Economics & Fundamentals

Archive for Economics & Fundamentals – Page 66

The British index has updated the historical maximum. Oil lost 5% over the week

At the end of Thursday, the Dow Jones Index (US30) rose by 0.85%, and the S&P 500 Index (US500) rose by 0.91%. The NASDAQ Technology Index (US100) closed negative 0.33%. Optimism about the economic outlook is supporting stocks. Stocks have also received support since Wednesday when Fed Chair Powell said the Fed’s next move is unlikely to be an interest rate hike. Stock indices maintained gains even after US economic reports showed weekly jobless claims rose less than expected and unit labor costs rose more in the first quarter, a hawkish factor for Fed policy.

On Thursday, Apple (AAPL) reported second-quarter results that beat Wall Street expectations, thanks to better-than-expected performance in its key China market. It also announced the most significant share repurchase in its history. Apple Inc (AAPL) shares rose more than 7% after the report. Qualcomm (QCOM) rose more than 9% after reporting better-than-expected second-quarter adjusted earnings per share and predicting third-quarter adjusted earnings per share above consensus. On the downside, Etsy (ETSY) is down more than 16% after the company reported first-quarter gross merchandise sales below consensus.

The Organization for Economic Cooperation and Development (OECD) raised its 2024 global growth prognosis to 3.1% from a February estimate of 2.9% and said risks are becoming “more balanced.”

Equity markets in Europe traded flat yesterday. Germany’s DAX (DE40) was down 0.20%, France’s CAC 40 (FR40) closed down 0.88%, Spain’s IBEX 35 (ES35) added 0.16%, and the UK’s FTSE 100 (UK100) closed positive 0.63%.

On Thursday, the FTSE 100 Index hit a new record high of 8160 on positive corporate developments. Shell shares rose more than 2.5% after announcing a $3.5 billion share buyback and better-than-expected first-quarter earnings and cash flow.

WTI crude futures stabilized above $79 a barrel on Friday but are still down more than 5% this week as easing fears of a broader conflict in the Middle East, signs of increased US oil supplies, and growing uncertainty about the outlook for oil demand weighed on prices. Egypt led efforts this week to restart stalled peace talks between Israel and Hamas. At the same time, US Secretary of State Antony Blinken urged Hamas to accept Israel’s offer of a ceasefire in exchange for hostages. Meanwhile, OPEC+ said it may extend a voluntary 2.2 million BPD production cut beyond June if oil demand does not recover.

US natural gas (XNGUSD) prices climbed above the $2/MMBtu mark on Thursday, recovering from two consecutive losses. Prognoses point to higher demand next week, including increased gas deliveries to LNG export plants. In addition, the latest EIA report showed that US utilities pumped 59 billion cubic feet (BCF) of gas into storage for the week ended April 26, 2024, compared to market expectations of a 55 BCF increase. Inventories are now 34.9% above the seasonal average.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.10%, China’s FTSE China A50 (CHA50) was not trading, Hong Kong’s Hang Seng (HK50) was up 2.5% and Australia’s ASX 200 (AU200) was positive 0.23%.

Global hedge funds using a strategy of long-short equity market positions are increasingly tilted in favor of China, as evidenced by their active buying of Hong Kong-listed stocks. The Hang Seng Index rose more than 7% in April, posting its best monthly gain since January 2023 and outperforming most significant markets. Swiss bank UBS said in a research note that trends in the Hong Kong market have reversed, unlike in February when the primary inflows came from covering short positions. As Hong Kong stocks rose, fundamental hedge funds with long-short positions continued accumulating shares of Chinese companies.

S&P 500 (US500) 5,064.20 +45.81 (+0.91%)

Dow Jones (US30) 38,225.66 +322.37 (+0.85%)

DAX (DE40) 17,896.50 −35.67 (−0.20%)

FTSE 100 (UK100) 8,172.15 +50.91 (+0.63%)

USD Index 105.39 −0.36 (−0.34%)

Important events today:

– Norwegian NB Interest Rate Decision at 11:00 (GMT+3);
– UK Services PMI (m/m) at 11:30 (GMT+3);
– Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
– US Nonfarm Payrolls (m/m) at 15:30 (GMT+3);
– US Unemployment Rate (m/m) at 15:30 (GMT+3);
– US ISM Services PMI (m/m) at 17:00 (GMT+3).

By JustMarkets

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

Economics & Fundamentals Financial News

02 May

High interest rates aren’t going away anytime soon – a business economist explains why

By Christopher Decker, University of Nebraska Omaha

The Federal Reserve held interest rates steady at its May 1, 2024, policy meeting, dashing the hopes of potential homebuyers and others who were hoping for a cut. Not only will rates remain at their current level – a 23-year high – for at least another month, there’s little reason to believe the Fed will start tapering until the fall. Indeed, if inflation starts to heat back up, it’s plausible — though at the moment unlikely — that the Fed will consider ratcheting up rates another 25 basis points or so in the coming months.

As recently as a few months ago, investors were betting that 2024 would bring a slew of rate cuts.

But speaking as a business economist, I think it’s clear that the latest economic data discouraged the Fed from easing up as it gathered for its latest policy meeting. There’s no sign of an imminent recession. Employment is still pretty strong, with the U.S. adding 303,000 jobs in March 2024 and 270,000 in February, and the unemployment rate – at 3.8% in March – ticked up only slightly from 3.5% in March 2023. That is simply not a large enough increase to be concerned that high rates are slowing the economy down too abruptly.

While it’s true that inflation-adjusted gross domestic product growth, after posting a remarkable 4.8% annualized increase in the fourth quarter of 2023, slowed significantly to 1.6% in the first quarter of 2024, slower growth is exactly what the Fed has been attempting to engineer by raising interest rates. By controlling demand for good and services, price growth slows. That’s still not a recessionary indication.

