Archive for Economics & Fundamentals – Page 152

29 Jun

Investors once again fear a recession in the economy. The Monetary Policy Forum is coming to a close

By JustForex

The mood of investors and analysts changes almost every day. Yesterday, US stock indexes saw a new massive sell-off as gloomy consumer confidence data once again dampened investor optimism and heightened fears that the Federal Reserve’s aggressive fight against inflation will lead to a recession in the economy. The Conference Board’s Consumer Confidence Index fell to its lowest level since February 2021, and short-term expectations reached their most pessimistic level in nearly a decade.

As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 1.56%, and the S&P 500 Index (US500) lost 2.01%. The Technology Index NASDAQ (US100) fell by 2.98%. At the end of the day, all three indices were down.

Federal Reserve Bank of New York President John Williams told CNBC on Tuesday that interest rates should “definitely” be between 3% and 3.5% by the end of the year, but he does not expect a recession in the United States.

Stock markets in Europe traded higher yesterday. Germany’s DAX (DE30) increased by 0.35%, France’s CAC 40 (FR40) jumped by 0.64%, Spain’s IBEX 35 (ES35) added 0.91%, and the British FTSE 100 (UK100) closed Tuesday in plus 0.90%.

The ECB is expected to follow its colleagues from the Fed and raise interest rates in July to try to curb skyrocketing inflation. However, economists disagree on the extent of any rate hike. For now, a 0.25% move is being considered, but if Friday’s Eurozone inflation data show a new acceleration in inflation, policymakers may reconsider their decision to 0.5%.

Today at the monetary policy forum in Portugal, there will be the final speech of the heads of the central banks of the US, the ECB, and the UK. Investors and traders should pay attention to this performance.

Crude oil prices jumped another 2% on Tuesday as Saudi Arabia and the United Arab Emirates indicated they are near maximum production levels.

On the other hand, the leaders of the G7 countries reached an agreement to impose a price cap on Russian oil.

Lithuania has officially banned imports of Russian gas. The Seimas of the republic has adopted the appropriate amendments to the law on natural gas.

Gold futures fell in price yesterday. Gold and silver are inversely correlated to the dollar index and government bond yields. When the dollar rises, gold and silver tend to fall. And while the US Federal Reserve tightens monetary policy, there is no fundamental reason for increasing precious metal prices.

Asian markets were trading higher on Tuesday. Japan’s Nikkei 225 (JP225) gained 0.66% yesterday, Hong Kong’s Hang Seng (HK50) added 0.85% on the day, while Australia’s S&P/ASX 200 (AU200) was up 0.86%.

The head of the Bank of Japan said today that the Japanese economy had not suffered much from the global inflation trend so monetary policy will remain soft.

The Chinese yuan rose after China eased the quarantine related to the COVID-19 pandemic for international travelers. It also became known that China will cut retail prices on gasoline and diesel starting on Wednesday.

S&P 500 (F) (US500) 3,821.55 −78.56 (−2.01%)

Dow Jones (US30) 30,946.99 −491.27 (−1.56%)

DAX (DE40) 13,231.82 +45.75 (+0.35%)

FTSE 100 (UK100) 7,323.41 +65.09 (+0.90%)

USD Index 104.48 +0.54 (+0.52%)

Important events for today:
  • – Japan Retail Sales (m/m) at 02:50 (GMT+3);
  • – Australia Retail Sales (m/m) at 04:30 (GMT+3);
  • – Eurozone Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
  • – US FOMC Member Mester Speaks (m/m) at 13:30 (GMT+3);
  • – Eurozone German Consumer Price Index (m/m) at 15:00 (GMT+3);
  • – US GDP (q/q) at 15:30 (GMT+3);
  • – US Fed Chair Powell Speaks (m/m) at 16:00 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks (m/m) at 16:00 (GMT+3);
  • – UK BoE Gov Bailey Speaks (m/m) at 16:00 (GMT+3);
  • – US FOMC Bullard Speaks (m/m) at 20:05 (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 Jun

Fears of a recession are decreasing. Russia has defaulted

By JustForex

On Monday, the US dollar fell slightly from a 20-year high hit earlier this month. It followed positive US economic data that eased expectations of an aggressive rate hike by the Federal Reserve. At the same time, stock indices also showed weakness, but usually, when the dollar index declines, indices rise.

At the close of trading on Monday, the Dow Jones index (US30) decreased by 0.20% and the S&P 500 index (US500) lost 0.30%. The technology index NASDAQ (US100) fell by 0.72% yesterday. At the end of the day, all three indices were down.

Goldman Sachs says the US rate market is underestimating the risk of recession. While market expectations for the Fed Funds rate have declined in recent weeks to levels with “limited downside potential for early 2023, federal funds pricing for 2024 likely underestimates recession risk,” strategists said. According to expectations implied by interest rate swaps, the Fed policy rate will peak at 3.60% by March 2023, up 2% from current levels.

