Other factors were the 1918-1920 Spanish Flu pandemic ; the Stock Market Crash of 1929 followed by the Great Depression of the 1930s; and the rise of the Communist Bloc under Stalin in the 1940s.

This period was further typified by protectionist sentiments, increases in tariffs and other trade barriers and a general retraction in international trade.

Looking at the current global context, the parallels are remarkable. The world is still fighting the COVID pandemic that had devastating effects on the world economy, global supply chains and people’s lives and well-being.

For its part, the Russia-Ukraine war has caused major global uncertainties and food shortages. It has also led to increases in gas and fuel prices, further disruptions in global value chains and political polarisation.

The increase in the price of various consumer goods and in energy have put pressure on the general price level. World inflation is aggressively on the rise for the first time in 40 years. Monetary authorities worldwide are trying to fight inflation.

Global governance institutions like the World Trade Organisation and the UN, which functioned well in the post-WWII period, now have less influence while the Russian-Ukraine war has split the world politically into three groups. They are the Russian invasion supporters, the neutral countries and those opposing, a group dominated by the US, EU and the UK. This split is contributing to complex geopolitical challenges, which are slowly leading to changes in trade partnerships and regionalism.

Europe is already looking for new suppliers for oil and gas and early indications of the potential expansion of the Chinese influence in Asia are evident.

A less connected world

De-globalisation is seen as

a movement towards a less connected world, characterised by powerful nation states, local solutions and border controls rather than global institutions, treaties, and free movement.

There’s now talk of slowbalisation. The term was first used by trendwatcher and futurologist Adjiedji Bakas in 2015 to describe the phenomenon as the

continued integration of the global economy via trade, financial and other flows, albeit at a significant slower pace.

The data on economic globalisation paint an interesting picture. They show that, even before the COVID pandemic hit the world in 2020, a deceleration in the intensity of globalisation is evident. The data which represent broad measures of globalisation, includes:

  • World exports of goods and services. As a percentage of world GDP, these reached an all-time high of 31% in 2008 at the end of the third globalisation wave. Exports fell as a percentage of global GDP and only recovered to that level during the early stages of the fourth wave in 2011. Exports then slowly started to regress to 28% of global GDP in 2019 and further to a low of 26% during the first Covid-19 year in 2020.
  • The volume of foreign direct investment inflows. These reached a peak of US$2 trillion in 2016 before trending lower, reaching US$1.48 trillion in 2019. Although the 2020 foreign direct investment inflows of US$963 billion are a staggering 20% below the 2009 financial crises level, they recovered to US$1.58 billion in 2021.
  • Foreign direct investment as percentage of GDP started to increase from a mere 1% in 1989 to a peak of 5,3% in 2007. After a retraction following the global financial crises, it peaked again in 2015 and 2016 at around 3,5%. It then declined to 1,7% in 2019 and 1,4% in 2020.
  • Multinational enterprises have been the major vehicle for economic globalisation over time. The number of them indicates the willingness of companies to invest outside their home countries. In 2008 the UN Conference on Trade and Development reported approximately 82 000. The number declined to 60 000 in 2017.
  • Data on world private capital flows (including foreign direct investment, portfolio equity flows, remittances and private sector borrowing) are not readily available. However, Organisation for Economic Co-operation and Development data show that private capital flows for reporting countries reached an all-time high of US$414 billion in 2014, followed by a declining trend to US$229 billion in 2019 and a negative outflow of US$8 billion in 2020.

These declining trends are further substantiated by the evidence of deeper fragmentation in economic relations caused by Brexit and the problematic US/China relations, in particular during the Trump era.

What next?

The question now is whether the latest data is:

  • indicative of either a retraction from globalisation similar to that experienced after the first wave a century ago;
  • or it is merely a process of de-globalisation;
  • or slowbalisation in anticipation of the world economy’s recovery from the impact of Covid-19 pandemic and the war in Ukraine?

The similarities between the first wave of globalisation and the existing global events are certainly significant, although embedded in a total different world order.

The current dynamics shaping the world such as the advancement of technology, the digital era and the speed with which technology and information is spread, will certainly influence the intensity of the retraction of the already embedded dependence on globalisation.

Nation states realise that blindly entering into contracts and agreements with companies in other countries, may be problematic and that trade and investment partners need to be chosen carefully. The events over the past three years have certainly shown that economies around the world are deeply integrated and, despite examples of protectionism and threats of more inward-looking policies, it will not be possible to retract in totality.

What may occur is fragmentation where supply chains becoming more regionalised. Nobel prize winning economist Joseph Stiglitz refers to the move to “friend shoring” of production, a phrase coined by US Treasury Secretary Janet Yellen.

It is becoming obvious that the process of globalisation certainly shows characteristics of both de-globalisation and slowbalisation. It’s also clear that the global external shocks require a total rethink, repurpose and reform of the process of globalisation. This will most probably lead the world into the fifth wave of globalisation.The Conversation

About the Author:

Elsabe Loots, Professor of Economics and former Dean of the Faculty of Economic and Management Sciences, University of Pretoria

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

 

Economics & Fundamentals Opinions
25 Jul

Many important economic events will take place this week and volatility in the markets will be high

By JustForex

In the US, weekly jobless claims hit a five-month high, while existing home sales declined for the fifth straight month. These are signs of problems in the labor and housing markets. According to some analysts, the US Federal Reserve may officially announce the beginning of the recession in the United States this week. The US economy is already down 1.6% in the first quarter, and the second quarter is also negative, so, technically, this recession is possible.