The inflation challenge

Getting inflation rates down to the Fed’s 2% target — a number that Federal Reserve Chair Jerome Powell repeated several times during his news conference — has been challenging, to say the least. The Fed began hiking interest rates in early 2022. Initially, it had some success in reducing inflation that had peaked at about 9% that year. Indeed, as Powell said, the reduction in inflation was historically fast, due in part to both rate increases and easing international supply chain disruptions. But since June 2023, when inflation was 3.1%, there’s been little decline. Indeed, consumer price index growth hasn’t fallen below 3% since March 2021.

One of the main reasons inflation has stayed high is that there aren’t enough workers. Economic growth increases labor demand, and labor supply simply hasn’t kept pace. The result is higher wages. With higher wages, firms need to cut costs elsewhere, increase prices, or both, to maintain profitability.

Another important driver of inflation, which Powell took pains to mention, is the rising cost of rent. With higher mortgage rates, the housing market has slowed considerably, and many Americans — especially younger ones — are renting instead of buying. Sustained demand for apartments, combined with increased costs of maintenance and upkeep of rental properties, is pressuring rents upward.

Could hikes be in the future?

The next rate decision, in June, is “unlikely” to bring an increase, Powell said during his news conference. He also indicated said the current regime of high rates should be sufficient to tame inflation.

Indeed, as he noted, new job openings have fallen from a peak of 12.1 million in March 2022 to 8.4 million in March 2024. While that’s still high in absolute terms, it’s a significant decline, which suggests slower labor demand. This should then reduce pressure on wages.

So, what about rate cuts? After all, some observers were expecting rate cuts to begin this summer. Based on the information I’m looking at, that is simply not going to happen. No move will occur until September at the earliest. Until then, expect a sluggish housing market and costly borrowing, but moderating inflation and slow but steady growth.

About the Author:

Christopher Decker, Professor of Economics, University of Nebraska Omaha

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

Economics & Fundamentals Opinions

02 May

US Fed tilts towards a rate cut despite the postponement. HKMA left the rate unchanged at 5.75%

By JustMarkets

At Tuesday’s close, the Dow Jones Index (US30) added 0.23%, while the S&P 500 Index (US500) was down 0.34%. The NASDAQ Technology Index (US100) closed negative 0.33%. US stock indices traded mixed on Wednesday. Stock prices rose after bond yields fell, and Fed Chairman Powell said it was unlikely that the Fed’s next move would be a rate hike. However, the broader market gave up its gains and declined to close on the prospect of higher long-term interest rates. The broader market also came under pressure after Wednesday’s ADP employment change report for April rose more than expected, indicating a strengthening US labor market and strengthening the case for the Fed not to cut interest rates.

The US Federal Reserve left interest rates unchanged. Fed Chair Powell ruled out the possibility of another rate hike, confirming that the Central Bank is leaning toward easing despite the delay. Meanwhile, policymakers acknowledged that inflation has fallen over the past year but remains high, saying there has been no progress on the Central Bank’s inflation target in recent months. Investors now await the critical monthly US jobs report on Friday to gauge the labor market’s strength and determine the future outlook for rates.

Starbucks (SBUX) shares fell more than 15% after the company reported an unexpected decline in comparable sales in the second quarter. Additionally, Garmin Ltd (GRMN) is up more than 13% after it reported first-quarter earnings that beat consensus estimates. Advanced Micro Devices (AMD) closed down more than 8% after reporting second-quarter revenue of $5.4–6.0 billion, below the average consensus estimate of $5.72 billion. Kraft Heinz (KHC) lost more than 6% after the company reported first-quarter net sales of $6.41 billion, below the consensus forecast of $6.43 billion. According to Bloomberg Intelligence, about 81% of the S&P 500 companies already reported beat first-quarter earnings forecasts.

European equity markets did not trade yesterday, except for the British FTSE 100 (UK100), which closed negative 0.04%.

WTI crude oil prices stabilized above $79 per barrel on Thursday amid speculation that the US government may move to replenish its strategic oil reserves as it seeks to buy back oil at or below $79 per barrel. However, WTI crude prices remained near 7-week lows and are down more than 5% this week as hopes of a ceasefire agreement between Israel and Hamas and rising US crude inventories put pressure on the oil market.

Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.34%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were not trading, while Australia’s ASX 200 (AU200) was negative 1.23%.

The Hong Kong Monetary Authority (HKMA) kept the benchmark rate unchanged at 5.75% on May 2, hours after the US Federal Reserve left its key interest rate unchanged for the sixth consecutive time. Monetary policy in the Asian financial hub is conducted in line with US policy as the local currency is pegged to the US dollar.

Australia’s trade surplus in goods fell to A$5.02 billion in March 2024 from a downwardly revised $6.59 billion in the previous month, below market forecasts of $7.30 billion. It was the smallest trade surplus since November 2020, as exports grew slower than imports.

The S&P Global Malaysia Manufacturing PMI for April 2024 rose to 49.0 from March’s three-month low of 48.4. It was the 20th consecutive month of contraction in factory activity as demand remained weak. Declines in output and new orders were more moderate, with overseas sales rising for the first time in a year and at the fastest pace since April 2021. Employment remained flat after three consecutive monthly declines. On the other hand, purchasing activity declined, and delivery times fell marginally.

S&P 500 (US500) 5,018.39 −17.30 ((−0.34%)

Dow Jones (US30) 37,903.29 +87.37 (+0.23%)

DAX (DE40) 17,932.17 0 (0%)

FTSE 100 (UK100) 8,121.24 −22.89 (−0.28%)

USD Index 105.63 −0.59 (−0.56%)

Important events today:

– Japan Monetary Policy Meeting Minutes at 02:50 (GMT+3);
– Australia Trade Balance (m/m) at 04:30 (GMT+3);
– Switzerland Consumer Price Index (m/m) at 09:30 (GMT+3);
– Switzerland Retail Sales (m/m) at 09:30 (GMT+3);
– Germany Manufacturing PMI (m/m) at 10:55 (GMT+3);
– Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Trade Balance (m/m) at 15:30 (GMT+3);
– Canada Trade Balance (m/m) at 15:30 (GMT+3);
– Canada BoC Gov Macklem Speaks at 15:45 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

01 May

Is scientific discovery driven by great individuals or by great teams?