Equity markets in Europe traded flat yesterday. German DAX (DE30) gained by 0.52%, French CAC 40 (FR 40) fell by 0.43%, Spanish IBEX 35 (ES35) lost 0.02%, British FTSE 100 (UK100) closed on Monday in plus 0.69%.

On Monday, Prime Minister Boris Johnson said that Britain may introduce unilateral changes to Northern Ireland’s trade rules after Brexit this year. The EU calls the move illegal.

Russia’s first major international default in more than a century became a fact on Monday. It was followed by months of coordinated Western sanctions that left Moscow with cash but denied access to an international financial network.

Oil jumped by 2% yesterday on rumors that a G7 decision against Russia would lead to further supply cuts. The Saudi-led OPEC+ alliance also cut its projected 2022 oil market surplus to 1 million barrels per day from a previous estimate of 1.4 million. Some oil investors are hesitant to open large positions after the US Energy Information Administration said the weekly inventory report would be delayed for the second week in a row because of server problems. The EIA weekly oil report was not released on June 24 and will likely not be released on June 29.

G7 leaders warned that Russian President Vladimir Putin would be held accountable for committing the heinous and deadly attack on a crowded shopping mall in Ukraine. According to President Vladimir Zelenski, at least 1,000 shoppers were in the mall when a Russian missile hit it, making it “one of the most devastating terrorist attacks in European history.” At least 18 people were killed and more than 40 injured. The number of casualties is difficult to determine as rescuers continue to search among the rubble. With a high probability, Russia will be declared a sponsor of terrorism in the near future.

Asian markets were trading higher on Monday. Japan’s Nikkei 225 (JP225) gained 1.43%, Hong Kong’s Hang Seng (HK50) added 2.35% for the day, and Australia’s S&P/ASX 200 (AU200) jumped by 1.94%.

Earlier this month, the Bank of Japan may have suffered a 600 billion yen ($4.4 billion) unrealized loss on Japanese government bonds as the widening gap between domestic and foreign monetary policy led to rising yields and prices. Despite this, the Bank of Japan continues to keep its monetary policy soft as policymakers attribute rising inflation to rising energy and commodity prices. More and more analysts are starting to think that at some point, the Bank of Japan will make currency intervention, as the yen’s weakness is taking a heavy toll on the Japanese economy. Both BOJ Governor Kuroda and Prime Minister of Japan Kishida acknowledge this point.

S&P 500 (F) (US500) 3,900.11 −11.63 (−0.30%)

Dow Jones (US30) 31,438.26 −62.42 (−0.20%)

DAX (DE40) 13,186.07 +67.94 (+0.52%)

FTSE 100 (UK100) 7,258.32 +49.51 (+0.69%)

USD Index 103.98 -0.21 (-0.20%)

Important events for today:
  • – US FOMC Member Williams Speaks (m/m) at 01:30 (GMT+3);
  • – ECB President Lagarde Speaks at 11:00 (GMT+3);
  • – US CB Consumer Confidence (m/m) at 17:00 (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
28 Jun

Stocks steady while crude prices jump

By ForexTime

US stock futures have perked up this morning on news that China will cut its quarantine time on foreign travellers. This comes as Wall Street pared gains after initially rising from stronger-than-expected US durable goods data.

Meanwhile, there’s more action in the oil markets as crude extends its recent gains on supply disruptions.

The blue-chip benchmark S&P500 ended Monday 0.3% lower, after a turbulent day of trading in which the index slowly gave up earlier gains. The broad-based index remains around 18% lower for the year.

Technically, the S&P500 had been trading at the bottom of a bear channel after the highs at the end of March.

Prices were also oversold on the daily and weekly charts with the RSIs dipping towards 30. The rebound has taken us above the May low at 3811.1 and the bulls are now challenging trendline resistance from the October 2021 low.

Above here is the key psychological level at 4,000 with the 50-day simple moving average at 4028.4.

 

Crude bounces off trendline support

Oil prices had their worst week since early April, with Brent falling more than 7% over the last week. 

Concern over the macro outlook has weighed heavily despite fundamentals remaining constructive. G-7 nations are meeting at the moment, and discussions around a potential price limit on Russian oil appear to be on the agenda. It is suggested that any limits would be done through insurance and shipping.

However, it would likely take some time to come to an agreement and would require the EU to renegotiate its last round of sanctions which some member countries may be reluctant to do, given how long it originally took EU countries to finalise its Russian oil ban.

OPEC members are set to meet tomorrow with an OPEC+ ministerial meeting on Thursday.

The cartel already agreed at its previous meeting on larger supply increases for July and August so confirmation of that supply increase for August is expected.

After falling sharply from the high at the start of the month at $123.27, Brent found support last week at the upward trendline touching the March, April and May lows. The 100-day simple moving average has also helped hold up prices and currently sits at $107.76.