At the close of the stock market on Friday, the Dow Jones index (US30) decreased by 0.43% (+1.34% for the week) and the S&P 500 Index (US500) fell by 0.93% (+2.00% for the week). The NASDAQ Technology Index (US100) lost 1.87% on Friday (+2.36% for the week).

It will be a significant week for US stock indices. Besides the important US Federal Reserve meeting on Wednesday and US GDP data on Thursday, technology giants like Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), Meta (META), and Microsoft (MSFT) will report this week as well.

Stock markets in Europe were mostly up on Friday. German DAX (DE30) gained 0.05% (+2.46% for the week), French CAC 40 (FR 40) added 0.25% (+2.42% for the week), Spanish IBEX 35 (ES35) increased by 0.49% (+0.56% for the week), British FTSE 100 (UK100) gained 0.08% (+1.64% for the week).

Last week, the European Central Bank joined many other central banks in raising interest rates as its focus was on fighting inflation rather than a potential economic slowdown. On Friday, ECB chief Christine Lagarde said that the ECB would raise rates as much as needed to bring inflation back to target levels. By narrowing the interest rate differential, the euro has temporarily strengthened. But it should be noted that the US Federal Reserve will raise interest rates by 0.75-1% this week, which will widen the spread again.

US benchmark WTI crude has fallen nearly 3% in the past week, extending its losses over the past three weeks by almost 13%. However, Brent crude jumped by 2.2%, breaking a five-day losing streak of 17%. The situation in the oil market remains very unstable. On the one hand, the White House is trying to lower the price of oil. On the other hand, sanctions against Russia and supply shortage with high demand — these factors do not allow the price to fall.

Last week, precious metal prices rose. “Gold is starting to act as a haven as weakening economic growth will force many central banks to abandon their aggressive tightening plans,” said Ed Moya, head of research US analytical company.

Russia’s war with Ukraine continues. Last week, Russia, Ukraine, Turkey, and UN officials signed an agreement to allow Ukraine to ship grain from a port in Odesa. Despite this, Russian missiles struck the port on Saturday. Russia proved once again that it is a terrorist state. President Vladimir Zelensky, as well as many European officials, condemned Saturday’s attack as “barbarism,” which showed that Moscow could not be trusted under any circumstances.

Asian markets traded lower last week. Japan’s Nikkei 225 (JP225) gained 4.41%, Hong Kong’s Hang Seng (HK50) added 0.63%, and Australia’s S&P/ASX 200 (AU200) increased by 2.81%. At the opening on Monday, the Asian indices are showing a decline. Investors should also pay attention to Inflation Data in Singapore. Analysts forecast consumer price growth to 6.2% (current 5.6%) on an annualized basis. If the data is worse than expected, it may boost the Singapore dollar but at the same time have a negative impact on Asian indices.

In the commodities market, natural gas futures (+18.37%), palladium (+11.05%), platinum (+4.00%), coffee (+2.98%), cotton (+2.75%), copper (+2.74%) and Brent oil (+2.42%) showed the biggest gains over the week. Lumber futures (-10.06%), soybeans (-9.57%), sugar (-7.17%), corn (-6.95%) and wheat (-2.74%) showed the biggest drops.

S&P 500 (F) (US500) 3,961.63 −37.32 (−0.93%)

Dow Jones (US30) 31,899.29 −137.61 (−0.43%)

DAX (DE40) 13,253.68 +7.04 (+0.053%)

FTSE 100 (UK100) 7,276.37 +5.86 (+0.081%)

USD Index 106.55 −0.37 (−0.34%)

Important events for today:
  • – Singapore Consumer Price Index (m/m) at 08:00 (GMT+3);
  • – Eurozone German Ifo Business Climate (m/m) at 11:00 (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
25 Jul

Sri Lanka’s crisis: Can the South Asian economy break from the past and find a route to stability?

By Vidhura S Tennekoon, Indiana University 

Sri Lanka has a new president and prime minister – but a change in who leads the crisis-hit South Asian nation alone will not solve the country’s severe economic problems.

Ranil Wickremesinghe – who on July 20, 2022, was voted in by lawmakers to replace fleeing former president Gotabaya Rajapaksa – and his appointed premier Dinesh Gunawardena inherit an economy grappling with record inflation as high as 59%, a currency that has lost almost half its value since March 2022 and severe shortages of daily necessities such as food and fuel. Nearly all economic activity in the country has ground to a halt.

The government’s deficit is so large it can’t afford to pay public workers, and the central bank has almost no foreign currency – needed to finance imports and pay back foreign debt.

In short, Sri Lanka is facing an unprecedented economic crisis, placing tremendous pressure on the new leaders to act fast to fix things.