By Denisa Mindruta, HEC Paris Business School

“This isn’t mine; this is one for the team,” said Succession star Kieran Culkin as he accepted the Best Actor award at this year’s Golden Globes. It’s a familiar aspect of Hollywood awards speeches – a reminder that the stars dazzling us on screen could not exist without the people who support them. “It’s been said, but it’s a team effort, this show,” said Succession creator Jesse Armstrong at the awards, underlining the same sentiment.

Hollywood speeches aside, we do seem to focus on individuals when we acknowledge greatness. In business and science, the dominant cultural narrative is that the bulk of innovation is driven by a handful of exceptional individuals, or “stars.” We elevate pioneers like Steve Jobs or Albert Einstein, and reward individuals who show similar promise with resources that allow them to continue performing high-value work.

Star scientists are those who publish significantly more than their peers, producing papers with greater impact and actively participating in commercialisation ventures. However, science is rarely a solo effort. Even star scientists usually have a team ¬– a “constellation” – of collaborators behind them. Research teams have grown in size by 50% in the period between 1981 and 1999. In recent years, more than 80% of all science and engineering publications and over two-thirds of patents have been the product of multiple authors. Research collaborations that include star researchers typically achieve higher average performance than those without such individuals.

But what is the maximum impact that a single person can have on the joint performance of a collaboration? We examined the relative contributions individuals and their collaborators make to scientific innovation to understand how to optimize team composition to best perform.

Plus de trois fois sur quatre, c’est la complémentarité entre la tête d’affiche de l’équipe et le reste des membres qui apporte le plus de valeur aux recherches.
Flickr/NTNU, CC BY-SA

How star researchers improve collective performance

Star researchers improve collective performance in two ways. First, the presence and contributions of the star researcher improve the quality and output of their collaborators, leading to greater overall team success. Previous approaches have studied this so-called spillover effect by examining what happens when a star scientist leaves the group. These studies showed that when this happened, colleagues experienced a lasting 5-10% decline in publication rate.

Second, once a researcher has initial success, they find it increasingly easy to attract talent and resources. This is called the “Matthew effect,” named after a (loose) interpretation of a Biblical parable.

In practice, the Matthew effect reflects a feedback loop wherein star researchers can increase their success at a greater rate than their peers. It has been borne out by studies showing that star scientists gain preferential access to valuable resources like funding, talented graduate students, and advanced lab facilities in both in academia and in the private sector.

30 star scientists and their constellations

Prior research has treated spillover and the Matthew effect separately, but they are inextricably linked. So, we developed a model to capture this complexity.

We investigated the star-constellation relationship in collaborations that resulted in an invention. University researchers must disclose new inventions to their institutions. Because the disclosure is a legal document, it’s useful for our research because it sidesteps social noise such as favours and institutional politics that may skew rates of publication authorship. The data was taken from a U.S. university with a renowned medical school.

Analysis was performed using data on the 555 invention disclosures that were registered between 1988 and 1999. From the total cohort of 1003 scientists, of which 248 were team leaders, we identified a cohort of 30 “stars” who were in the top 5% of globally cited researchers.

Irreplaceable stars

The contribution of a star scientist to a team is dominant – i.e. their contribution exceeds that of their team – when they are “irreplaceable”. This means that they are so well-matched to the rest of the team that the constellation would be unable to produce work of the same standard without them, even with a new leader.

What makes a leader “well matched” to their team? We looked for trends in the dataset, considered the research impact, knowledge profile, and the range of seniorities in the group, so we could determine what matters the most when scientists choose collaborators.

We found that high-value team leaders tend to work with high-value collaborators, supporting the theory that star scientists attract talented constellations. Further, prominent leaders have access to, and are preferred by, collaborators with whom they share some expertise overlap, though a very high similarity makes the collaboration less favourable. Some common language and goals are a strength, but too much overlap in expertise stifles innovation.

In addition, high-value team leaders tend to work in groups where scientists of both senior and junior ranks come together. We therefore argue that diversity of perspectives and skills enables discovery. Last but not least, star scientists and their collaborators tend to share the same research profile with respect to the application domains of their research.

Star’s surprisingly small contribution

We used these findings to investigate whether the star or constellation makes the greater contribution to scientific discovery. When a star and constellation are well-matched, they produce higher quality research. For each collaboration, we calculated whether the star or constellation would be harder to replace.

To calculate the replaceability, we replaced a star or constellation with the substitute that was the second-best match. The greater the loss in research impact, the more irreplaceable the missing star or constellation was to the research.
Surprisingly, our results show that it is rare for a single person to make a more impactful contribution than their team. The relative contribution the star makes to knowledge creation surpasses the constellation’s in only 14.3% of collaborations. The constellation is the dominant party, in terms of relative value creation, in only 9.5% of cases. In more than three-quarters of cases, neither party dominates, with complementarity between star and constellation maximizing research value. In almost every pairing, innovation was a collective endeavor.

In short, to identify the drivers of innovation and discovery, we should not allow our view of the entire sky to be eclipsed by a few very bright stars.

Championing the whole team

Scientists perceived to bring star qualities are in demand and are often induced to transfer from one institution to another. This research suggests that administrators should endeavour to enable stars to move with their teams. Adjusting to work without their collaborators may have an adverse effect on the scientist’s research and their ability to attract additional talented hires. Dominating stars suffer a smaller loss without their team, but they are getting a bigger piece of a smaller pie.