We are now trading just above the 50-day simple moving average at $111.64 with bulls eyeing up the $114 resistance level which had capped Brent prices for much of April-May.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
27 Jun

Wealth of nations: Why some are rich, others are poor – and what it means for future prosperity

By Amitrajeet A. Batabyal, Rochester Institute of Technology 

– Why are some nations rich and others poor? Can the governments of poor nations do something to ensure that their nations become rich? These sorts of questions have long fascinated public officials and economists, at least since Adam Smith, the prominent Scottish economist whose famous 1776 book was titled “An Inquiry into the Nature and Causes of the Wealth of Nations.”

Economic growth matters to a country because it can raise living standards and provide fiscal stability to its people. But getting the recipe consistently right has eluded both nations and economists for hundreds of years.

As an economist who studies regional, national and international economics, I believe that understanding an economic term called total factor productivity can provide insight into how nations become wealthy.

Growth theory

It is important to understand what helps a country grow its wealth. In 1956, Massachusetts Institute of Technology economist Robert Solow wrote a paper analyzing how labor – otherwise known as workers – and capital – otherwise known as physical items such as tools, machinery and equipment – can be combined to produce goods and services that ultimately determine people’s standard of living. Solow later went on to win a Nobel Prize for his work.

One way to increase a nation’s overall quantity of goods or services is to increase labor, capital or both. But that doesn’t continue growth indefinitely. At some point, adding more labor only means that the goods and services these workers produce is divided between more workers. Hence, the output per worker – which is one way of looking at a nation’s wealth – will tend to go down.

Similarly, adding more capital such as machinery or other equipment endlessly is also unhelpful, because those physical items tend to wear out or depreciate. A company would need frequent financial investment to counteract the negative effect of this wear and tear.

In a later paper in 1957, Solow used U.S. data to show that ingredients in addition to labor and capital were needed to make a nation wealthier.

He found that only 12.5% of the observed increase in American output per worker – the quantity of what each worker produced – from 1909 to 1949 could be attributed to workers becoming more productive during this time period. This implies that 87.5% of the observed increase in output per worker was explained by something else.

Total factor productivity

Solow called this something else “technical change,” and today it is best known as total factor productivity.

Total factor productivity is the portion of goods and services produced that is not explained by the capital and labor used in production. For example, it could be technological advancements that make it easier to produce goods.

Another way to understand total factor productivity.

It’s best to think of total factor productivity as a recipe that shows how to combine capital and labor to obtain output. Specifically, growing it is akin to creating a cookie recipe to ensure that the largest number of cookies – that also taste great – are produced. Sometimes this recipe gets better over time because, for example, the cookies can bake faster in a new type of oven or workers become more knowledgeable about how to mix ingredients more efficiently.

Will total factor productivity continue to grow in the future?

Given how important total factor productivity is to economic growth, asking about the future of economic growth is basically the same as asking whether total factor productivity will continue to grow – whether the recipes will always get better – over time.

Solow assumed that TFP would grow exponentially over time, a dynamic explained by the economist Paul Romer, who also won a Nobel Prize for his research in this field.

Romer argued in a prominent 1986 paper that investments in research and development that result in the creation of new knowledge can be a key driver of economic growth.

This means that each earlier bit of knowledge makes the next bit of knowledge more useful. Put differently, knowledge has a spillover effect that creates more knowledge as it spills out.

Despite Romer’s efforts to provide a basis for the assumed exponential growth of TFP, research shows that productivity growth in the world’s advanced economies has been declining since the late 1990s and is now at historically low levels. There are concerns that the COVID-19 crisis may exacerbate this negative trend and further reduce total factor productivity growth.

Recent research shows that if TFP growth falls, then this can negatively affect living standards in the U.S. and in other rich countries.

A very recent paper by the economist Thomas Philippon analyzes a large amount of data for 23 countries over 129 years, finding that TFP does not actually grow exponentially, as Solow and Romer had thought.

Instead, it grows in a linear, and slower, progression. Philippon’s analysis suggests that new ideas and new recipes do add to the existing stock of knowledge, but they don’t have the multiplier effect previous scholars had thought.

Ultimately, this finding means that economic growth used to be quite fast and is now slowing down – but it’s still occurring. The U.S. and other nations can expect to get wealthier over time but just not as quickly as economists once expected.The Conversation

About the Author:

Amitrajeet A. Batabyal, Distinguished Professor and Arthur J. Gosnell Professor of Economics, Rochester Institute of Technology

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

 

Economics & Fundamentals Opinions
27 Jun

Falling commodity prices last week eased inflation fears

By JustForex

At the close of the stock market on Friday, the Dow Jones index (US30) increased by 2.68% (+5.31% per week), while the S&P 500 index (US500) added 3.06% (+6.71% per week). Technology index NASDAQ (US100) gained 3.34% on Friday (+8.51% per week). All three indices closed in the plus as the week ended.