As an economist and former official at the Central Bank of Sri Lanka, I believe the path forward will be difficult. The country will need to break with past policies and practices that put it in a financial hole while putting in place reforms to get the economy back on track. In particular, there are four key economic challenges the new government will have to address, though they’re all interconnected.

Addressing Sri Lankans’ immediate needs

To avoid the fate of his now exiled predecessor Gotabaya Rajapaksa, President Wickremesinghe will have to address the immediate needs of his people.

After being sworn in, Wickremesinghe said his priority was to ensure that people are able to eat three meals a day.

While food inflation has reached 76%, prices of many basic food items have increased by a higher margin – rice by 160%, wheat flour by 200% and sugar by 164%. To put that in context, a preschool teacher earning minimum wage would need more than a day’s wages to purchase a kilogram (2.2 pounds) of sugar and a kilogram of wheat flour or rice. A cylinder of cooking gas, if they were lucky to find one, would cost more than a half-month’s salary.

Cost of living ranks alongside other pressing issues. Reopening the shuttered schools and universities is another priority. The other urgent need is restoring transportation services. With no fuel to purchase, private bus services are in limbo and public transportation has become an adventure ride, with passengers dangling from the door and windows and even sitting inside the luggage box.

Restoring transportation and electricity services requires foreign currency to import fuel, but support from the International Monetary Fund, which provides financial help to struggling economies through loan packages, is months away. Unless the new president can persuade its regional powerhouses – India and China – to provide more help, economic hardships will continue and life in Sri Lanka will not be normal.

In the past, Sri Lanka has been able to rely on tourism to help bring revenue to the island nation. But this will be impossible while social unrest continues and shortages of essentials limit the country’s ability to serve visitors. Meanwhile, remittances from overseas Sri Lankans have also suffered because of a lack of confidence in the national currency, known as the rupee.

As Wickremesinghe has noted, things will get worse before they get better.

Balancing the budget

The next item on the president’s to-do list will likely be finding a way to bring the budget deficit down. Last year, expenses were 240% of revenue, and 91% more was needed to repay debt. Money printing covered a large portion of this gap but only exacerbated inflation.

The primary reason for Sri Lanka’s current crisis is decades of fiscal mismanagement, with too much spending and too little revenue.

Fixing this problem will require a combination of higher taxes and significant budget cuts. But the budget gap is too wide to eliminate completely the need for money printing. The best that can be hoped for is an aggressive reduction.

Restructuring Sri Lanka’s huge debt

Such budgetary reforms will likely be necessary to solve another challenge Sri Lanka faces: overseas debt.

Sri Lanka has amassed about US$51 billion in foreign debt over the past decades but has virtually no foreign currency with which to pay it back. The government suspended payments on foreign debt in April, sending it into default.

At the end of 2021, about 45% of the debt was owed to private investors, while the rest belonged to countries and multinational institutions. The Asian Development Bank owned the biggest share, at 16%, while Japan, China and the World Bank held 10% apiece.

For Sri Lanka to emerge from its crisis, it will need significant help from the IMF. But the IMF requires assurances that Sri Lanka’s debt sustainability be restored before lending it money.

And other international organizations, such as the World Bank, will not be willing to lend Sri Lanka more until the country signs an agreement with the IMF. And U.S. lawmakers have recently suggested IMF support will be contingent on Sri Lanka’s increasing the independence of its central bank, fighting corruption and doing more to promote the rule of law.

While G-7 countries, the group of leading economies, including Japan, appear willing to help Sri Lanka in its effort to restructure its debt, some bondholders – such as Caribbean-based Hamilton Reserve Bank, which holds just $250 million worth – have already taken legal action to claim their dues.

In May, Sri Lanka took a first step toward restructuring its debt, but it may take several months before the country is able to successfully negotiate with its creditors to ensure debt sustainability.

Garnering public support for reforms

Wickremesinghe’s biggest and most unenviable challenge, however, is less about the economy and more about the politics of fixing it.

He won’t be able to do much about Sri Lanka’s economy until he’s able to bring about political stability. And right now, Sri Lanka remains in turmoil.

Wickremesinghe, who previously served as prime minister appointed by his toppled predecessor, will need a wide mandate and support from opposition politicians if he is to drastically change Sri Lanka’s policies. Upon election, he immediately urged his rivals to join him and “work together to bring the country out of the crisis,” adding, “Our divisions are now over.”

He will also need to address protesters’ demands over reducing executive powers while bringing in strong anti-corruption measures and strengthening democratic institutions.

Yet many doubt Wickremesinghe’s ability to unite Sri Lanka and question his mandate to serve out the remaining term of the presidency. He has been a target of protesters since being appointed president. And a confrontation between armed forces and protesters soon after Wickremesinghe took power doesn’t bode well.

Turning around an economy so deep in crisis will take time. Inflation in Sri Lanka is not believed to have peaked yet, and people will continue to face economic hardships for some time.