However, the most significant takeaway for this research is that research credit is unfairly biased towards prominent individuals. Star scientists undoubtedly drive innovation, and a minority brings irreplaceable value. However, when considering the research output of a star, their achievements should be looked at within the context of a team. In most cases, the constellation brings a high contribution that merits recognition with IP credits, financial rents and other resources.

About the Author:

Denisa Mindruta, Professeur Associé en Stratégie et Politique d’Entreprise, HEC Paris Business School

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

Economics & Fundamentals Opinions

01 May

WTI oil declines on rising inventories and negotiations between Israel and Hamas. Rising unemployment in New Zealand may force RBNZ to start cutting rates earlier

By JustMarkets

At the end of Tuesday, the Dow Jones Index (US30) decreased by 1.49%, while the S&P 500 index (US500) was down 1.57%. The NASDAQ Technology Index (US100) closed negative 2.04% yesterday. Rising labor costs pushed bond yields higher and pressured stocks. The US Employment Cost Index for the first quarter rose more than expected, which is hawkish for Fed policy.

The US Federal Reserve will hold its next monetary policy meeting today. The rate is expected to be kept at 5.5% at this meeting, so traders will focus on the FOMC statement and Jerome Powell’s press conference. Higher inflation and strong activity and employment figures have led to a shift in market expectations regarding the timing of the first interest rate cut. Markets now forecast a rate cut of 3 bps by June, 20 bps by September, and 36 bps by December. This is a striking change considering that just three months ago the market was fully discounting 150 bps of rate cuts this year from the March FOMC meeting. So if Jerome Powell announces that the rate cuts have been pushed to late summer or fall/winter, that would be a major support for the US dollar and a negative for indices and precious metals.

Amazon (AMZN) reported strong first-quarter results Tuesday, led by growth in its cloud computing division and new advertising dollars from its Prime Video streaming service. Shares of Amazon.com Inc. rose about 2% in after-hours trading.

Equity markets in Europe were mostly down on Tuesday. The German DAX (DE40) fell by 1.03%, the French CAC 40 (FR40) closed down 0.99% yesterday, the Spanish IBEX 35 (ES35) decreased by 2.22%, and the British FTSE 100 (UK100) closed negative 0.04%.

The Eurozone inflation report showed a decline in the core index (excluding volatile food and energy prices) for April to a 2-year low of 2.7% y/y, which is dovish for ECB policy. ECB Governing Council spokesman Villeroy de Galhau said that Eurozone inflation data for April gives the ECB the confidence to start cutting interest rates in June. Eurozone Q1 GDP grew by 0.3% QoQ and 0.4% YoY, stronger than expectations of 0.1% QoQ and 0.2% YoY. Swaps estimate the odds of a 25 bps ECB rate cut at the next meeting on June 6 at 87%.

WTI crude oil prices fell towards $81/bbl on Wednesday, declining for the third consecutive session as an industry report pointed to a sharp rise in US crude inventories, while hopes of a ceasefire agreement in the Middle East continued to weigh on oil prices. API data showed that US crude inventories rose by 4.906 million barrels last week after declining by 3.23 million barrels the previous week, the biggest increase since mid-March. On Tuesday, the US EIA also reported that US oil production rose to 13.15 million barrels per day in February from 12.58 barrels per day in January, the biggest monthly increase in 3.5 years.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) rose by 1.24%, China’s FTSE China A50 (CHA50) was down 0.18%, Hong Kong’s Hang Seng (HK50) was up 0.09% for Tuesday, and Australia’s ASX 200 (AU200) was positive 0.35%.

New Zealand’s unemployment rate rose to 4.3% in the first quarter, exceeding forecasts and the highest in three years, while employment unexpectedly fell by 0.2%, putting the Reserve Bank of New Zealand (RBNZ) on track to cut interest rates ahead of the US Federal Reserve. Investors are betting on a fourth-quarter RBNZ rate cut, although some expect the official money rate to remain unchanged until 2025.

Judo Bank Flash Australian manufacturing PMI rose to 49.6 in April from 47.3 a month earlier, according to the final estimate. This was the third consecutive monthly deterioration in conditions in the manufacturing sector, albeit slight. New orders for goods continued to fall, attributed to subdued market conditions and the impact of higher interest rates.

S&P 500 (US500) 5,035.69 −80.48 (−1.57%)

Dow Jones (US30) 37,815.92 −570.17 (−1.49%)

DAX (DE40) 17,932.17 −186.15 (−1.03%)

FTSE 100 (UK100) 8,144.13 −2.90 (−0.04%)

USD Index 106.26 +0.68 (+0.64%)

Important events today:

– New Zealand RBNZ Financial Stability Report at 00:00 (GMT+3);
– New Zealand Unemployment Rate (m/m) at 01:45 (GMT+3);
– New Zealand RBNZ Gov Orr Speaks at 04:00 (GMT+3);
– UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
– US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
– Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
– US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3);
– US JOLTs Job Openings (m/m) at 17:00 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
– US FOMC Statement at 21:00 (GMT+3);
– US Fed Interest Rate Decision at 21:00 (GMT+3);
– US FOMC Press Conference at 21:30 (GMT+3);
– Canada BoC Gov Macklem Speaks at 23:15 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

30 Apr

Optimism over corporate earnings is fueling stock indices. The Hong Kong index reached a 5-month high

By JustMarkets

On Monday, the Dow Jones (US30) rose by 0.38%, while the S&P 500 (US500) Index gained 0.32%. The NASDAQ Technology Index (US100) closed positive 0.35%. Meanwhile, the S&P 500 (US500) and NASDAQ (US100) 100 indices hit 2-week highs. Optimism over first-quarter earnings, positive corporate news, and lower bond yields contribute to the broader market’s gains.