On Friday, Fed member Daly, the usual political dovish spokeswoman, indicated she supports a 75 basis point rate hike at the upcoming Fed meeting in July. At the same time, the indices have rallied substantially, suggesting that the 0.75% rate hike scenario at the next Fed meeting is probably already priced in. And since there is no new negativity, no new factors contribute to the decline. But analysts believe that inflation will not slow anytime soon, which means the Fed will raise rates more and move faster, putting downward pressure on the economy.

A significant factor last week was the drop in oil and commodity prices, which eased inflation fears and allowed stock markets to rebound. Falling commodity prices could help lower overall inflation, especially during the autumn months, which would reduce the need for aggressive monetary tightening.

The three-day forum will begin on Monday with the main topic “Challenges for monetary policy in a rapidly changing world.” The forum will conclude with speeches by the heads of the Fed, the ECB, and the Bank of England on Wednesday, so investors should keep a close eye on this event.

The second quarter is coming to a close. These six months have already been characterized by the fastest rate hike cycle in decades, market turmoil, and a war that has caused rising inflation. As investor expectations fluctuate between continued high inflation and an economic slowdown caused by hawkish central bank policies in major countries, few believe market volatility will subside anytime soon.

Stock markets in Europe traded higher on Friday. German DAX (DE30) gained 1.59% on Friday (-0.68% per week), French CAC 40 (FR 40) jumped by 3.23% (+2.91% per week), Spanish IBEX 35 (ES35) added 1.70% (+0.79% per week), British FTSE 100 (UK100) gained 2.68% on Friday (+2.74% per week).

On Sunday, G7 leaders promised to raise $600 billion in private and government funds over five years to finance needed infrastructure in developing countries. Biden said the United States would raise $200 billion over five years in grants, federal funds, and private investment to support projects in low- and middle-income countries. It will help fight climate change as well as improve global health, gender equality, and digital infrastructure. Europe is mobilizing 300 billion euros for the initiative over the same period.

US President Joe Biden and other G7 leaders have agreed to announce a ban on new gold imports from Russia. It will be part of a new sanctions package to be announced Tuesday.

Asian markets traded higher last week. Japan’s Nikkei 225 (JP225) gained 1.28% over the week, Hong Kong’s Hang Seng (HK50) jumped by 3.68%, and Australia’s S&P/ASX 200 (AU200) was up +1.60%.

The People’s Bank of China, with the Bank for International Settlements and five other regulators, will create a yuan-denominated reserve pool to provide liquidity to member countries during periods of market volatility. China, along with Chile, Indonesia, Malaysia, Hong Kong, and Singapore, will contribute at least 15 billion yuan ($2.2 billion) or the equivalent in US dollars to the so-called “RMB liquidity agreement.” Participating central banks will not only be able to use their contributions if liquidity is needed but will also have access to additional financing through a secured liquidity window. The agreement marks a move by Beijing to internationalize China’s currency, challenging the global financial system dominated by the US dollar.

Over the weekend, Russia launched new missile strikes against Ukraine’s two largest cities, Kyiv and Kharkiv. Russia has stepped up its use of cruise missiles, mainly striking at targets in northwestern Ukraine from Belarus. The Kremlin is also seriously considering military action against Lithuania. Last week, Lithuania banned the rail transit of sanctioned goods through its territory to Russia’s Kaliningrad region.

Russia is one step away from default. The issue is the payment of about $100 million on government bonds. The grace period for this payment ended on Sunday, June 26.

At the commodities market the biggest gains over the week showed the futures on lumber (+5.54%) and palladium (+3.21%). Cotton (-17.25%), corn (-13%), soybeans (-10.4%), natural gas (-9.74%), wheat (-9.4%), copper (-6.84%), orange juice (-6.34%) and platinum (-2.8%) futures showed the biggest drops.

Main market quotes:

S&P 500 (F) (US500) 3,911.74 +116.01 (+3.06%)

Dow Jones (US30) 31,500.68 +823.32 (+2.68%)

DAX (DE40) 13,118.13 +205.54 (+1.59%)

FTSE 100 (UK100) 7,208.81 +188.36 (+2.68%)

USD Index 104.12 -0.31 (-0.30%)

Important events for today:
  • – German Retail Sales (m/m) at 09:00 (GMT+3);
  • – US Durable Goods Orders (m/m) at 15:30 (GMT+3);
  • – US Pending Home Sales (m/m) at 17:00 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 20:30 (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
24 Jun

Inflation in Japan is holding above target. European PMI data are disappointing

By JustForex

On Thursday, US central bank governor Jerome Powell said to the House of Representatives that The Federal Reserve’s commitment to curbing 40-year inflation is “unconditional,” but it carries the risk of rising unemployment. On Wednesday, Powell told the US Senate Banking Committee that the Fed is not trying to trigger a recession but is “certainly possible” due to global events beyond its control, particularly the effects of the war in Ukraine and the COVID-19 pandemic. At the same time, Powell expects US economic growth to accelerate in the year’s second half.