But political stability will be needed before Sri Lanka can get out of its economic mess. The fiscal reforms expected by the IMF will be painful and will be viable only with public support, and that of all major political parties in Sri Lanka’s Parliament.The Conversation

About the Author:

Vidhura S Tennekoon, Assistant Professor of Economics, Indiana University

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

 

Economics & Fundamentals Financial News
22 Jul

Landsat at 50: How satellites revolutionized the way we see – and protect – the natural world

By Stacy Morford, The Conversation 

Fifty years ago, U.S. scientists launched a satellite that dramatically changed how we see the world.

It captured images of Earth’s surface in minute detail, showing how wildfires burned landscapes, how farms erased forests, and many other ways humans were changing the face of the planet.

The first satellite in the Landsat series launched on July 23, 1972. Eight others followed, providing the same views so changes could be tracked over time, but with increasingly powerful instruments. Landsat 8 and Landsat 9 are orbiting the planet today, and NASA and the U.S. Geological Survey are planning a new Landsat mission.

The images and data from these satellites are used to track deforestation and changing landscapes around the world, locate urban heat islands, and understand the impact of new river dams, among many other projects. Often, the results help communities respond to risks that may not be obvious from the ground.

Here are three examples of Landsat in action, from The Conversation’s archive.

Tracking changes in the Amazon

A river meanders through the Amazon Basin, seen from Landsat.
NASA

When work began on the Belo Monte Dam project in the Brazilian Amazon in 2015, Indigenous tribes living along the Big Bend of the Xingu River started noticing changes in the river’s flow. The water they relied on for food and transportation was disappearing.

Upstream, a new channel would eventually divert as much as 80% of the water to the hydroelectric dam, bypassing the bend.

The consortium that runs the dam argued that there was no scientific proof that the change in water flow harmed fish.

But there is clear proof of the Belo Monte Dam project’s impact – from above, write Pritam Das, Faisal Hossain, Hörður Helgason and Shahzaib Khan at the University of Washington. Using satellite data from the Landsat program, the team showed how the dam dramatically altered the hydrology of the river.

“As scientists who work with remote sensing, we believe satellite observations can empower populations around the world who face threats to their resources,” Das and his colleagues write.

It’s hot in the city – and even hotter in some neighborhoods

Landsat’s instruments can also measure surface temperatures, allowing scientists to map heat risk street by street within cities as global temperatures rise.

“Cities are generally hotter than surrounding rural areas, but even within cities, some residential neighborhoods get dangerously warmer than others just a few miles away,” writes Daniel P. Johnson, who uses satellites to study the urban heat island effect at Indiana University.

Neighborhoods with more pavement and buildings and fewer trees can be 10 degrees Fahrenheit (5.5 C) or more warmer than leafier neighborhoods, Johnson writes. He found that the hottest neighborhoods tend to be low-income, have majority Black or Hispanic residents and had been subjected to redlining, the discriminatory practice once used to deny loans in racial and ethnic minority communities.

Two maps of New York City show how vegetation matches cooler areas by temperature.
Comparing maps of New York City’s vegetation and temperature shows the cooling effect of parks and neighborhoods with more trees.
NASA/USGS Landsat

“Within these ‘micro-urban heat islands,’ communities can experience heat wave conditions well before officials declare a heat emergency,” Johnson writes.

Knowing which neighborhoods face the highest risks allows cities to organize cooling centers and other programs to help residents manage the heat.

The making of ghost forests

Dead tree trunks with low ground cover below.
The white trunks of a ghost forest mark a coastal North Carolina landscape.
Emily Ury, CC BY-ND

Satellites that scan the same areas year after year can be crucial for spotting changes in hard-to-reach regions. They can monitor snow and ice cover, and, along U.S. Atlantic coast, dying wetland forests.

These eerie landscapes of dead, often bleached-white tree trunks have earned the nickname “ghost forests.”

Emily Ury, an ecologist now at the University of Waterloo in Ontario, used Landsat data to spot wetland changes. She then zoomed in with high-resolution images from Google Earth – which includes Landsat images – to confirm that they were ghost forests.

“The results were shocking. We found that more than 10% of forested wetland within the Alligator River National Wildlife Refuge [in North Carolina] was lost over the past 35 years. This is federally protected land, with no other human activity that could be killing off the forest,” Ury writes.

A satellite image of the coast with red spots along a river inlet indicating dead forests
Landsat’s view of the Alligator River and refuge shows signs of ghost forests on the east side of the river.
NASA Earth Observatory

As the planet warms and sea levels rise, more salt water is reaching these areas, increasing the amount of salt in the soil of coastal woodlands from Maine to Florida. “Rapid sea level rise seems to be outpacing the ability of these forests to adapt to wetter, saltier conditions,” Ury writes.

Many more stories can be found in Landsat’s images, such as an overview of the war’s effects on Ukraine’s wheat crop, and how algae blooms have spread in Florida’s Lake Okeechobee. Countless projects are using Landsat data to track global change and possibly find solutions to problems, from deforestation in the Amazon to the fires that have put Alaska on pace for another historic fire season. The Conversation

An illustration of a satellite with a large solar panel for power high over a coastal area
An artist’s rendering of Landsat 8.
NASA/Goddard Space Flight Center Conceptual Image Lab

About the Author:

Stacy Morford, Environment + Climate Editor, The Conversation

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

 

Economics & Fundamentals Financial News
22 Jul

How record-setting heat waves in cities across UK, US and mainland Europe could punish economies already reeling from inflation

By Derek Lemoine, University of Arizona 

Hundreds of millions of people struggled to keep cool amid a sweltering summer heat wave as cities across the U.S. and mainland Europe experienced record-high temperatures. In the U.K., thermometers topped 104 Fahrenheit (40 degrees Celsius) on July 19, 2022, the highest ever recorded.