Tesla’s (TSLA) shares are up more than 12% after the company met vital security and data privacy requirements in China. It will partner with Baidu (BIDU) to introduce a fully autonomous driving feature. Domino’s Pizza (DPZ) is up more than 4% after reporting better-than-expected revenue from operations in the first quarter. Apple (AAPL) shares are up more than 3% after Bernstein upgraded its rating to “outperform.”

First-quarter earnings results were mostly better than expected, which is favorable for the stock. According to Bloomberg Intelligence, about 81% of the S&P 500 companies already reported beat first-quarter earnings estimates.

In the coming days, markets will focus on the outcome of Tuesday/Wednesday’s FOMC meeting and Fed Chair Powell’s comments on how long the Federal Reserve is willing to wait before cutting interest rates. Recent US price data has signaled solid core inflation, pushing back rate cut expectations. Currently, markets are pricing in a 25 bps chance of a rate cut of 2% at the next FOMC meeting on May 1 and 13% at the next meeting on June 12. In addition, the earnings results of AMZN and AAPL on Thursday will also determine the market’s direction.

Equity markets in Europe were mostly down on Monday. Germany’s DAX (DE40) was down 0.24%, France’s CAC 40 (FR40) closed negative 0.29%, Spain’s IBEX 35 (ES35) decreased by 0.48%, and the UK’s FTSE 100 (UK100) closed positive 0.09%.

Hawkish comments from ECB Governing Council representatives Knot and Wunsch on Monday put moderate pressure on European indices when they said the ECB should be cautious, sending a signal to markets that it will cut rates for a second consecutive month in July. The Eurozone economic confidence indicator for April unexpectedly fell by 0.6 to 95.6, weaker than expectations of a rise to 96.7. Germany’s consumer price index (EU harmonized) for April rose by 2.4% y/y, stronger than expectations of 2.3% y/y.

WTI crude oil prices fell to $82.5/bbl on Tuesday, extending losses from the previous session as peace talks between Israel and Hamas eased fears of a widening conflict in the Middle East. Markets are awaiting the Hamas leadership’s response to a phased truce offer made by Israel over the weekend in Cairo. However, ongoing Houthi attacks on maritime traffic south of the Suez Canal keep investors on edge.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) rose by 0.81%, China’s FTSE China A50 (CHA50) added 0.64%, Hong Kong’s Hang Seng (HK50) gained 0.54%, and Australia’s ASX 200 (AU200) was positive 0.81%. The Hang Seng (HK50) retreated from the 5-month peak the previous day as some traders sought to lock in profits after substantial gains in the last six sessions. Meanwhile, investors were digesting China’s manufacturing PMI data for April, where official data showed a second consecutive month of growth in factory activity. Private Caixin survey data indicated the manufacturing sector grew the most in 14 months.

On Monday, the yen fell to 160 per dollar for the first time since 1990 before making a more than 3% jump to 154.5 per dollar due to a supposed intervention by Japanese authorities. Meanwhile, the government has not confirmed whether it has intervened in the markets to support the yen, although chief currency diplomat Masato Kanda said they would release the results at the end of next month. Japan’s March 2024 retail sales rose 1.2% year-on-year, slowing significantly from the upwardly revised 4.7% rise in February and well below market expectations for a 2.5% rise. Nevertheless, it was the 25th consecutive month of retail sales growth as consumption in Japan continued to rise.

Flash data showed that retail sales in Australia fell by 0.4% in March 2024, falling short of the 0.2% growth projection, which was also revised down from February. It was the first decline in retail sales since December last year, as turnover fell across all sectors.

S&P 500 (US500) 5,116.17 +16.21 (+0.32%)

Dow Jones (US30) 38,386.09 +146.43 (+0.38%)

DAX (DE40) 18,118.32 −42.69 (−0.24%)

FTSE 100 (UK100) 8,147.03 +7.20 (+0.09%)

USD Index 105.64 −0.32 (−0.30%)

Important events today:

– Japan Unemployment Rate (m/m) at 02:30 (GMT+3);
– Japan Industrial Production (m/m) at 02:50 (GMT+3);
– Australia Retail Sales (m/m) at 04:30 (GMT+3);
– China Manufacturing PMI (m/m) at 04:30 (GMT+3);
– China Non-Manufacturing PMI (m/m) at 04:30 (GMT+3);
– China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
– German Retail Sales (m/m) at 09:00 (GMT+3);
– Switzerland KOF Leading Indicators (m/m) at 10:30 (GMT+3);
– German Unemployment Rate (m/m) at 10:55 (GMT+3);
– German GDP (m/m) at 11:00 (GMT+3);
– Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
– Eurozone GDP (q/q) at 12:00 (GMT+3);
– Canada GDP (m/m) at 15:30 (GMT+3);
– US Chicago PMI (m/m) at 16:45 (GMT+3);
– US CB Consumer Confidence (m/m) at 17:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

26 Apr

Today, investors’ focus is on the PCE Price Index inflation report

By JustMarkets

As of Thursday’s close, the Dow Jones Industrial Average (US30) was down 0.98%, while the S&P 500 Index (US500) lost 0.46%. The NASDAQ Technology Index (US100) closed negative 0.64%. US stock indices closed modestly lower, led by technological stock weakness. Meta Platforms (META) fell more than 10% after forecasting second-quarter revenue below consensus and raising its full-year total expense estimate. IBM (IBM) also fell more than 8% after it reported weak first-quarter earnings from its consulting division. In addition, shares of Caterpillar (CAT) fell more than 6% after the company said it expects second-quarter sales to decline from a year ago. Stock losses also accelerated after bond yields jumped on signs of a strengthening labor market when weekly jobless claims unexpectedly fell to a 2-month low, a hawkish factor for Fed policy.