On Thursday, another Fed official, Michelle Bowman, said that she supports a 75 basis point rate hike in July, followed by a 50 basis point increase at the next few meetings. That statement coincides with Reuters polls. Economists polled by Reuters this week forecast that the Fed will hold another 75 basis point rate hike next month, followed by a 0.5% hike in September.

New jobless claims fell last week from 231,000 to 229,000, while the key PMI for manufacturing and service sector activity fell to 52.5 (from 57) and 51.6 (from 53.4), respectively.

As the stock market closed yesterday, the Dow Jones Index (US30) increased by 0.64% and the S&P 500 Index (US500) added 0.95%. The technology index NASDAQ (US100) jumped by 1.62%.

Stock markets in Europe were mostly trading lower yesterday. German DAX (DE30) lost 1.76%, French CAC 40 (FR40) decreased by 0.56%, Spanish IBEX 35 (ES35) fell by 0.48%, British FTSE 100 (UK100) was 0.97% down.

German and French PMI data showed that the Eurozone economy is starting to show signs of a slowdown. In Germany, the manufacturing PMI decreased from 54.8 to 52 while the services PMI dropped from 55 to 52.4. In France, the manufacturing PMI decreased from 58.3 to 54.4, and the services PMI declined from 54.6 to 51. Typically, a PMI falling below 50 is a sign of recession in which the central bank raises interest rates. At that time, Fed spokesman Kazimir said yesterday that some Eurozone countries might face a short-term recession.

The Norwegian Central Bank surprised markets by raising its interest rate by 50 bps from 0.75% to 1.25%. Concerns about rising inflation in a tight labor market were the reasons for the scale of the increase. Norway’s inflation rate was 5.7% y/y in May versus 5.4% y/y in April. It is the highest level since December 1988.

Ukraine and Moldova officially received candidate status for EU accession.

The Russian State Duma called for bombing the US Embassy in Kyiv because of the deliveries of MLRSs to Ukraine. Such a statement was made by the deputy chairman of the Duma committee for defense, Yuriy Shvytkin. He said that the United States “is bringing World War III closer” by supplying HIMARS multiple-launch rocket systems. At the same time, Estonian Prime Minister Kaja Kallas said that in case of a Russian invasion, Estonia would be wiped off the face of the earth because of the ineffective NATO plan to defend the Baltic states. She called for sending at least 20,000 to 25,000 NATO soldiers to each Baltic country.

Natural gas futures fell more than 5% yesterday on the news of reserves. US domestic natural gas inventories increased by 74 billion cubic feet over the week. Meanwhile, total natural gas in storage is 2.169 trillion cubic feet, 305 billion cubic feet less than a year ago, and 331 billion cubic feet below the five-year average.

Official weekly estimates of US oil inventories had to be released on Thursday, but technical problems delayed those numbers until next week, the US Energy Information Administration said. Russia continues to find alternative buyers for its oil, with China and India among the biggest buyers. China’s crude oil imports from Russia increased by 55% in May from a year earlier to a record high.

Asian markets closed yesterday in green territory. Japan’s Nikkei 225 (JP225) gained 0.08%, Hong Kong’s Hang Seng (HK50) added 1.26%, and Australia’s S&P/ASX 200 (AU200) closed with a gain of 0.31%.

The nationwide core Consumer Price Index was 2.1% for the second month in a row and again exceeded the Bank of Japan’s target level. This data challenges the Bank of Japan’s view that the recent price increase is temporary and does not require a withdrawal of monetary stimulus. Such sentiment provided a brief boost to the Japanese yen. But with wage growth slowing, many analysts expect the Bank of Japan to remain on a soft monetary policy rather than fighting inflation by raising interest rates.

Main market quotes:

S&P 500 (F) (US500) 3,795.72 +35.83 (+0.95%)

Dow Jones (US30) 30,677.36 +194.23 (+0.64%)

DAX (DE40) 12,912.59 −231.69 (−1.76%)

FTSE 100 (UK100) 7,020.45 −68.77 (−0.97%)

USD Index 104.35 +0.16 (+0.15%)

Important events for today:
  • – Japan National Core Consumer Price Index at 02:30 (GMT+3);
  • – UK Retail Sales (m/m) at 09:00 (GMT+3);
  • – Eurozone German Ifo Business Climate Index (m/m) at 11:00 (GMT+3);
  • – Eurozone EU Leaders Summit at 13:00 (GMT+3);
  • – Australia RBA Governor Lowe Speaks at 14:30 (GMT+3);
  • – US New Home Sales (m/m) at 17:00 (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
23 Jun

What is curtailment? An electricity market expert explains

By Theodore J. Kury, University of Florida 

– Curtailment has a special meaning in electric power systems. It describes any action that reduces the amount of electricity generated to maintain the balance between supply and demand – which is critical for avoiding blackouts.

