Archive for Economics & Fundamentals – Page 72

Is the United States overestimating China’s power?

By Dan Murphy, Harvard Kennedy School 

Which country is the greatest threat to the United States? The answer, according to a large proportion of Americans, is clear: China.

Half of all Americans responding to a mid-2023 survey from the Pew Research Center cited China as the biggest risk to the U.S., with Russia trailing in second with 17%. Other surveys, such as from the Chicago Council on Global Affairs, show similar findings.

Senior figures in recent U.S. administrations appear to agree with this assessment. In 2020, John Ratcliffe, director of national intelligence under President Donald Trump, wrote that Beijing “intends to dominate the U.S. and the rest of the planet economically, militarily and technologically.”

The White House’s current National Defense Strategy is not so alarmist, referring to China as the U.S.’s “pacing challenge” – a reference that, in the words of Secretary of Defense Lloyd Austin, apparently means China has “the intent to reshape the international order and, increasingly, the power to do so.”

As someone who has followed China for over a quarter century, I believe that many observers have overestimated the country’s apparent power. Recent challenges to China’s economy have led some people to reevaluate just how powerful China is. But hurdles to the growth of Chinese power extend far beyond the economic sector – and failing to acknowledge this reality may distort how policymakers and the public view the shift of geopolitical gravity in what was once called “the Chinese century.”

In overestimating China’s comprehensive power, the U.S. risks misallocating resources and attention, directing them toward a threat that is not as imminent as one might otherwise assume.

Let me be clear: I’m not suggesting that China is weak or about to collapse. Nor am I making an argument about China’s intentions. But rather, it is time to right-size the American understanding of the country’s comprehensive power. This process includes acknowledging both China’s tremendous accomplishments and its significant challenges. Doing so is, I believe, mission critical as the United States and China seek to put a floor underneath a badly damaged bilateral relationship.

Headline numbers

Why have so many people misjudged China’s power?

One key reason for this misconception is that from a distance, China does indeed appear to be an unstoppable juggernaut. The high-level numbers bedazzle observers: Beijing commands the world’s largest or second-largest economy depending on the type of measurement; it has a rapidly growing military budget and sky-high numbers of graduates in engineering and math; and oversees huge infrastructure projects – laying down nearly 20,000 miles of high-speed rail tracks in less than a dozen years and building bridges at record pace.

But these eye-catching metrics don’t tell a complete story. Look under the hood and you’ll see that China faces a raft of intractable difficulties.

The Chinese economy, which until recently was thought of as unstoppable, is beginning to falter due to deflation, a growing debt-to-gross domestic product ratio and the impact of a real estate crisis.

China’s other challenges

And it isn’t only China’s economy that has been overestimated.

While Beijing has put in considerable effort building its soft power and sending its leadership around the world, China enjoys fewer friends than one might expect, even with its willing trade partners. North Korea, Pakistan, Cambodia and Russia may count China as an important ally, but these relationships are not, I would argue, nearly as strong as those enjoyed by the United States globally. Even in the Asia-Pacific region there is a strong argument to say Washington enjoys greater sway, considering the especially close ties with allies Japan, South Korea and Australia.

Even though Chinese citizens report broad support for the Communist Party, Beijing’s capricious COVID-19 policies paired with an unwillingness to use foreign-made vaccines have dented perceptions of government effectiveness.

Further, China’s population is aging and unbalanced. In 2016, the country of 1.4 billion saw about 18 million births; in 2023, that number dropped to about 9 million. This alarming fall is not only in line with trends toward a shrinking working-age population, but also perhaps indicative of pessimism among Chinese citizens about the country’s future.

And at times, the actions of the Chinese government read like an implicit admission that the domestic situation is not all that rosy. For example, I take it as a sign of concern over systemic risk that China detained a million or more people, as has happened with the Muslim minority in Xinjiang province. Similarly, China’s policing of its internet suggests concerns over collective action by its citizens.

The sweeping anti-corruption campaign Beijing has embarked on, purges of the country’s military and the disappearance of leading business figures all hint at a government seeking to manage significant risk.

I hear many stories from contacts in China about people with money or influence hedging their bets by establishing a foothold outside the country. This aligns with research that has shown that in recent years, on average as much money leaves China via “irregular means” as for foreign direct investment.

A three-dimensional view

The perception of China’s inexorable rise is cultivated by the governing Communist Party, which obsessively seeks to manufacture and control narratives in state media and beyond that show it as all-knowing, farsighted and strategic. And perhaps this argument finds a receptive audience in segments of the United States concerned about its own decline.

It would help explain why a recent Chicago Council on Global Affairs survey found that about a third of American respondents see the Chinese and American economies as equal and another third see the Chinese economy as stronger. In reality, per capita GDP in the United States is six times that of China.

Of course, there is plenty of danger in predicting China’s collapse. Undoubtedly, the country has seen huge accomplishments since the People’s Republic of China’s founding in 1949: Hundreds of millions of people brought out of poverty, extraordinary economic development and impressive GDP growth over several decades, and growing diplomatic clout. These successes are especially noteworthy given that the People’s Republic of China is less than 75 years old and was in utter turmoil during the disastrous Cultural Revolution from 1966 to 1976, when intellectuals were sent to the countryside, schools stopped functioning and chaos reigned. In many cases, China’s successes merit emulation and include important lessons for developing and developed countries alike.

China may well be the “pacing challenge” that many in the U.S. believe. But it also faces significant internal challenges that often go under-recognized in evaluating the country’s comprehensive power.

And as the United States and China seek to steady a rocky relationship, it is imperative that the American public and Washington policymakers see China as fully three-dimensional – not some flat caricature that fits the needs of the moment. Otherwise, there is a risk of fanning the flames of xenophobia and neglecting opportunities for partnership that would benefit the United States.The Conversation

About the Author:

Dan Murphy, Executive Director of the Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School

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

Inflation is falling in Switzerland. Oil declines despite OPEC+ countries extending production cuts

By JustMarkets

At Monday’s stock market close, the Dow Jones Index (US30) was down 0.25%. The S&P 500 Index (US500) decreased by 0.12%. The NASDAQ Technology Index (US100) closed negative 0.41%. Stocks are seeing coverage of previously open positions. Markets await Fed Chairman Powell’s semi-annual testimony before a House committee on Wednesday and a Senate committee on Thursday for clues on future Fed policy. Powell is expected to maintain his hawkish stance and clarify that the Fed is in no hurry to cut interest rates. In addition, Friday will see the release of the monthly US payrolls report, which will provide insight into whether the labor market remains strong and whether wage pressures are contained.