US weekly initial jobless claims unexpectedly fell by 5,000 to a 2-month low of 207,000, indicating a stronger labor market than expectations of a rise to 215,000. US Q1 GDP was revised downward to 1.6% (q/q annualized) from 3.4%, weaker than expectations of 2.5%, and Q1 personal consumption was revised downward to 2.5% from 3.3%, weaker than expectations of 3.0%.

Microsoft said Thursday that its profit rose by 20% for January-March. Based on licensing the Windows operating system, Microsoft’s personal computer business earned $15.6 billion in the quarter, up 17% from a year ago. Microsoft shares rose about 4% in trading. The company said it intends to spend even more in the coming months to build infrastructure to build and operate artificial intelligence systems.

The PCE inflation report will be released in the US today. The March Personal Consumption Goods Price Index is predicted to show a mixed picture of inflationary trends, which could strengthen the US Federal Reserve’s resolve to refrain from raising interest rates. Nearly all Fed officials who have spoken recently have reiterated that the Central Bank is not ready to cut rates. Analysts at BofA expect the Fed to start cutting rates in December at quarterly intervals. For gold and indices to continue to rise, it is now crucial for inflation to continue to decline, as rising oil prices could start a new spiral of inflation unwinding.

Equity markets in Europe mostly went up yesterday. Germany’s DAX (DE40) decreased by 0.95%, France’s CAC 40 (FR40) closed down by 0.93%, Spain’s IBEX 35 (ES35) lost 0.40% cheaper, and the UK’s FTSE 100 (UK100) closed positive 0.48%. The GfK German Consumer Confidence Index for May rose by 3.1 to a 2-year high of 24.2, beating expectations of 26.0.

ECB Governing Council spokesman Muller said yesterday that he does not favor cutting interest rates for the second consecutive meeting after an expected first cut in June. His counterpart, ECB Governing Council spokesman Panetta, said ECB rate cuts need to be made soon because “unnecessary delays could leave the ECB uncomfortably close to the effective lower bound if stagflation takes root and inflation expectations fall below target.”

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) was down 2.16%, China’s FTSE China A50 (CHA50) was up 0.52% for the day, Hong Kong’s Hang Seng (HK50) was up 0.48%, and Australia’s ASX 200 (AU200) was not trading.

The Japanese yen fell to 156 per dollar, the first time since May 1990, as the Bank of Japan (BoJ) left interest rates unchanged despite pressure from the sharply declining currency. Meanwhile, the Central Bank revised its inflation forecasts and said the economy will likely continue growing healthy. Investors also reacted to data that Tokyo’s core inflation rate slowed to a two-year low of 1.6% in April. The yen has lost about 10% against the dollar this year as the Bank of Japan kept rates near zero despite interest rate hikes in other major economies, prompting traders to borrow yen and invest in higher-yielding currencies.

S&P 500 (US500) 5,048.42 −23.21 (−0.46%)

Dow Jones (US30) 38,085.80 −375.12 (−0.98%)

DAX (DE40) 17,917.28 −171.42 (−0.95%)

FTSE 100 (UK100) 8,078.86 +38.48 (+0.48%)

USD Index 105.57 −0.28 (−0.27%)

Important events today:

– Japan Tokyo Core CPI (m/m) at 02:30 (GMT+3);
– Australia Producer Price Index (q/q) at 04:30 (GMT+3);
– Japan BoJ Monetary Policy Statement at 06:00 (GMT+3);
– Japan BoJ Interest Rate Decision at 06:00 (GMT+3);
– Japan BoJ Outlook Report at 06:00 (GMT+3);
– Japan BoJ Press Conference at 09:30 (GMT+3);
– Switzerland SNB Chairman Thomas Jordan speaks at 11:00 (GMT+3);
– US PCE Price Index (m/m) at 15:30 (GMT+3);
– US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

25 Apr

The US is one of the least trade-oriented countries in the world – despite laying the groundwork for today’s globalized system

By Peter A. Coclanis, University of North Carolina at Chapel Hill and Leon Fink, University of Illinois Chicago

Given the spate of news about international trade lately, Americans might be surprised to learn that the U.S. isn’t very dependent on it. Indeed, looking at trade as a percentage of gross domestic product – a metric economists sometimes call the “openness index” – the U.S. is one of the least trade-oriented nations in the world.

In 2022, the U.S. trade-to-GDP ratio was 27%, according to the World Bank. That means the total value of U.S. imports and exports of goods and services combined equaled 27% of the country’s GDP. That’s far below the global average of 63%.

In fact, of the 193 countries examined by the World Bank, only two were less involved in international trade than the U.S. Those were Nigeria, at 26%, and Sudan at 3%. Most world economic powers scored considerably higher, with Germany at 100%, France at 73%, the U.K. at 70%, India at 49%, and China at 38%. Who knew?

Making sense of trade-to-GDP ratios

What do all these numbers mean? It’s tricky because many factors can influence a trade-to-GDP ratio. For example, a country can have a low ratio in large part because it has high tariffs or other protectionist policies; Nigeria, Ethiopia and Pakistan come to mind in this regard. Others, such as Turkmenistan, have low ratios because they’re geographically remote.

A low trade-to-GDP ratio may also arise from the fact that a country is large, wealthy and developed, with a diversified economy that can provide most of the goods and services it needs domestically. We think this explains a lot about the U.S.’s extremely low ratio.

On the other hand, extremely high ratios of well over 300% are found in a few tiny countries due to necessity, location or both. Countries such as Luxembourg and the microstate of San Marino are both located in high-trade Europe and are too small to survive without extensive trade.

Meanwhile, well-positioned locations such as Singapore and Hong Kong have historically thrived as true trade entrepôts. And Djibouti, in East Africa, is increasingly performing a similar function.