While all this broiling heat is surely punishing on a personal level, it also has significant impacts on the broader economy.

As an economist who has studied the effects of weather and climate change, I have examined a large body of work that links heat to economic outcomes. Here are four ways extreme heat hurts the economy.

1. Growth takes a hit

Research has found that extreme heat can directly hurt economic growth.

For example, a 2018 study found that the economies of U.S. states tend to grow at a slower pace during relatively hot summers. The data shows that annual economic growth falls 0.15 to 0.25 percentage points for every 1 degree Fahrenheit (0.56 C) that a state’s average summer temperature is above normal.

Laborers in weather-exposed industries such as construction work fewer hours when it’s hotter. But higher summer temperatures also reduce growth in many industries that tend to involve indoor work, including retail, services and finance. Workers are less productive when it’s hotter out.

2. Crop yields drop

Agriculture is obviously exposed to weather: After all, crops grow outdoors.

While temperatures up to around 85 F to 90 F (29-32 C) can benefit crop growth, yields fall sharply when thermostats rise further. Some of the crops that can be hit hard by extreme heat include corn, soybeans and cotton. These reductions in yields could be costly for U.S. agriculture.

For example, a recent study I conducted found that an additional 2 degrees C (3.6 F) of global warming would eliminate profits from an average acre of farmland in the eastern U.S.

A prominent example of this was the collapse of the Russian wheat harvest in response to the country’s 2010 heat wave, which raised wheat prices throughout the world.

3. Energy use soars

Of course, when it’s hot, energy use goes up as people and businesses run their air conditioners and other cooling equipment at full blast.

A 2011 study found that just one extra day with temperatures above 90 F (32 C) increases annual household energy use by 0.4%. More recent research shows that energy use increases the most in places that tend to be hotter, probably because more households have air conditioning.

This increase in electricity use on hot days stresses electric grids right when people depend on them most, as seen in California and Texas during past heat waves. Blackouts can be quite costly for the economy, as inventories of food and other goods can spoil and many businesses either have to run generators or shut down. For instance, the 2019 California blackouts cost an estimated US$10 billion.

4. Education and earnings suffer

A long-term impact of increasingly hotter weather involves how it affects children’s ability to learn – and thus their future earnings.

Research has shown that hot weather during the school year reduces test scores. Math scores decrease more and more as the temperature rises beyond 70 F (21 C). Reading scores are more resistant to high temperatures, which this research claims is consistent with how different regions of the brain respond to heat.

One study suggested that students in schools that lack air conditioning learn 1% less for every 1 degree Fahrenheit (0.56 C) increase in the school year’s average temperature. It also found that minority students are especially affected by hotter school years, as their schools are more likely to lack air conditioning.

Lost learning results in lower lifetime earnings and hurts future economic growth.

The impact of extreme heat on development, in fact, begins before we’re even born. Research has found that adults who were exposed to extreme heat as fetuses earn less during their lifetimes. Each extra day with average temperature above 90 F (32 C) reduces earnings 30 years later by 0.1%.

Air conditioning can help – to a point

Air conditioning can offset some of these effects.

For example, studies have found that having a working air conditioner means fewer people die, student learning isn’t compromised and extreme heat outside during pregnancy doesn’t hurt fetuses.

Not everyone has air conditioners, however, especially in states such as Oregon and countries such as the U.K. that have more temperate climates but have nonetheless recently experienced unusually extreme temperatures. And many people can’t afford to own or operate them. Survey data from 2017 found that around half of homes in the U.S. Pacific Northwest
lacked air conditioning. And about 42% of U.S. classrooms lack an air conditioner.

While heat waves are shown to induce more households to install air conditioning, it’s hardly a panacea. By 2100, higher use of air conditioning could increase residential energy consumption by 83% globally. If that energy comes from fossil fuels, it could end up amplifying the heat waves that are causing the higher demand in the first place.

And in the U.S. South, where air conditioning is omnipresent, hotter-than-usual summers still take the greatest toll on states’ economic growth.

In other words, as temperatures rise, economies will continue to suffer.

This is an updated version of an article originally published on Aug. 2, 2021.The Conversation

About the Author:

Derek Lemoine, Associate Professor of Economics, University of Arizona

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

 

Economics & Fundamentals Financial News
22 Jul

The European Central Bank surprised the markets. Political crisis in Italy

By JustForex

The US stock indices increased yesterday on the technology sector’s growth, as better-than-expected Tesla earnings supported the sector. The Dow Jones (US30) added 0.51% at the close, while the S&P 500 (US500) increased by 0.99%. The Technology Index NASDAQ (US100) jumped by 1.36%.