Comments from Atlanta Fed President Bostic expects the Fed’s first interest rate cut in the third quarter to be followed by a pause to assess how the policy change affects the economy. Bostic added that he is concerned that businesses have too much optimism, and after a rate cut, it could spark a surge of new demand that would add to price pressures. Markets rate the odds of a 25 bps rate cut at 2% for the March 19-20 FOMC meeting and 21% for the April 30-May 1 meeting.

Tesla (TSLA) stock price fell more than 7% and topped the list of losers in the S&P 500 (US500) and NASDAQ (US100) after the China Passenger Car Association reported that February shipments of Tesla vehicles in China fell by 15.5% m/m. Apple (AAPL) is down more than 2% after the European Union fined it €1.8 billion ($2 billion) in connection with an investigation that it was shutting out competitors on its platforms. Nvidia (NVDA) shares are up more than 3% to a record high, surpassing Saudi Aramco to become the world’s third most valuable public company behind Apple and Microsoft. Lyft (LYFT) closed higher by more than 4% after RBC Capital Markets upgraded the stock to “optimistic” from “neutral” with a $23 price target.

Equity markets in Europe traded flat on Monday. German DAX (DE40) declined 0.11%, French CAC 40 (FR40) gained 0.28% yesterday, Spanish IBEX 35 (ES35) rose by 0.05% on Monday, and British FTSE 100 (UK100) closed negative 0.55%. European stock exchanges were weak on Monday as investors awaited the European Central Bank’s upcoming interest rate decision. The Central Bank is expected to keep rates unchanged despite weakening inflation.

Swiss inflation fell in February to its lowest level in nearly two and a half years. Consumer prices were 1.2% from a year earlier, down from January’s 1.3%, though slightly above the 1.1% forecast. The SNB met its target from May 2023 despite rising rents, higher sales tax, and energy prices. Lower inflation increases the likelihood that the SNB will cut rates at its next meeting on March 21. The probability that the SNB will cut rates from the current level of 1.75% is estimated by markets at 66%.

WTI crude futures fell to around $78.5 a barrel on Tuesday, declining for a second straight session, as lingering demand concerns overshadowed an extension of supply cuts by OPEC and its allies. Analysts argued that subdued growth in global oil demand is likely to counter OPEC+ production cuts, raising questions about its output policy. Investors also priced in developments at a key policy meeting in China, where the government set its economic growth target 2024 at around 5%, matching expectations.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped 0.50%, China’s FTSE China A50 (CHA50) declined 0.13%, Hong Kong’s Hang Seng (HK50) gained 0.04% on the day, and Australia’s ASX 200 (AU200) was negative 0.13% on Monday.

China’s Caixin Services PMI fell to 52.5 in February 2024 from 52.7 in January. It was the 14th consecutive month of growth in service sector activity but the slowest pace since November last year amid subdued growth in total new work. The growth rate in new orders changed little and remained below the 2023 average.

Jibun Bank’s Japan Services PMI was revised upward to 52.9 in February 2024 from 52.5 after a four-month high of 53.1 in January. This marked the 18th consecutive month of growth in the services sector, helped by the sharpest rise in new business starts since August last year due to tourism demand and new product launches. However, growth was mainly driven by domestic demand.

Final data showed that the Judo Bank Flash Australian Services PMI business activity index rose to 53.1 in February from 49.1 in the previous month. This was the first rise in service sector activity in five months and the fastest since April 2023, as renewed growth in new orders led to a rebound in business activity. Improving demand conditions boosted activity in the services sector, with improved economic conditions and increased inquiries contributing to another rise in new work. New export orders also returned to growth for the first time since September 2023, supported by new customers and increased interest from customers in Asia.

S&P 500 (US500) 5,130.95 −6.13 (−0.12%)

Dow Jones (US30) 38,989.83 −97.55 (−0.25%)

DAX (DE40)  17,716.17 −18.90 (−0.11%)

FTSE 100 (UK100) 7,640.33 −42.17 (−0.55%)

USD Index 103.83 −0.03 (−0.03%)

Important events today:
  • – Australia Services PMI (m/m) at 00:00 (GMT+2);
  • – Japan Tokyo Core CPI (m/m) at 01:30 (GMT+2);
  • – Japan Services PMI (m/m) at 02:30 (GMT+2);
  • – China Caixin Services PMI (m/m) at 03:45 (GMT+2);
  • – Germany Services PMI (m/m) at 10:55 (GMT+2);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+2);
  • – UK Services PMI (m/m) at 11:30 (GMT+2);
  • – Eurozone Producer Price Index (m/m) at 12:00 (GMT+2);
  • – US ISM Services PMI (m/m) at 17:00 (GMT+2);
  • – US FOMC Member Barr Speaks (m/m) at 19:00 (GMT+2);
  • – US FOMC Member Barr Speaks (m/m) at 22:30 (GMT+2).

By JustMarkets

 

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

Semiconductor stocks continue to rally. The first interest rate cuts by central banks are expected in June

By JustMarkets 

On Thursday, stock indices posted moderate gains on signs that inflationary pressures continue to ease. The Dow Jones Index (US30) was up 0.52% at yesterday’s stock market close. The S&P 500 Index (US500) added 0.12%. The NASDAQ Technology Index (US100) closed the day positively by 0.90%. In addition, other Fed-friendly reports on Thursday on weekly jobless claims, January MNI Chicago PMI, and January home sales data lowered bond yields and supported equities.

The US core PCE deflator for January declined to 2.8% y/y from 2.9% y/y in December, which matched expectations and was the slowest rate of increase in 2 years. US weekly initial jobless claims rose by 13,000 to 215,000, indicating a weak labor market vs. expectations of 210,000. US personal spending in January rose by 0.2% m/m, matching expectations. Personal income for January increased by 1.0% m/m, which was stronger than expectations of 0.4% mom and the largest increase in a year. Chicago PMI for February unexpectedly declined 2.0 to 44.0, which was weaker than expectations for a rise to 48.0 and the sharpest rate of contraction in 7 months. January US home sales unexpectedly fell by 4.9% m/m, which was weaker than expectations for a 1.5% m/m increase and was the steepest decline in the last 5 months.

Atlanta Fed President Bostic said yesterday that if inflation continues to decline as he expects, it will probably be appropriate for the Fed to start easing rates this summer. Currently, markets are pricing in a 25 bps chance of a rate cut of 3% at the March 19-20 FOMC meeting and 21% at the next meeting on April 30-May 1.

Shares of chip companies rose on Thursday after Citigroup said it remains optimistic about semiconductor stocks given solid demand. The artificial intelligence market continues to grow as businesses and organizations actively buy chips for artificial intelligence.

Salesforce (CRM) stock is up more than 3%, leading the Dow Jones Industrials (US30) higher after Raymond James raised its price target on the shares from $300 to $380. HP Inc (HPQ) closed down more than 1% after reporting first-quarter net revenue of $13.19 billion, weaker than the consensus forecast of $13.58 billion.