Recently, curtailment has made news in states like California and Texas that are adding a lot of wind and solar power. On very windy or sunny days, these sources may produce more electricity than the grid can take. So grid managers reduce production to manage that oversupply.

This can be a lost opportunity. Electricity from solar and wind, as well as existing nuclear plants, is inexpensive and emits less greenhouse gases than fossil fuels, so it may be in society’s interest to keep these generators running.

A special kind of surplus

Consumers know about shortages and surpluses in the goods they buy. Shortages mean that shoppers can’t get that PlayStation 5 for Christmas – or, more critically, the bread, water or baby formula they need.

Surpluses look different, like unsold books classified as remainders or Easter candy discounted 80% at local drug stores on Monday morning.

But electricity is not like these goods. On today’s electric grid, shortages and surpluses can both result in the exact same thing – a blackout.

The North American grid transmits electricity as alternating current that changes direction back and forth, like water ebbing and flowing from a vintage hand pump as the handle is pushed up and down. Modern electricity grids require precise levels of frequency – the back-and-forth motion of power – to function properly.

The grid is designed to function at 60 hertz, which means that the flow of electric current shifts back and forth 60 times per second. This is achieved, in part, by ensuring that the amount of electricity produced at any given time is equal to the amount of electricity being used. If too little electricity is produced, frequency on the system drops. If too much electricity is produced, then frequency increases.

Modern power plants are designed to operate within a relatively narrow range around 60 hertz. If the actual frequency on the grid is outside that range, the plant can disconnect itself from the system. If enough plants do that, it causes a blackout.

As the U.S. electric power industry shifts increasingly to renewable sources, the national power grid will require major updates.

Managing the flow

In some parts of the U.S., mostly the Southeast and the West, the same companies generate electricity and deliver it to customers. When power plants in a utility’s territory generate more electricity than customers are using, the company will simply produce less electricity from its most expensive power plant, or temporarily shut it off altogether.

But other states have restructured their electricity markets so that some companies produce power and others deliver it to customers. In these competitive markets, curtailment raises complex issues. Power generators stay in business by generating and selling power, so when demand drops, grid operators need a system to ensure that they make curtailment decisions fairly.

Often the first tool for choosing which plants to curtail is the prices that generators are paid. When supply grows or demand falls, the price of electricity falls. Some generators may decide that they are unwilling to produce electricity below a certain price and drop off if it hits that level.

If there’s still a power surplus, the organization that operates the grid steps in to manually curtail generators. They can either do this through signals in the grid’s data system or by contacting generators directly through phone calls. Power may be curtailed for five minutes or five hours, depending on how quickly the system returns to normal.

Overall, the U.S. needs more low-emissions electricity to help reduce air pollution and slow climate change. So curtailment isn’t a sound long-term strategy for managing power surpluses. It’s somewhat comparable to the early days of the COVID-19 pandemic when supply chain disruptions forced producers to throw away huge quantities of food even as grocery stores struggled to fill their shelves.

One solution is to expand energy storage so that generators can save excess power for a few hours instead of sending it straight into the grid. Another option is building more transmission to carry power to areas that need it. Both types of investments can reduce the need to curtail generation and forgo making clean, affordable electricity.The Conversation

About the Author:

Theodore J. Kury, Director of Energy Studies, University of Florida

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

 

Economics & Fundamentals Opinions
23 Jun

Oil is falling amid rumors of the suspension of the federal gasoline tax. Inflation continues to rise

By JustForex

Fed Chairman Jerome Powell visited the Senate Banking Committee yesterday and will visit the House of Representatives today. Mr. Powell noted that the Fed is “strongly committed” to curbing inflation and pointed out that at this point, the economy is strong enough to withstand the interest rate increases used as a tool to achieve this goal. Powell also said that the pace of future rate hikes would depend on what inflation numbers they see. But the possibility of a recession due to rising interest rates remains. At the same time, a Fed rate hike will not likely result in lower gas or food prices.

Fed spokesman Evans noted yesterday that a 75 basis point rate hike in July is reasonable for discussion and does not see the need for a 100 basis point hike. The odds that the Fed will hike 0.75% again at its next meeting are now nearly 100%. And this scenario is not yet priced in, so analysts expect another wave of declines in stock indices.

At the close of the stock market yesterday, the Dow Jones index (US30) decreased by 0.15%, while the S&P 500 index (US500) lost 0.13%. The NASDAQ Technology Index (US100) fell by 0.15% on Wednesday.

Canada’s Consumer Price Index increased by 1.4% last month (forecast +1%, previous +0.6%). Thus, inflation in Canada has reached 7.7% year on year, which is a record since 1983. Core inflation (which excludes food and fuel prices) rose from 5.8% to 6.3% year/year. Analysts believe Canada’s sharp rise in inflation will reinforce investor expectations for a more aggressive interest rate hike by the Bank of Canada.