Shares of Tesla Inc (TSLA) jumped by 9.7% yesterday, giving confidence to the entire industry and the sector. Shares of Snap Inc (SNAP) fell by 24% in over-the-counter trading Thursday as the company said third-quarter revenue growth was flat and its results were affected by Apple’s privacy changes. Shares of American Airlines (AAL) fell by 7% on the report, even as the company projected third-quarter earnings thanks to increased demand for travel services.

Biden tested positive for coronavirus. The US president has moderate symptoms and is working remotely.

Stock markets in Europe traded flat Thursday. German DAX (DE30) decreased by 0.27% yesterday, French CAC 40 (FR40) added 0.27%, Spanish IBEX 35 (ES35) lost 0.20%, British FTSE 100 (UK100) was up by 0.09%.

The European Central Bank unexpectedly raised its interest rate by 0.5%, even though Christine Lagarde had promised the first increase of 0.25%. The ECB report indicates that the decision is based on an updated assessment of inflation risks, as rising prices are a growing concern for households and companies. The future trajectory of interest rates will depend on the new data. ECB policymakers also agreed to provide additional assistance to the currency bloc’s 19 heavily indebted countries, including Italy, with a new bond-buying scheme designed to limit their rising borrowing costs and thus limit financial fragmentation.

Investors are also closely watching the political situation in Italy, as Prime Minister Mario Draghi resigned on Thursday, and the president accepted his resignation, followed by the dissolution of parliament.

The Nord Stream 1 pipeline reopened after a 10-day hiatus. Germany’s grid regulator has indicated that they are back to a capacity level of 40%. With the resumption of gas flows through Nord Stream, investors are more conciliatory on the part of Russia to continue supplying oil and petroleum products to Europe in the coming weeks or months.

Oil prices have fallen below $100 after a massive inventory build-up in the United States. But demand remains strong in mid-summer, so with production levels lagging, traders should not expect a significant drop in prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 2.67%, Hong Kong’s Hang Seng (HK50) added 1.11%, and Australia’s S&P/ASX 200 (AU200) closed by 1.65% higher.

Japan’s key inflation indicator was even higher than the Bank of Japan’s target of 2%. According to data released on Friday by the Ministry of the Interior, core consumer prices (excluding food and fuel prices) reached an annualized rate of 2.2%. The result was in line with economists’ estimates. Despite the continued rise in prices, the Bank of Japan is unlikely to budge anytime soon, as the Bank of Japan remains unconvinced that inflation in the country is sustainable. The BoJ Governor Kuroda has repeatedly said that current cost inflation is unsustainable and that the central bank needs constant easing until it is demand-driven and accompanied by sustained wage growth. But wage growth has not kept pace with inflation, with May data showing that real wages are down 1.8% from a year ago.

In Australia, a NAB report showed that the RBA would raise rates to 2.85% by the end of the year. Since the monetary rate is still well below “neutral,” this indicates continued rapid normalization in the coming months. This means a 50 bp interest rate hike at each of the next two meetings and then a pause to assess the impact of the rate hike.

S&P 500 (F) (US500) 3,998.95 +39.05 (+0.99%)

Dow Jones (US30) 32,036.90 +162.06 (+0.51%)

DAX (DE40) 13,246.64 −35.34 (−0.27%)

FTSE 100 (UK100) 7,270.51 +6.20 (+0.085%)

USD Index 106.77 −0.31 (−0.29%)

Important events for today:
  • – Australia Manufacturing PMI (m/m) at 02:00 (GMT+3);
  • – Japan National Core Consumer Price Index at 02:30 (GMT+3);
  • – UK Retail Sales (m/m) at 09:00 (GMT+3);
  • – Eurozone France Manufacturing PMI (m/m) at 10:15 (GMT+3);
  • – Eurozone France Services PMI (m/m) at 10:15 (GMT+3);
  • – Eurozone German Manufacturing PMI (m/m) at 10:30 (GMT+3);
  • – Eurozone German Services PMI (m/m) at 10:30 (GMT+3);
  • – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
  • – UK Services PMI (m/m) at 11:30 (GMT+3);
  • – Canada Retail Sales (m/m) at 15:30 (GMT+3);
  • – US Manufacturing PMI (m/m) at 16:45 (GMT+3);
  • – US Services PMI (m/m) at 16:45 (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
21 Jul

From in-crowds to power couples, network science uncovers the hidden structure of community dynamics

By Mayank Kejriwal, University of Southern California 

– The world is a networked place, literally and figuratively. The field of network science is used today to understand phenomena as diverse as the spread of misinformation, West African trade and protein-protein interactions in cells.

Network science has uncovered several universal properties of complex social networks, which in turn has made it possible to learn details of particular networks. For example, the network consisting of the international financial corruption scheme uncovered by the Panama Papers investigation has an unusual lack of connections among its parts.

But understanding the hidden structures of key elements of social networks, such as subgroups, has remained elusive. My colleagues and I have found two complex patterns in these networks that can help researchers better understand the hierarchies and dynamics of these elements. We found a way to detect powerful “inner circles” in large organizations simply by studying networks that map emails being sent among employees.