The Bank of Canada is forecast to cut the overnight interest rate in June. The timing roughly coincides with when the US Federal Reserve and the European Central Bank will cut their first interest rate.

Equity markets in Europe traded yesterday without a single dynamic. The German DAX (DE40) rose by 0.44%, the French CAC 40 (FR40) fell by 0.34% yesterday, the Spanish IBEX 35 (ES35) lost 0.67%, and the British FTSE 100 (UK100) closed positive 0.07%.

German retail sales for January unexpectedly fell by 0.4% m/m, weaker than expectations of 0.5% m/m. German unemployment for February rose by 11,000, showing a weaker labor market than expected 5,000. The unemployment rate for February was unchanged at 5.9%, weaker than expectations of 5.8%. The German Consumer Price Index (EU harmonized) for February declined to 2.7% y/y from 3.1% y/y in January, which was in line with expectations.

ECB Governing Council spokesman Holzmann said yesterday that he sees no significant negotiations on lowering borrowing costs before the ECB’s June meeting. Swaps are pricing in a 25 bps chance of a 25 bps ECB rate cut to 5% at the next meeting on March 7 and 22% at the April 11 meeting.

Crude oil prices rose on Thursday on expectations that OPEC+ will extend next week’s oil production cuts by about 2 million bpd beyond March. In addition, ongoing attacks by Houthi rebels on commercial ships in the Red Sea have disrupted Middle Eastern oil supplies and bolstered US physical oil markets as foreign buyers turn to US crude supplies to avoid transportation problems.

Natural gas prices increased on Thursday after the EIA’s weekly natural gas inventories fell by 96 billion cubic feet, more than the expected 85 billion cubic feet.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.87%, China’s FTSE China A50 (CHA50) was up 0.70% on Thursday, Hong Kong’s Hang Seng (HK50) was down 0.29% on the day, and Australia’s ASX 200 (AU200) was positive 0.96% on the day. Most Asian stocks extended gains on Friday, following strong overnight gains on Wall Street, with Japanese and Australian markets hitting record highs amid growing hopes of an interest rate cut in 2024. Chinese stocks also rose slightly, even as purchasing managers’ index (PMI) data showed that business activity in China remained sluggish in February. China’s manufacturing sector contracted for the fifth consecutive month, dragging down overall business activity, even though a rise in consumer spending during the New Year holiday period helped non-manufacturing businesses.

Yesterday, Bank of Japan (BoJ) board official Takata said the 2% price target is finally approaching, reinforcing expectations that the Bank of Japan will end its negative interest rate campaign. But earlier today, BoJ Governor Kazuo Ueda said it was too early to conclude that inflation was close to sustainably reaching the 2% inflation target and emphasized the need to scrutinize more data on the wage outlook. The divergent views underscore the difficulties within the Bank.

S&P 500 (US500) 5,096.27 +26.51 (+0.52%)

Dow Jones (US30) 38,996.39 +47.37 (+0.12%)

DAX (DE40)  17,678.19 +76.97 (+0.44%)

FTSE 100 (UK100) 7,630.02 +5.04 (+0.07%)

USD Index  104.12 +0.17 (+0.16%)

Important events today:
  • – Japan Unemployment Rate (m/m) at 01:30 (GMT+2);
  • – New Zealand RBNZ Gov Orr Speaks at 02:05 (GMT+2);
  • – Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
  • – US FOMC Member Williams Speaks at 03:10 (GMT+2);
  • – China Manufacturing PMI (m/m) at 03:30 (GMT+2);
  • – China Non-Manufacturing PMI (m/m) at 03:30 (GMT+2);
  • – Switzerland Retail Sales (m/m) at 09:30 (GMT+2);
  • – Switzerland Manufacturing PMI (m/m) at 10:30 (GMT+2);
  • – German Manufacturing PMI (m/m) at 10:55 (GMT+2);
  • – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+2);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+2);
  • – Eurozone Flash Consumer Price Index (m/m) at 12:00 (GMT+2);
  • – Canada Manufacturing PMI (m/m) at 16:45 (GMT+2);
  • – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+2);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2);
  • – US FOMC Member Bostic Speaks at 19:15 (GMT+2);
  • – US FOMC Member Daly Speaks at 20:30 (GMT+2).

By JustMarkets

 

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

The German Index set an all-time high. Bitcoin rate reached 2-year high

By JustMarkets

The US stock indices posted moderate losses on Wednesday. Pressure to liquidate long positions from recent record highs weighed on the stock market ahead of Thursday’s PCE deflator report, the Fed’s preferred inflation gauge. The Dow Jones Index (US30) was down 0.06% at the stock market close yesterday. The S&P 500 Index (US500) lost 0.17%. The NASDAQ Technology Index (US100) closed the day negative 0.55%. On Wednesday, the hawkish comments from Fed members Williams, Bostic, and Collins also hamstrung the indices when they said they favored a wait-and-see stance before cutting interest rates. Markets now expect the US central bank to keep interest rates unchanged in March and May, but there is more than a 50% chance of a rate cut in June.

Wednesday’s Q4 US GDP report was mixed for the dollar, with Q4 GDP revised downward (from 3.3% to 3.2% y-o-y) but still pointing to a robust economy.

The bitcoin exchange rate (BTC/USD) rose more than 6% on Wednesday, hitting a 2-year high following the successful launch of spot bitcoin ETFs in the US. The ETFs have raised more than $6 billion since they began trading on January 11, with some analysts warning of a looming supply shortage as new coins from bitcoin miners fail to keep up with demand. Additional demand has been sparked by the expected April 20 halving of bitcoin issuance. About 80% of the bitcoin supply has not changed hands in the past six months, which could exacerbate the situation and contribute to a further rise in bitcoin prices. Additionally, speculation is growing around the possible approval of spot ETFs, potentially driving higher Ethereum (ETH/USD) prices.

Equity markets in Europe traded flat on Wednesday. Germany’s DAX (DE40) rose by 0.25%, France’s CAC 40 (FR40) gained 0.08% yesterday, Spain’s IBEX 35 (ES35) declined 0.45%, and the UK’s FTSE 100 (UK100) closed negative 0.76%.

On Wednesday, Frankfurt’s DAX (DE40) Index, outperforming European benchmarks on the back of strong corporate earnings, held on to early gains and hit a new record. Puma shares closed by 5% higher after meeting full-year targets and announcing a new brand campaign. Meanwhile, technology stocks came under pressure after Dutch semiconductor equipment maker ASM International reported lower fourth-quarter earnings, sending Infineon down 4% and SAP down 1.5%.