It’s also important to look at the trajectory of trade-to-GDP ratios over time. As for the U.S., the ratio rose from 9% in 1960 to just under 11% in 1970 to 25% by 2000.

Since then, the ratio has ranged from 22% in 2002 to 31% in 2012 – remaining low compared to almost every other country. The U.S. has registered a relatively low trade-to-GDP ratio throughout its history.

How the US got here: A roller-coaster history of American trade policy

The liberal, open institutional architecture that shapes today’s global economy was largely erected by the U.S. during World War II and shortly afterward. From then until the steep rise of trade-to-GDP ratios from 1970 to 2000, it was easy for U.S. political leaders to support engagement in relatively free trade.

After World War II, a regime of open trade and fixed exchange rates – associated with the Bretton Woods Agreement establishing both the International Monetary Fund and the World Bank in 1944, and the General Agreement on Tariffs and Trade in 1947 – succeeded in promoting trade and growth. Those policies also stabilized currencies and balance-of-payments ledgers. Devastated war economies and newly industrializing nations entered and in time helped fashion a new world economic order underwritten and overseen by the U.S.

During the 1950s and 1960s, the U.S. inevitably lost some of its edge in agricultural and manufacturing markets as overseas economies rebounded. But its low trade-to-GDP ratio and ideological commitment to anti-communist allies mitigated domestic political unrest around trade issues. Capital controls and a series of legislative and diplomatic fixes limited international trade’s role in U.S. economic dislocations.

Things changed dramatically in the 1970s, as indicated by the sizable increases in trade-to-GDP ratios for the U.S. and the world as a whole during that period. One key factor was the collapse of state-centered financial regulation. That opened the world to increasingly fluid goods and capital transfers as encouraged under world trade agreements. This was also the period when cheaper goods from Japan and Taiwan began taking hold in the U.S..

Bigger challenges to the stability of postwar working-class livelihoods arose from productivity-enhancing innovations in production, transportation and communications. Two further far-reaching factors were the opening of China’s economy beginning in 1979, and the demise of the Soviet bloc between 1989 and 1991.

Two key free-trade developments took place in the 1990s. The North American Free Trade Agreement of 1993 opened U.S. borders on the north and south to unprecedented transfers of capital, trade and migration. Then, in 2001, China gained “permanent normal trade relations status” with the U.S., thus smoothing its entry into the World Trade Organization. In both cases, the economic dynamism unleashed by the moves was accompanied by major job losses in American manufacturing.

As the U.S. trade-to-GDP ratio climbed steadily from 20% in 1990 to nearly 30% by 2010, trade became an increasingly high-profile issue in U.S. politics. Critics were especially worried by the prospect of trade hurting American jobs and living standards.

After NAFTA’s passage and China’s entry into the WTO, many Americans and interest groups representing them soured on “globalization.” That globalization was embodied in the long-open trade regime put into place after World War II.

So it’s no wonder that Donald Trump was elected president in 2016 while calling for stiff new tariffs on China and a border wall against Mexico. And President Joe Biden hasn’t backed off significantly from Trump’s protectionist trade policies.

U.S. policymakers are unlikely to move further toward trade dependence anytime soon, much less toward any new free-trade agreements. Rather, we’re likely to hear skepticism from both Biden and Trump when the subject of open trade comes up.

Ironically, the open-trade world the U.S. did so much to create seems to depend on Americans limiting their participation in it.

About the Author:

Peter A. Coclanis, Professor of History; Director of the Global Research Institute, University of North Carolina at Chapel Hill and Leon Fink, Professor Emeritus of History, University of Illinois Chicago

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

Economics & Fundamentals Opinions

25 Apr

Development finance: how it works, where it goes, why it’s needed

By Abdul Latif Alhassan, University of Cape Town and Bomikazi Zeka, University of Canberra

Development finance is the invisible glue that connects public and private financing for projects that have social, economic and environmental outcomes. These include improved infrastructure, better waste management and sanitation, financial inclusion, clean energy and sustainable agriculture.

The goal of development finance is to create positive social, economic or environmental outcomes through investments made by financial institutions such as banks, insurance companies and pension funds in addition to contributions made by development finance institutions, multilateral partners and NGOs. These investments generally generate spillovers into the development agendas of African countries. The contribution of NGOs such as philanthropic and civil society organisations may not be financial. Their contributions come through advocacy, activism, community engagement, research or social services. Development finance experts Latif Alhassan and Bomikazi Zeka explain how it works.

Why is it important?

Development finance addresses the failures or limitations of traditional financial institutions such as banks. It does this by allocating resources to social needs such as education, health, infrastructure and energy.

The essence of development finance is to mobilise both financial and non-financial resources through partnership among development funders and stakeholders. The aim is to achieve development outcomes that would not have happened without their intervention or contribution.

The Infrastructure Consortium for Africa is an example of this kind of partnership. It is made up of multilateral partners and development finance institutions. In 2019/2020 it mobilised and invested US$83 billion for the development of energy, water, transport and sanitation infrastructure.

Development finance can also draw in additional funding from private entities to finance projects with socially and environmentally desirable outcomes. Traditional financial institutions such as banks don’t have the incentives to do this. But a network of development funders and stakeholders can help raise funding. It can also draw on different kinds of expertise.

What’s the difference between development finance and corporate finance?

Corporate finance emphasises the principles of risk and return. The funding of any economic activity largely depends on how risky the activity is and its ability to generate revenue. Institutions like banks, asset managers and insurance companies make investment decisions on the basis of risk versus return. This makes it harder to fund projects and activities with sustainable development outcomes because the risks are often high. And revenue streams aren’t always assured. An example would be providing finance for small businesses.