We demonstrated the utility of our methods by applying them to the famous Enron network. Enron was an energy trading company that perpetrated fraud on a massive scale. Our study further showed that the method can potentially be used to detect people who wield enormous soft power in an organization regardless of their official title or position. This could be useful for historical, sociological and economic research, as well as government, legal and media investigations.

From pencil and paper to artificial intelligence

Sociologists have been constructing and studying smaller social networks in careful field experiments for at least 80 years, well before the advent of the internet and online social networks. The concept is so simple that it can be drawn on paper: Entities of interest – people, businesses, countries – are nodes represented as points, and relationships between pairs of nodes are links represented as lines drawn between the points.

Two sets of dots with lines connecting some of the dots
An abstract network, at left, shows lines between points representing relationships. The network on the right shows a small fragment of a real-world network of West African traders, based on data from Oliver J. Walther. https://doi.org/10.1080/00220388.2015.1010152.
Mayank Kejriwal, CC BY-ND

Using network science to study human societies and other complex systems took on new meaning in the late 1990s when researchers discovered some universal properties of networks. Some of these universal properties have since entered mainstream pop culture. One concept is the Six Degrees of Kevin Bacon, based on the famous empirical finding that any two people on Earth are six or fewer links apart. Similarly, versions of statements such as “the rich get richer” and “winner takes all” have also been replicated in some networks.

These global properties, meaning ones applying to the entire network, seemingly emerge from the myopic and local actions of independent nodes. When I connect with someone on LinkedIn, I am certainly not thinking of the global consequences of my connection on the LinkedIn network. Yet my actions, along with those of many others, eventually lead to predictable, rather than random, outcomes about how the network will evolve.

My colleagues and I have used network science to study human trafficking in the U.K., the structure of noise in artificial intelligence systems’ outputs, and financial corruption in the Panama Papers.

Groups have their own structure

Along with studying emergent properties like the Six Degrees of Kevin Bacon, researchers have also used network science to focus on problems such as community detection. Stated simply, can a set of rules, otherwise known as an algorithm, automatically discover groups or communities within a collection of people?

Today there are hundreds, if not thousands, of community detection algorithms, some relying on advanced AI methods. They are used for many purposes, including finding communities of interest and uncovering malicious groups on social media. Such algorithms encode intuitive assumptions, such as the expectation that nodes belonging to the same group are more densely connected to one another than nodes belonging to different groups.

Although an exciting line of work, community detection does not study the internal structure of communities. Should communities be thought of only as collections of nodes in networks? And what about communities that are small but particularly influential, such as inner circles and in-crowds?

Two hypothetical structures for influential groups

In a manner of speaking, you likely already have some inkling of the structure of very small groups in social networks. The truth of the adage that “a friend of my friend is also my friend” can be tested statistically in friendship networks by counting the number of triangles in the network and determining whether this number is higher than chance alone could explain. And indeed, many social network studies have been used to verify the claim.

Unfortunately, the concept starts breaking down when extended to groups with more than three members. Although motifs have been well studied in both algorithmic computer science and biology, they have not been reliably linked to influential groups in real communication networks.

six sets of four dots each with different configurations of lines connecting the dots
Six examples of motifs with four nodes.
Mayank Kejriwal, CC BY-ND

Building on this tradition, my doctoral student Ke Shen and I found and presented two structures that seem elaborate but turn out to be quite common in real networks.

The first structure extends the triangle, not by adding more nodes, but by directly adding triangles. Specifically, there is a central triangle that is flanked by other peripheral triangles. Importantly, the third person in any peripheral triangle must not be linked to the third person on the central triangle, thereby excluding them from the true inner circle of influence.

The second structure is similar but assumes that there is no central triangle, and the inner circle is just a pair of nodes. A real-life example might be two co-founders of a startup like Sergey Brin and Larry Page of Google, or a power couple with joint interests, common in global politics, like Bill and Hillary Clinton.

Understanding influential groups in an infamous network

We tested our hypothesis on the Enron email network, which is well studied in network science, with nodes representing email addresses and links representing communication among those addresses. Despite being elaborate, not only were our proposed structures present in the network in greater numbers than chance alone would predict, but a qualitative analysis showed that there is merit to the claim that they represent influential groups.

Two diagrams of overlapping sets of triangles labeled with names of people
Examples of the two structures found in the Enron network. More such structures are present in the network and cannot be explained by chance alone.
Mayank Kejriwal, CC BY-ND

The main characters in the Enron saga are well documented by now. Intriguingly, some of these characters do not seem to have had much official influence but may have wielded significant soft power. An example is Sherri Reinartz-Sera, who was the longtime administrative assistant of Jeffrey K. Skilling, the former chief executive of Enron. Unlike Skilling, Sera was only mentioned in a New York Times article following investigative reporting that took place during the course of the scandal. However, our algorithm discovered an influential group with Sera occupying a central position.

Dissecting power dynamics

Society has intricate structures at the levels of individuals, friendships and communities. In-crowds are not just ragtag groups of characters talking to one another, or a single ringleader calling all the shots. Many in-crowds, or influential groups, have a sophisticated structure.