ECB Governing Council representative Kazaks said yesterday that the ECB should not be in a hurry to cut interest rates as there is a risk that tighter measures will be needed later. His colleague, ECB Governing Council representative Kazimir, added that the ECB has no reason to rush interest rate cuts and prefers June as the first rate cut. Swaps estimate the odds of a 25 bps ECB rate cut at 5% at the next meeting on March 7 and 32% at the next meeting on April 11.

The latest EIA report showed a larger-than-expected increase in US crude oil inventories of 4.199 million barrels last week, although much smaller than the 8.428 million reported by the API. The rise in inventories is mainly attributed to a slowdown in processing crude oil into finished products at refineries. Looking ahead, investors are eagerly anticipating the upcoming OPEC+ meeting in March to discuss extending production cuts. Producers will likely stick to voluntary production limits until at least the June ministerial meeting to help stabilize the market. In addition, uncertainty surrounding the ceasefire between Israel and Hamas, as well as ongoing Houthi attacks on ships in the Red Sea, have increased the risk premium in oil prices.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.08% yesterday, China’s FTSE China A50 (CHA50) was down 0.24% on Wednesday, Hong Kong’s Hang Seng (HK50) fell by 1.51% on the day, and Australia’s ASX 200 (AU200) was negative 0.03% on the day. The Hang Seng Index (HK50) opened higher on Thursday, reversing a decline after removing measures to curb housing demand as part of the 2024 budget, including the complete abolition of housing levies. Wednesday’s GDP report showed the city’s economy grew by 4.3% y/y in Q4 2023, the highest growth in 2 years, on the back of a rebound in inbound tourism and a recovery in private consumption.

Fresh data showed that Australian retail sales rose by 1.1% month-on-month in January 2024, reversing an upwardly revised 2.1% drop in the previous month but falling short of market consensus, which expected a 1.5% rise.

S&P 500 (US500) 5,069.76 −8.42 (−0.17%)

Dow Jones (US30) 38,949.02 −23.39 (−0.06%)

DAX (DE40)  17,601.22 +44.73 (+0.25%)

FTSE 100 (UK100) 7,624.98 −58.04 (−0.76%)

USD Index  103.95 +0.01 (+0.01%)

Important events today:
  • – Japan Industrial Production (m/m) at 01:50 (GMT+2);
  • – Japan Retail Sales (m/m) at 01:50 (GMT+2);
  • –– Australia Retail Sales (m/m) at 02:30 (GMT+2);
  • – Japan Tokyo Core CPI (m/m) at 07:00 (GMT+2);
  • – German Retail Sales (m/m) at 09:00 (GMT+2);
  • – Switzerland KOF Leading Indicators (m/m) at 10:00 (GMT+2);
  • – Switzerland GDP (q/q) at 10:00 (GMT+2);
  • – German Unemployment Rate (m/m) at 10:55 (GMT+2);
  • – German Consumer Price Index (m/m) at 15:00 (GMT+2);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
  • – US PCE Price index (m/m) at 15:30 (GMT+2);
  • – Canada GDP (q/q) at 15:30 (GMT+2);
  • – US Chicago PMI (m/m) at 16:45 (GMT+2);
  • – US Pending Home Sales (m/m) at 17:00 (GMT+2);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+2);
  • – US FOMC Member Bostic Speaks at 17:50 (GMT+2);
  • – US FOMC Member Mester Speaks at 20:15 (GMT+2).

By JustMarkets

 

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

No one can predict how financial markets will behave with absolute certainty. Here’s why

By Benoît Béchard, Université Laval 

Some stock market enthusiasts claim to be able to predict financial market trends with fantastic accuracy.

Despite the complexity of international finance, they assure us that substantial profits are within our reach if we follow their recommendations and imitate their behaviour.

But is it really possible to accurately predict the behaviour of financial markets?

As an expert in the psychology of decision-making who specializes in complexity research, I have had the opportunity to deepen my understanding of human cognition and its capacity to control real-world complex environments. For now, my conclusions are sobering and not simple.

 


It’s a mistake to assume that financial enthusiasts can predict the uncertain behaviour of markets.

Complex decisions

According to many researchers in decision-making science, understanding and managing complexity is the greatest challenge of the digital age. Complexity refers to the uncertain nature of the environments in which we make decisions every day.

While some of our financial choices may seem simple and self-evident (saving a portion of our income, setting a budget, repaying a debt), the environment in which these choices are made is unpredictable.

The strategies we adopt are certainly not infallible; our knowledge does not guarantee our success, and the effects of each of our decisions are uncertain and unique. This explains why the environments in which we make everyday decisions are actually highly complex. They include many interrelated factors that are constantly changing, with or without our intervention. Not to mention that the objectives we cherish are often themselves contradictory.

For example, how can we maximize investment returns while minimizing exposure to market fluctuations?

Facing financial complexity

Faced with financial complexity, human cognition tends to favour a reductionist approach to information processing, sometimes called “tunneling.” Faced with the overload of information generated by complexity, we tend to concentrate on one or a few specific aspects of a situation rather than all available information because too much information kills information. In other words, we take shortcuts. And guess what? These simplistic ways of thinking can lead to biased decisions.

We often make the mistake of attributing poor performance of our equity portfolio to a single event that stands out in our minds. We mistakenly believe that our investments will grow linearly when, in fact, they are vulnerable to exponential fluctuations caused by crises and unexpected events. We react poorly to unsuccessful investments by focusing on the consequences that could explain our financial difficulties, rather than by deepening our understanding of why the company in which we had blind faith (or the sector in which it operates) is experiencing difficulties.

Finally — and this is human nature — we tend to attribute responsibility for our failures to external factors beyond our control. For example, we might be tempted to blame losses incurred by certain businesses in the tourism sector on poor summer weather conditions. But in doing so, we overlook the importance of the quality of the products and services the businesses offer, or how hospitable their staff are.

And market enthusiasts in all this?

My most recent work supports the literature on complex problem-solving: whether we are experts or novices, understanding and mastering complexity is a daunting challenge.

Many market enthusiasts will demonstrate greater skill in devising an investment strategy, managing a portfolio or accessing certain investments.

However, it is a mistake to assume that they can predict the uncertain behaviour of the markets. The issue is not necessarily financial knowledge, but the natural limitations of human cognition when faced with complexity.

Faced with international finance, there is a “wall of complexity” beyond which it is particularly difficult to progress, and we are all subject to bias and errors.

So, how do we navigate through this?

Despite the many challenges of financial complexity, there is light at the end of the tunnel, provided we know what to do. While there are many studies to be conducted, researchers remain optimistic about specific methods that can already help us make more informed decisions.

1. Learn to think in systems

Systems thinking is a way of perceiving reality that helps us to better understand and work with real-world complex environments.

Whether you want to learn how to manage your budget better or invest wisely in the stock market, get into the habit of drawing visual representations of the financial challenges you want to tackle.