Development finance considers other factors alongside risk and return. Social impact may be one. Because it applies a wider lens, other key players are more involved. They include:

governments at national, provisional and local level
multilateral partners (such as donor agencies and climate funds)
development finance institutions like the World Bank Group, African Development Bank, Afrexim Bank, Industrial Development Corporation, Development Bank of Southern Africa and Development Bank of Nigeria
NGOs (philanthropic organisations and civil society organisations).

Financial institutions, such as banks, insurance companies, investment companies and pension funds, do also get involved sometimes. But this is usually through the use of responsible investment strategies. These incorporate environmental, social and governance factors into investment decisions.

Development funders provide more than just debt and equity capital. They provide concessionary loans, venture philanthropy, project finance, grants, sustainable financial instruments (such as green bonds and other forms of responsible investing) and advocacy or activism engagements.

Development finance institutions are intentional about promoting sustainable development. Instruments such as venture and patient capital recognise that small businesses face funding and cash flow challenges. They allow for more flexibility in lending arrangements.

How do countries access it? Is it harder for African countries?

In Africa, development projects have traditionally been funded by national governments through annual budgetary allocations. In some cases national development banks have been set up.

The problem with relying on national budgets is that it places a lot of pressure on the taxpayer as a source of revenue.

Huge financial commitments are required for countries on the continent to achieve the development goals they’ve set for themselves. For example, the African Union plans to transform Africa into a global powerhouse by the year 2063. For its part, the United Nations has an agenda for all countries to carry out a sustainable development plan by 2030.

The annual estimated funding requirements to achieve these plans is US$200 million. The financing gap for the African context until 2030 is US$1.6 trillion.

Collaboration with development funders and stakeholders is needed to achieve this.

What three things stand out as windfalls from development finance?

Firstly, stimulating economic activities by financing the initiatives of vulnerable or marginalised groups.

For example, women-owned businesses find it difficult to access funding. Development finance institutions are well placed to step in. Examples include the Development Bank of Ghana, Development Bank of Namibia, Development Bank of Mauritius and Eswatini Development Finance Corporation. They can help local businesses to keep afloat during tough times. For example, the Small Enterprise Finance Agency was set up in South Africa to help businesses affected by the rioting in 2021.

Secondly, assisting with infrastructure development. Projects can be funded that align with the needs of communities, private stakeholders and the public sector.

Thirdly, financing global challenges such as the just energy transition and the effects of climate change. For instance, development finance institutions have spearheaded the funding of climate mitigation and adaptation measures, through the provision of US$120 billion in 2012. This went up to US$200 billion by 2018.

About the Author:

Abdul Latif Alhassan, Professor of Development Finance & Insurance, University of Cape Town and Bomikazi Zeka, Assistant Professor in Finance and Financial Planning, University of Canberra

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

Economics & Fundamentals Opinions

25 Apr

Target Thursdays: NAS100, Robusta Coffee, USDCHF

By ForexTime

NAS100 bulls pocket 4000 points!

FXTM’s Robusta Coffee hits record high

USDCHF secures all bearish targets

It has been an eventful week thanks to corporate earnings from the largest companies in the world.

And things could liven up further due to more earnings releases and high impact economic reports.

Here are how these discussed instruments performed this week:

1) NAS100 bounces from 17,000 level

Where and when was Target Price (TP) published?

In our week ahead article published on Friday, 19th April:

We cautioned that more volatility could be on the horizon and highlighted that “should 17,000 prove to be reliable support, this may open a path back towards the 100-day SMA at 17,400….”

What happened since TP was published?

After testing the 17,000 level last Friday, the NAS100 rebounded earlier this week due to soft US data and optimism around tech earnings.

The Index rallied on Tuesday evening as Tesla stocks surged in pre-market after publishing its earnings. However, bears were back in action on Wednesday evening after Meta shares tumbled in after-hours trading.

Note: NAS100 could see more volatility due to earnings from Microsoft & Alphabet after US markets close on Thursday.

How much in potential profits?

A handsome 4000 points for traders who entered NAS100 from the 17,000 level.

2) Robusta Coffee hits fresh all-time high

Where and when was Target Price (TP) published?

Earlier in the week, we discussed how fundamental forces were powering Robusta Coffee higher.

We identified how “prices seem to be in a range on the H1 charts with support around $4130 and resistance at $4280.”

What happened since TP was published?

Robusta Coffee soared to a new record high on Wednesday as crop concerns in Vietnam and Brazil fuelled concerns over tight global supplies.

Prices charged past the $4280 resistance level, punching above $4372.85 to create a fresh all-time high.

How much in potential profits?

Traders who took advantage of the breakout and exited at $4372.85 would have caught a 2% move to the upside.

3) USDCHF secures all bearish targets

Where and when was Target Price (TP) published?

This technical scenario (USDCHF) is based on the FXTM Signals that are posted twice a day (before the London and New York sessions) for all FXTM clients to follow.

It can be found in the MyFXTM profile under Trading Services… FXTM Trading Signals.

What happened since TP was published?

The USDCHF slipped this morning as the Dollar weakened against most G10 currencies.

How much in potential profits?

USDCHF has hit all bearish targets.

Traders who entered at 0.91394 and exited at the final target level of 0.91265 would have gained 13 pips.

Feel like you missed out on these profits?

You can keep following our “Daily Market Analysis” for fresh trading ideas and opportunities across global financial markets.

Article by ForexTime

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

Economics & Fundamentals Financial News

Risk Disclosure: Foreign Currency trading and trading on margin carries a high level of risk and can result in loss of part or all of your investment. Due to the level of risk and market volatility, Foreign Currency trading may not be suitable for all investors and you should not invest money you cannot afford to lose. Before deciding to invest in the foreign currency exchange market you should carefully consider your investment objectives, level of experience, and risk appetite. You should be aware of all the risks associated with foreign currency exchange trading, and seek advice from an independent financial advisor should you have any doubts.

All information and opinions on this website are for general informational purposes only and do not constitute investment advice.