Stock markets in Europe mostly traded lower yesterday. German DAX (DE30) decreased by 1.11%, French CAC 40 (FR 40) fell by 0.81%, Spanish IBEX 35 (ES35) lost 1.10%, British FTSE 100 (UK100) closed by 0.88%.

The ECB and Europe’s national central banks have spent three months on the necessary tool to prevent fragmentation that would accompany the slow normalization of European interest rates in response to the rapid rise in inflation, caused partly by the Russian invasion of Ukraine. For now, analysts believe the ECB’s current approach is working. But the ECB’s decision-making discretion is very narrow, not least because of growing political pressure in Germany, France, and Italy.

The UK Consumer Price Index increased to 9.1% year on year (forecast 9.1%, previous 9.0%). Monthly, inflation rose by 0.7%. The last time such a level of inflation was seen was in 1982. Analysts believe the central bank will be forced to take stricter measures at its next meetings.

The head of the Swiss National Bank, Thomas Jordan, indicated yesterday that inflation data shows the need for further monetary policy tightening, but it is unclear when.

Oil fell yesterday as the US plans a tax vacation on gasoline. On Wednesday, Biden said he asked Congress to consider a three-month suspension of the federal gasoline tax of 18.4 cents a gallon and urge states to suspend fuel taxes. The president called on refiners to ensure that all savings were passed on to the American people. The US Energy Secretary Jennifer Granholm will meet with the oil industry today to find ways to lower oil and fuel prices.

Asian markets closed yesterday in the negative territory. Japan’s Nikkei 225 (JP225) decreased by 0.37%, Hong Kong’s Hang Seng (HK50) fell by 2.56%, and Australia’s S&P/ASX 200 (AU200) closed down by 0.23%.

Chinese President Xi Jinping held a summit on Wednesday that endorsed a plan for the healthy development of China’s large payments companies and fintech sector. It could give a boost to tech companies.

Japan’s manufacturing activity growth slowed in June as China’s strict restrictions over COVID-19 affected manufacturing demand, even as service sector sentiment hit a nearly nine-year high. China’s quarantine over COVID-19 disrupted supply chains, severely affecting trade-dependent economies such as Japan.

According to S&P Global, Australia’s global manufacturing PMI increased to 55.8 in June from 55.7 in May. Services business activity fell to 52.6 from 53.2.

Singapore’s Consumer Price Index reached 5.6% y/y (forecast 5.5%, previous 5.4%). The core Consumer Price Index, excluding private fuel and food costs, rose to 3.6% year-on-year (forecast 3.5%, previous 3.3%).

South Korea’s won fell below the psychological level of 1,300 per dollar for the first time in 13 years amid fears of a global economic slowdown.

Main market quotes:

S&P 500 (F) (US500) 3,759.89 −4.90 (−0.13%)

Dow Jones (US30) 30,483.13 −47.12 (−0.15%)

DAX (DE40) 13,144.28 −148.12 (−1.11%)

FTSE 100 (UK100) 7,089.22 −62.83 (−0.88%)

USD Index 104.20 -0.24 (-0.23%)

Important events for today:
  • – Australia Manufacturing PMI (m/m) at 02:00 (GMT+3);
  • – Australia Services PMI (m/m) at 02:00 (GMT+3);
  • – Japan Manufacturing PMI (m/m) at 03:30 (GMT+3);
  • – Japan Services PMI (m/m) at 03:30 (GMT+3);
  • – Singapore Consumer Price Index (m/m) at 08:00 (GMT+3);
  • – Eurozone French Manufacturing PMI (m/m) at 10:15 (GMT+3);
  • – Eurozone French 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 ECB Economic Bulletin at 11:00 (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);
  • – Eurozone EU Leaders Summit at 13:00 (GMT+3);
  • – US Initial Jobless Claims (w/w) 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);
  • – US Fed Chair Powell Testifies at 17:00 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 18:30 (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
23 Jun

What is a recession? And what it could mean for stocks, oil and gold.

By ForexTime

Things are looking gloomy in the world.

The prices of goods and services are skyrocketing at a pace not seen in several decades, making it more expensive to go about our daily lives.

At the same time, more than 60 central banks around the world have already raised their respective interest rates, and are set to continue doing so for the rest of this year … and beyond.

This combo of red-hot inflation + global policy tightening could ultimately lead to a significant drop in demand/consumption, rising unemployment, and slowing economic growth, or worse, a recession.

 

What is a recession?

You’ve likely heard this word being used a lot more of late.

We certainly have been using it significantly more in our daily articles.

A popular method to confirm a ‘recession’ = when an economy shrinks for two consecutive quarters.
So be on the look out for negative GDP figures.

 

However, given that GDP figures are backward-looking, such a definition implies that we’ll only know a recession has arrived after it’s happened.

Even the NBER (National Bureau of Economic Research), which is seen as the foremost authority in identifying a ‘recession’ while using a broader range of data, says they can take anywhere from 4 to 21 months before determining that a recession has started.