Cause-and-effect diagrams, which use simple symbols (a + sign to show a change in the same direction between two factors, and a – sign to show opposite changes), allow you to quickly illustrate the extent and scope of a problem by representing the relationships between the parts of the same system.

But make no mistake, some factors are difficult to predict.

In short, learn to think about the “consequences of the consequences” of your choices before making any decision.

2. Be bold, tolerate uncertainty

Learn to tolerate situations that, at first sight, have no clear solutions and leave you in doubt.

Financial markets are unpredictable and poorly structured, which creates “wicked problems.”

In these environments, ambiguity is the norm. Embracing uncertainty allows us to translate problems into opportunities, rather than making hasty decisions or locking ourselves into inaction.

There is no single “right solution” to a complex financial problem. Take a moment to evaluate your options.

3. Test your beliefs and biases

Don’t try to research and interpret financial information based on an assumption you hold dear. Confront your preconceived ideas using sources you would not normally consult because they take the opposite position.

What would a friend or colleague whom you like, but who fundamentally disagrees with you, say?

4. Don’t trust what comes easily to mind

Attending an inspiring conference on the sustainable economy or listening attentively to a TV report on financial ethics does not guarantee that the information that comes out of it will be helpful in the decision you have to make.

Although this information may be easier to retrieve from memory, it is not necessarily relevant. Don’t overestimate the likelihood of an event just because you can imagine it in great detail.

Get information from several sources and verify their reliability.

Now what?

One cannot become proficient in any area without putting in the necessary practice. Therefore, it is important for you to personally delve into the world of finance.

Through experience, you will develop your skills to better appreciate complexity.
To help you do this, it’s a good idea to seek the assistance of a competent professional to guide you through this highly sophisticated process.

But remember this: when it comes to complexity, you are human, as are those who claim to be able to read the future.The Conversation

About the Author:

Benoît Béchard, Docteur en psychologie de la décision Ph. D., Université Laval

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

The RBNZ kept the interest rate on hold and took a less hawkish stance. Inflation in Australia is at two-year lows

By JustMarkets

At Tuesday’s stock market close, the Dow Jones Index (US30) decreased by 0.25%. The S&P 500 Index (US500) added 0.25%. The NASDAQ Technology Index (US100) closed the day positively by 0.37%.

Hawkish comments from the Fed supported the dollar and had a limited impact on the indices. Fed spokeswoman Bowman said that inflation will continue to decline if interest rates remain at current levels, but “it is not yet time” to start cutting rates. Kansas City Fed President Schmid also said: “With inflation running above target, labor markets tight, and demand showing considerable momentum, my view is that there is no need to preemptively adjust the stance of monetary policy.”

Strong earnings support equities: data from Bloomberg Intelligence showed that Q4 earnings for companies reporting on the S&P 500 rose 7.7% year-over-year, well above forecast (1.2%) and the highest since Q4 2021. About 90% of S&P 500 companies have reported so far.

Equity markets in Europe traded flat on Tuesday. German DAX (DE40) rose by 0.76%, French CAC 40 (FR40) gained 0.23% yesterday, Spanish IBEX 35 (ES35) declined 0.24%, and British FTSE 100 (UK100) closed negative 0.02%. Key economic data for Europe will be released later this week.

WTI crude oil prices fell to $78.5 per barrel on Wednesday, retreating slightly from a one-month high as part of a likely technical correction. At the same time, investors continued to evaluate various supply and demand factors. Oil prices have gained around 3% over the past two sessions amid ongoing geopolitical risks in the Middle East and signs of a strengthening US physical market. The outcome of ceasefire talks between Israel and Hamas remains highly uncertain, while Houthi rebels in Yemen continue to disrupt shipping in the Red Sea, and there are also reports of attacks on telecommunications cables that lie at the bottom of the Red Sea. Investors are awaiting OPEC’s March decision to extend production cuts next quarter. According to preliminary reports, OPEC+ will consider extending voluntary oil production cuts in the second quarter and may extend them until the end of the year. This would be a bullish signal for oil.

We continue to watch the natural gas market. Producers’ efforts to combat oversupply by cutting production support the price, with companies such as Chesapeake Energy cutting their 2024 production plans by about 30%. Other industry leaders, including Antero Resources, Comstock Resources, and EQT, have also reduced drilling and production in response to market conditions. Natural gas prices rose to $1.8/MMBtu yesterday.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.06% yesterday, China’s FTSE China A50 (CHA50) jumped by 0.75% on Tuesday, Hong Kong’s Hang Seng (HK50) gained 1.09% on the day, and Australia’s ASX 200 (AU200) ended yesterday positive 0.57%.

On Wednesday, the Shanghai Composite Index settled at its highest level in almost three months as Beijing took a series of policy measures to support the stock market, boosting investor confidence. Investors are also looking ahead to the National People’s Congress, which begins on March 5, for signs of further policy support from the authorities. Meanwhile, investors are on edge as Hong Kong is due to announce its 2024 budget today amid a fragile economic turnaround amid a shaky recovery in China and lingering geopolitical tensions.

The Australian dollar fell to $0.652, hitting its lowest level in a week, as investors reacted to softer-than-expected inflation data in the country. The data showed that Australia’s consumer price index (CPI) remained at a two-year low of 3.4% y/y in January, unchanged from December and below forecasts of 3.6% y/y. Last week, minutes from the latest RBA meeting showed that policymakers discussed the possibility of further rate hikes at the February meeting. Still, they ultimately decided to maintain current monetary parameters, given signs of moderate inflation.

The New Zealand dollar slid to $0.61, hitting its lowest level in almost two weeks, as the Reserve Bank of New Zealand (RBNZ) kept interest rates unchanged and offered a less hawkish view on monetary policy than the market expected. The RBNZ kept the cash rate unchanged for the fifth consecutive meeting at 5.5%. The central bank noted the progress in containing inflation and lowered its forecast for rates to peak at 5.6% from 5.7%. However, the committee still expects monetary easing to begin in mid-2025. Markets have now lowered bets on a May rate hike to 20% from nearly 50% before the latest decision. Last week, RBNZ head Adrian Orr said there was still work to bring core inflation down but acknowledged the risks of excessive policy tightening.

S&P 500 (US500)  5,078.18 +8.65 (+0.17%)

Dow Jones (US30) 38,972.41 −96.82 (−0.25%)

DAX (DE40)  17,556.49 +133.26 (+0.76%)

FTSE 100 (UK100) 7,683.02 −1.28 (−0.017%)

USD Index  103.94 +0.11 (+0.11%)

Important events today:
  • – Australia Consumer Price Index (m/m) at 02:30 (GMT+2);
  • – New Zealand RBNZ Interest Rate Decision at 03:00 (GMT+2);
  • – New Zealand RBNZ Monetary Policy Statement at 03:00 (GMT+2);
  • – New Zealand RBNZ Press Conference at 04:00 (GMT+2);
  • – US GDP (q/q) at 15:30 (GMT+2);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+2);
  • – US FOMC Member Bostic Speaks at 19:00 (GMT+2);
  • – US FOMC Member Mester Williams at 19:45 (GMT+2).