While much still remains to be discovered about such groups and their influence, network science can help uncover their complexity.The Conversation

About the Author:

Mayank Kejriwal, Research Assistant Professor of Industrial & Systems Engineering, University of Southern California

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

Economics & Fundamentals Opinions
21 Jul

The Bank of Japan kept interest rates unchanged. The ECB will raise interest rates today

By JustForex

Wall Street closed up yesterday thanks to a jump in tech stocks on optimistic earnings. At the close, the Dow Jones Index (US30) increased by 0.15%, and the S&P 500 (US500) added 0.59%. The NASDAQ Technology Index (US100) jumped by 1.58%. According to Definitiv, the S&P 500 (US 500) will show a 5.9% year-over-year gain this earnings season, down from an estimate of 6.8% at the beginning of the quarter. Unrestrained inflation initially led markets to estimate a 100 basis point interest rate hike at next week’s upcoming Fed meeting, but 80% probability is now on the side of a 75 basis point hike.

Shares of electric car maker Tesla (TSLA ) rose by 2% in extended trading after reporting higher quarterly earnings. Danaher (DHR), AT&T (T), Philip Morris (PM), Union Pacific (UNP), Blackstone Group (BX), Intuitive Surgical (ISRG), and Snap (SNAP) will report today.

Stock markets in Europe were mostly down on Wednesday. Germany’s DAX (DE30) decreased by 0.20% yesterday, France’s CAC 40 (FR40) lost 0.27%, Spain’s IBEX 35 (ES35) fell by 1.18%, and Britain’s FTSE 100 (UK100) closed down by 0.44%.

According to the German Federal Statistical Office (Destatis), producer prices for manufactured goods were 32.7% higher in June 2022 than in June 2021. In monthly terms, producer prices added 0.6%. In the UK, the Consumer Price Index reached 9.4% on an annual basis compared to 9.1% in May. Monthly inflation rose by 0.8%. The biggest upward contributions to the annual inflation rate were made by household services (mainly electricity, gas, and other fuels) and transportation (mainly due to higher gasoline and diesel prices). The last time this level of inflation was seen in the country was in March 1991. The Bank of England is very likely to raise the interest rate immediately by 0.5% at its next meeting.

Today is that long-awaited ECB interest rate meeting where the ECB will raise the interest rate. The single currency is up about 2% in the last three trading sessions on expectations that the ECB may raise interest rates significantly by 50 basis points, as well as Reuters reports that a key Russian gas pipeline will open on time after maintenance. But most likely, ECB head Christine Lagarde will not risk her reputation, so it is easier for the ECB to hold the first 0.25% increase and the next one already at 0.5% or even 0.75%. Investors’ attention will also be focused on the so-called “anti-fragmentation” package, which is expected to be announced along with the interest rate decision.

On Wednesday, the European Union urged member states to cut gas use by 15% by March as an emergency measure after President Vladimir Putin warned that Russian supplies routed through Europe’s largest pipeline could be cut or even halted.

Italian Prime Minister Mario Draghi won a vote of confidence in the upper chamber’s Senate on Wednesday, but the three main coalition parties refused to participate.

Oil prices are falling as demand concerns outweigh limited supply. US crude oil inventories increased by 3.5 million barrels last week, well above analysts forecasts.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 2.67%, Hong Kong’s Hang Seng (HK50) added 1.11%, and Australia’s S&P/ASX 200 (AU200) was up by 1.65%.

The Bank of Japan kept interest rates and monetary policy unchanged. The monetary policy report highlights concerns about the economy above any potential impact on the yen. The BOJ lowered its economic growth forecast for this year, so the falling economy needs continued support. The inflation forecast was 2.3% for the end of the year. So the BoJ is still targeting stimulus, despite a wave of interest rate hikes by other central banks. But it should be noted that there are some changes in the Bank of Japan’s board members. The government announced Tuesday that it would appoint Hajime Takata and Naoki Tamura as new BOJ board members. Both representatives criticize excessive easing policies, especially Takata-san. Therefore, there is a possibility that there could be a change in the Bank of Japan’s rhetoric soon.

The economic outlook for China remains fragile, which fuels negative sentiment around the world as well. Despite China having recovered quickly from the stringent Covid restrictions, worries about the housing sector and the high likelihood of new restrictions are undermining confidence and keeping consumers on edge.

S&P 500 (F) (US500) 3,959.90 +23.21 (+0.59%)

Dow Jones (US30) 31,874.84 +47.79 (+0.15%)

DAX (DE40) 13,281.98 −26.43 (−0.20%)

FTSE 100 (UK100) 7,264.31 −31.97 (−0.44%)

USD Index 107.08 +0.40 (+0.37%)

Important events for today:
  • – BoJ Outlook Report at 06:00 (GMT+3);
  • – BoJ Interest Rate Decision at 06:00 (GMT+3);
  • – BoJ Press Conference at 06:00 (GMT+3);
  • – Eurozone ECB Monetary Policy Statement at 15:15 (GMT+3);
  • – Eurozone ECB Interest Rate Decision at 15:15 (GMT+3);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
  • – US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
  • – Eurozone ECB Press Conference at 15:45 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (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
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