 

Also, it’s hard to predict when a recession will happen, though that hasn’t stopped forecasts already being made.

  • Tesla CEO Elon Musk as well as former New York Fed President Bill Dudley both say a US recession is “inevitable”.
  • Goldman Sachs places a 30% chance of a recession sometime in 2023, while Deutsche Bank’s CEO, Christian Sewing, and Citigroup analysts think that likelihood is higher at 50%.
  • Even Fed Chair Jerome Powell just yesterday conceded that a US recession is “certainly a possibility”.

 

Recession fears are already playing out across global financial markets:

  1. There has been bouts of yield curve inversion – a popular signal for a looming recession.

    A yield curve inversion means that investors are more willing to park their money in the safe hands of the US government for longer (e.g. 10 years), for fear of economic turbulence over the shorter-term (e.g. 2 years).

    Markets are expecting to see further yield curve inversions in the months ahead.

  2. Risk assets, ranging from stocks to cryptos, have taken a beating! In time of heightened economic uncertainty, investors are a lot less willing to make risky bets.

    The S&P 500, an index which is used to measure the overall performance of US stocks, has lost over 20% so far this year, meeting the definition of a ‘bear market’.

    The S&P 500 could fall further, potentially testing the low-3000 regions for support.

  3. Even oil has been unwinding some of its stellar gains of late. Investors and traders fear that a recession would mean less consumption/demand for the commodity, hence lower prices.

    While fundamental forces (that’s supply and demand) should still suggest that oil can stay elevated, prices could still dip back into sub-$100 levels as traders and investors continue assessing the likelihood of a recession.

 

 

Which asset could outperform?

Safe havens are assets that promise to protect one’s wealth in times of great fear.

And gold has time and again proven its worth as a safe haven.

However, before a recession arrives, the Fed wants to send interest rates a lot higher and suck out more money from the economy to help bring down inflation.

Hence, gold could continue languishing in these sub-$1900 levels under the weight of these incoming Fed rate hikes for the rest of 2022, before potentially pushing back higher as the prospects of a recession looms closer.

 

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
22 Jun

Are your investments REALLY inflation-protected?

By George Prior 

– Investors need to protect their investments and long-term wealth against soaring inflation and rising interest rates by revising which assets make up their portfolios.

This is the stark warning from Nigel Green, the chief executive and founder of deVere Group, a game-changing global financial advisory organisation.

It comes as retail and institutional investors the world over are battling the economic fallout of soaring consumer prices.

He notes: “Long term and short duration assets respond differently to rising inflation and interest rates.

“Short duration assets include value stocks, such as agriculture, financials, mining and energy sectors. These are the stocks that offer ‘jam today’ for investors, which are popular during periods of volatility as we’re experiencing now.

“Long duration assets, such as long-dated bonds and tech stocks, are particularly vulnerable to rising inflation and interest rate hikes from major western central banks.

“As such, in this volatile environment, investors might need to adjust their portfolios accordingly in order to mitigate risks to their investments and, therefore, their long-term wealth.”

Central banks face a dilemma, says the deVere CEO. Their current aim is to make money more expensive in order to weaken demand and bring down wage growth – “but without causing mass unemployment and triggering a recession.”

When it comes to inflation protection, he says that investors seeking both capital appreciation and capital preservation in this current landscape, should also consider diversifying into less traditional asset classes.

“Rising interest rates, amid weakening business and household demand, is bad news for both bond and stock markets.

“Meanwhile inflation will eat into company profit margins for many companies, particularly those selling discretionary products that businesses and consumers can delay purchasing.

“All this creates market volatility. Investors should consider less familiar, return-enhancing asset classes which could include venture capital, structured products, high dividend stocks, hedge funds and managed futures, and real estate, amongst others. They are also likely to increase diversification and reduce volatility, due to their low correlations to the more traditional investments; and they can hedge some portfolio exposures.

Nigel Green goes on to add: “It is impossible to know how much of the inflation and interest rate story is already baked-in to stock and bond market prices, but investors are anticipating further market volatility.”

The VIX ‘fear gauge’ index of implied future volatility on the S&P500 ended last week at a historically high level of 31.

But investors do appear to have confidence in the U.S. Federal Reserve’s – the world’s most powerful central bank – ability to bring down inflation in the medium term, with the 5yr/5yr forward inflation expectation rate -which measures the average annual inflation rate that is expected over a five year period, commencing in five years- falling over the last fortnight to 2.36% (only a little above the Fed’s 2% target rate).

Portfolio diversification is key, asserts the deVere Group chief executive.

“It’s true that equities have tended to outperform bonds and other assets over the long term. But a broadly diversified portfolio of equities, bonds, commodities and alternatives has performed better on a risk-adjusted basis, meaning after taking into account volatility.”

He concludes: “As ever, bouts of market volatility are the times when most opportunities are presented for investors looking to build long-term wealth.

“That said, investors should consider if they need to revise their portfolios in the current environment.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

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