By JustMarkets

 

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

Does hosting the Olympics, the World Cup or other major sports events really pay off?

By Ivan Savin, ESCP Business School 

After a long battle, Paris’s beloved bouquinistes will be staying put this summer. The decision, announced on 13 February by the French government, came after considerable public backlash to the police prefecture’s original plan to move part of the iconic Seine booksellers elsewhere for the inauguration of the Olympics Games on 26 July.

Meanwhile, less than six months away from the event, Parisians continue to grumble over a lack of consultations with locals, warnings of gridlocked traffic, closed metro stations, extensive video surveillance and other grievances. So for host countries, what was the point of the Olympics, again?

In academia, the debate about the potential positive and negative effects of large-scale sporting events is ongoing. Although these events are often associated with substantial economic losses, the long-term benefits are the main argument in favour of hosting them. These include the development of material and soft infrastructure such as hotels, restaurants or parks. Big games can also help put the host region on the map as an attractive place for sports and cultural events, and inspire a better entrepreneurial climate.

The pros and the cons of big sporting events?

The cost of these benefits, as the Parisians have realised, is steep. Host countries appear to suffer from increased tax burdens, low returns on public investments, high construction costs, and onerous running cost of facilities after the event. Communities can also be blighted by noise, pollution, and damage to the environment, while increased criminal activity and potential conflicts between locals and visitors can take a toll on their quality of life. As a result, in the recent past several major cities, including Rome and Hamburg, withdrew their bids to host the games.

A common feature of the economics of large-scale sporting events is that our expectations of them are more optimistic than what we make of them once they have taken place. Typically, expenditure tends to tip over the original budget, while the revenue-side indicators (such as the number of visitors) are rarely achieved.

Host regions typically have to jump through many hoops before they can begin to enjoy the benefits from large-scale sporting events such as the Olympics.
Peter Skitterians/Pixabay, CC BY

When analysing the effect of hosting large-scale sporting events on tourist visits, it is important to take into consideration both the positive and negative components of the overall effect. While positive effects may be associated with visitors, negative effects may arise when “regular” tourists refuse to visit the location due to the event. This might be because of overloaded infrastructure, sharp increases in accommodation costs, and inconveniences associated with overcrowding or raucous or/and violent visitors. On top of that, reports of poverty or crime in the global media can actually undermine the location’s attractiveness.

When big sporting events crowd out regular tourists

In an article published in the Journal of Sports Economics with Igor Drapkin and Ilya Zverev, I assess the effects of hosting large-scale sporting events, such as Winter and Summer Olympics plus FIFA World Cups, on international tourist visits. We utilise a comprehensive dataset on flow of tourists covering the world’s largest destination and origin countries between 1995 and 2019. As a first step, we built an econometric model that effectively predicts the flow of tourists between any pair of countries in our data. Subsequently we compared the predicted tourist inflow in a hypothetical scenario where no large-scale sporting event would have taken place with the actual figures. If the actual figures exceed the predicted ones, we consider the event to have a net positive impact. Otherwise, we consider that it had a “crowding out” effect on “regular” tourists. While conducting this analysis, we distinguished between short-term (i.e., focusing just on the year of the event) and mid-term (year of the event plus three subsequent years).

Our results show that the effects of large-scale sporting events vary a lot across host countries: The World Cup in Japan and South Korea 2002 and South Africa 2010 were associated with a distinct increase in tourist arrivals, whereas all other World Cups were either neutral or negative. Among the Summer Olympics, China in 2008 is the only case with a significant positive effect on tourist inflows. The effects of the other four events (Australia 2000, Greece 2004, Great Britain 2012, and Brazil 2016) were found to be negative in the short- and medium-term. As for the Winter Olympics, the only positive case is Russia in 2014. The remaining five events had a negative impact except the one-year neutral effect for Japan 1998.

Following large-scale sporting events, host countries are therefore typically less visited by tourists. Out of the 18 hosting countries studied, 11 saw tourist numbers decline over four years, and three did not experience a significant change.

The case for cautious optimism

Our research indicates that the positive effect of hosting large-scale sporting events on tourist inflows is, at best, moderate. While many tourists are attracted by FIFA World Cups and Olympic games, the crowding-out effect of “regular” tourists is strong and often underestimated. This implies that tourists visiting for an event like the Olympics typically dissuade those who would have come for other reasons. Thus, efforts to attract new visitors should be accompanied by efforts to retain the already existing ones.

Large-scale sporting events should be considered as part of a long-term policy for promoting a territory to tourists rather than a standalone solution. Revealingly, our results indicate that it is easier to get a net increase in tourist inflows in countries that are less frequent destinations for tourists – for example, those in Asia or Africa. By contrast, the United States and Europe, both of which are traditionally popular with tourists, have no single case of a net positive effect. Put differently, the large-scale sporting events in Asia and Africa helped promote their host countries as tourist destinations, making the case for the initial investment. In the US and Europe, however, those in the last few decades brought little return, at least in terms of tourist inflow.The Conversation

About the Author:

Ivan Savin, Associate professor of quantitative analytics, research fellow at ICTA-UAB, ESCP Business School

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

 

Inflationary pressures are easing in Japan. Natural gas producers want to stop prices from falling

By JustMarkets

On Monday, stock indices gave up early gains and closed lower, consolidating below last week’s record highs. At Monday’s stock market close, the Dow Jones Index (US30) was down 0.16%. The S&P 500 Index (US500) decreased by 0.38%. The NASDAQ Technology Index (US100) closed the day negative 0.13%. Supply-side pressure pushed bond yields higher on Monday and was bearish for stocks.

In extended trading, Zoom Video (ZM) shares jumped by 10% after beating revenue and earnings expectations, while Unity Software fell by 18% after reporting weak financial guidance.

This week, investor attention is focused on PCE inflation data and Federal Reserve speeches. PCE and core inflation are expected to show a small monthly increase, but the annual rate is expected to slow. In addition, the second estimate of US GDP growth for Q4 will be released.

Equity markets in Europe traded flat on Monday. German DAX (DE40) rose by 0.02%, French CAC 40 (FR40) fell by 0.46% yesterday, Spanish IBEX 35 (ES35) rose by 0.08%, and British FTSE 100 (UK100) closed negative by 0.29%.

Speaking at the European Parliament, ECB President Christine Lagarde said that the current disinflation process should continue at a pace that could lead to the first rate cut by June, although some favor an earlier approach. Money markets have also reassessed their expectations for the first rate cut by the US Fed from May to June. With the ECB generally following the US Fed’s lead, investors should not expect the first rate cut from the ECB until summer.

Silver retreated yesterday amid the negative impact of iron ore prices falling to a 4-month low on Monday on concerns about Chinese demand for industrial metals.

WTI crude futures are holding above $77 a barrel on Tuesday after jumping more than 1% in the previous session, helped by ongoing supply disruptions that have raised supply concerns. Houthi rebels in Yemen continued attacks on Red Sea vessels, driving up freight costs and delaying deliveries. Meanwhile, in the United States, analysts noted strong demand from refineries, benefiting from high margins. Refineries with high profit margins buy more barrels, and foreign buyers favor US crude to avoid Red Sea transportation problems.

Natural gas prices rose moderately on Monday thanks to some coverage of short positions by funds ahead of Tuesday’s March futures contract expiration. Also, it was reported last week that major shale gas producers will cut production due to extremely low prices, and Chesapeake Energy will be the first to do so. The low prices result from weak demand, so producers are beginning to take action to stop the drop in natural gas prices. Seasonally, natural gas has a positive March-April performance, so there is plenty of upside for prices in the coming weeks.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped by 0.35% yesterday, China’s FTSE China A50 (CHA50) declined 1.64% on Monday, Hong Kong’s Hang Seng (HK50) ended the day down 0.54%, and Australia’s ASX 200 (AU200) closed positive 0.12%.

Japan’s core consumer price index, which excludes fresh food but includes the cost of fuel, was 2% in January 2024, slowing from 2.3% in December and the lowest since March 2022. Still, the January figure was above market forecasts of 1.8%. Japan’s core inflation is now within the central bank’s 2% target. This eases pressure on the BoJ to raise interest rates after months of speculation that rising wages and prices would force it to do so. The BoJ’s ultra-confident stance has been a key fulcrum for Japanese markets in the past year as rising interest rates in the rest of the world and a weakening yen have sent foreign investors rushing into local equities.

While additional stimulus measures from Beijing helped Chinese markets bounce off multi-year lows, markets are now waiting for signs of real improvement in the economy. Purchasing managers’ index data for February is due out later this week and is expected to provide clearer signals on the health of Asia’s largest economy.

S&P 500 (US500) 5,069.53 −19.27 (−0.38%)

Dow Jones (US30) 39,069.23 −62.30 (−0.16%)

DAX (DE40)  17,423.23 +3.90 (+0.022%)

FTSE 100 (UK100) 7,684.30 −21.98 (−0.29%)

USD Index  103.78 −0.16 (−0.15%)

Important events today:
  • – Japan National Core CPI (m/m) at 01:30 (GMT+2);
  • – German GfK Consumer Confidence (m/m) at 09:00 (GMT+2);
  • – US Durable Goods Orders (m/m) at 15:30 (GMT+2);
  • – US CB Consumer Confidence (m/m) at 17:00 (GMT+2).

By JustMarkets

 

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

Israel and Hamas are close to negotiations. Bank of America believes that it is not yet time to sell the dollar

By JustMarkets

At Friday’s close of the stock exchange, the Dow Jones Index (US30) rose by 0.16% (for the week 0.98%). The S&P 500 Index (US500) was up 0.04% (up 1.15% for the week). The NASDAQ Technology Index (US100) closed negative 0.28% (for the week 0.54%). All 3 indices set new all-time highs on Friday. However, after this week’s sharp rally in technology stocks, there was profit-taking in technology stocks, which led to the NASDAQ (US100) Index being in negative territory.

On Friday, the US dollar index posted its first weekly decline in 2024 as investors took a break from buying the currency after a nearly two-month rally built on expectations that the Federal Reserve would begin cutting rates later than previously thought. Investors shifted expectations for the Fed’s first rate cut to June rather than May, significantly reducing the extent of prime rate cuts by the US Central Bank. But, if the US economy remains as strong as it is, the Fed may not be able to go for a rate cut in June. According to analysts at Bank of America (BofA), it is not yet time to sell the dollar, but it will start to weaken in the second quarter, assuming the Fed cuts rates in June and continues to cut rates quarterly. This will cause the euro to strengthen to 1.15 against the US dollar by the end of the year.

New York Fed President Williams said Friday he expects consumer spending growth to slow this year. At some point, it will be appropriate for the Fed to back off from restrictive monetary policy, likely later this year.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE40) rose by 0.28% (week-to-date 2.01%), France’s CAC 40 (FR40) gained 0.70% on Friday (week-to-date 2.89%), Spain’s IBEX 35 (ES35) declined 0.08% on Friday (week-to-date 2.49%), and the UK’s FTSE 100 (UK100) closed positive 0.28% (week-to-date -0.07%).

Frankfurt’s DAX (DE40) and France’s CAC 40 (FR40) rose to new record highs on Friday as investors welcomed dovish remarks from ECB officials. ECB official Centeno said the central bank should remain open to the possibility of a rate cut as early as March, while his counterpart Schnabel expressed confidence that inflation expectations are under control.

On Friday, a survey showed business activity in Germany improved in February, but probably not enough to prevent Europe’s largest economy from sliding into another recession. ECB President Christine Lagarde on Friday called relatively favorable fourth-quarter wage growth data encouraging but not enough for the European Central Bank to be confident that inflation has been beaten.

Markets are now pricing in a similar trajectory of future interest rate cuts for the US and Eurozone, forecasting just over three 25 basis point cuts this year. However, Europe is not in the same enviable position as the US. The world’s largest economy has beaten growth expectations, maintains a tight labor market, and consumers appear healthy at first glance. On the other hand, Europe has narrowly avoided a technical recession several times already, escaping with only minimal losses as quarterly GDP growth hovered around zero. Bundesbank chief Joachim Nagel cited that the ECB will receive key price data in the second quarter, cementing expectations of a possible rate cut around mid-year. Earlier on Friday, Robert Holzmann confirmed that the ECB usually follows the Fed regarding the timing of rate adjustments, further weakening bets on a rate cut.

Wednesday and Thursday this week will be G20 meetings, which could indirectly impact financial markets. The sessions are held behind closed doors, but many participants talk to the press between meetings. As this body directly sets interest rate policy, news from here could cause increased volatility.

Crude oil and gasoline prices fell on Friday on concerns about energy demand in China. According to RBC Capital Markets, China’s domestic oil demand has been weak, and limited stimulus measures from the government have disappointed. Oil was also pressured by signs that Israel will join peace talks in Paris, which could reduce some geopolitical risks in the Middle East.

US natural gas prices fell over 6% to $1.6 per bbl on Friday, they were driven by oversupply, ample storage, and lower heating demand amid a mild winter. The mild weather has pushed inventories well above average, with the latest EIA data showing inventories 22.3% above the seasonal norm.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) jumped by 1.51% for the week, China’s FTSE China A50 (CHA50) gained 2.44% last week, Hong Kong’s Hang Seng (HK50) ended the week up 2.40%, and Australia’s ASX 200 (AU200) ended the week negative 0.19%.

According to analysts, if the annual compensation negotiations between major Japanese companies and labor unions, due to conclude in mid-March, result in wage growth of 4.0%, BoJ policymakers may gain confidence in the sustainability of wage growth to pull the trigger and move away from negative rates finally.

S&P 500 (US500) 5,088.80 +1.77 (+0.04%)

Dow Jones (US30) 39,131.53 +62.42 (+0.16%)

DAX (DE40)  17,419.33 +48.88 (+0.28%)

FTSE 100 (UK100) 7,706.28 +21.79 (+0.28%)

USD Index  103.96 0.0 (0.0%)

Important events today:
  • – US New Home Sales (m/m) at 17:00 (GMT+2);
  • – US Eurozone ECB President Lagarde Speaks (m/m) at 18:00 (GMT+2).

By JustMarkets

 

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

Rising stock indices overshadowed hawkish speeches by US Fed policymakers. Canada is seeing a drop in retail sales

By JustMarkets

At the close of the stock market yesterday, the Dow Jones Index (US30) added 1.18%. The S&P 500 Index (US500) jumped 2.11% yesterday. The NASDAQ Technology Index (US100) closed positively at 2.96%. The S&P 500 (US500) and Dow Jones (US30) set new record highs, while the NASDAQ (US100) set a weekly high. Nvidia (NVDA) rose more than 16% to a record high on Thursday, leading a rally in the chip market after its quarterly earnings results released on Wednesday showed an explosive rise in demand for its artificial intelligence computing hardware.

Hawkish comments from policymakers failed to stop the indices from rising yesterday. Fed spokesman Christopher Waller said Thursday that the Fed should hold off on cutting rates for at least a couple more months to ensure the January inflation report was a fluke and that the Fed is still moving toward its inflation target. He added that acting too soon could squander the central bank’s gains in fighting inflation and cause significant damage to the economy. Fed Vice Chairman Jefferson agreed. He said that the Fed should be on guard against cutting interest rates too much in response to falling inflation because “excessive easing could cause progress in restoring price stability to stall or backslide. In addition, Philadelphia Fed President Harker cautioned against expecting interest rate cuts “right now and immediately” and said the biggest risk is cutting rates too quickly. Markets estimate the odds of a 25 bps rate cut at 6% for the March 19-20 FOMC meeting and 29% for the April 30-May 1 meeting.

Today, in the US, the minutes from the January FOMC meeting will be released. Investors will be looking for clues on the timing of the first-rate cut. Traders and investors have heard several Fed officials speak since the January meeting, and most preached patience with rates, warning against a premature cut, citing the strength of the US economy. If the minutes strike the same tone, given that the market is still pricing four rate cuts this year while the Fed has signaled only three, the dollar could get a boost. This would hurt stock indices and precious metals.

The latest economic data showed that US weekly jobless claims unexpectedly fell by 12,000 to a 5-week low of 201,000, indicating a strengthening labor market versus expectations of a rise to 216,000. The S&P Manufacturing PMI for February rose by 0.8 to a 17-month high of 51.5, stronger than expectations of no change at 50.7. US home sales for January rose by 3.1% to a 5-month high of 4.00 million, stronger than expectations of 3.97 million.

Canadian consumers sharply reduced their spending in January following stronger-than-expected retail purchases late last year. According to Statistics Canada’s preliminary estimate released Thursday, retail receipts fell by 0.4%, the biggest decline since March 2023. This followed a 0.9% jump in December. While this data points to strong consumer spending at the end of last year, the sharp decline in January suggests some weakness, especially amid rapid growth in Canada’s population due to immigration. The slowdown in retail consumption is expected to continue as more households renew their mortgages at higher interest rates this year.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 1.47%, France’s CAC 40 (FR40) gained 1.27% yesterday, Spain’s IBEX 35 (ES35) jumped by 0.31% on Thursday, and the UK’s FTSE 100 (UK100) closed positive 0.29%.

Eurozone January CPI declined to 2.8% y/y from 2.9% y/y in December, matching expectations. Core CPI for January was 3.3% y/y, unchanged from December, which was in line with expectations. The report on the ECB’s January 24-25 meeting was hawkish as policymakers said the risk of cutting interest rates too early is more dangerous than cutting too late. Swaps estimate the odds of a 25 bps ECB rate cut at 3% at the next meeting on March 7 and 29% at the April 11 meeting.

Germany’s economy contracted by 0.3% in the final quarter of 2023 after two consecutive periods of stagnation. Europe’s largest economy has been hit by rising prices, higher borrowing costs, and weak external demand, especially in the manufacturing and construction sectors.

Asian markets also rose yesterday. Japan’s Nikkei 225 (JP225) gained 2.19% for the day, China’s FTSE China A50 (CHA50) added 0.50%, Hong Kong’s Hang Seng (HK50) ended Thursday up 1.45%, and Australia’s ASX 200 (AU200) ended the day positive 0.04%.

Singapore’s annual inflation rate unexpectedly fell to 2.9% in January 2024 from 3.7% in December, well below market forecasts of 3.8%. This marked the lowest inflation rate since September 2021.

Malaysia’s annual inflation rate in January 2024 stood at 1.5%, unchanged for the third consecutive month and at its lowest level since February 2021. The data was slightly below market forecasts of 1.6% amid declines in the cost of clothing (0.2% vs. unchanged in December) and communication services (2.4% vs. 3.7%). At the same time, prices continued to rise for food (2.0% vs. 2.3%), housing (2.0% vs. 1.6%), and transportation (0.7% vs. 0.3%).

S&P 500 (US500) 4,981.80 +6.29 (+0.13%)

Dow Jones (US30) 38,612.24 +48.44 (+0.13%)

DAX (DE40)  17,118.12 +49.69 (+0.29%)

FTSE 100 (UK100) 7,662.51 −56.70 (−0.73%)

USD Index  103.87 −0.13 (−0.13%)

Important events today:
  • – US FOMC Member Cook Speaks at 00:00 (GMT+2);
  • – US FOMC Member Kashkari Speaks at 00:00 (GMT+2);
  • – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
  • – German GDP (q/q) at 09:00 (GMT+2);
  • – Switzerland Employment Rate (m/m) at 09:30 (GMT+2);
  • – German IFO Business Climate (m/m) at 11:00 (GMT+2).

By JustMarkets

 

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