Archive for Economics & Fundamentals – Page 87

27 Oct

Japan is setting the stage for a monetary policy review. Falling tech companies are dragging the broad market

By JustMarkets

As of Thursday’s stock market close, the Dow Jones Index (US30) decreased by 0.76%, while the S&P 500 Index (US500) fell by 1.18%. The NASDAQ Technology Index (US100) closed yesterday negative by 1.76%. Stock indices continued to fall yesterday due to weak reports from major technology companies. Shares of Meta Platforms (META) fell more than 5% after weak ad revenue. Meanwhile, shares of Alphabet (GOOG) fell another 2.6%, complementing Wednesday’s 9.28% drop amid a disappointing cloud computing revenue report. Amazon (AMZN) reported third-quarter results that beat Wall Street forecasts as growth in the company’s cloud business continues to stabilize. But the stock price was barely affected by the report.

Stocks also declined yesterday due to tensions in the Middle East following a report that Israel conducted a limited tank invasion of the Gaza Strip before withdrawing troops. Markets expect an all-out ground attack by Israel, which could lead to an expansion of the war to include Hezbollah.

The US economy grew by 4.9% in the third quarter, with households and construction contributing significantly to growth. However, the unfavorable factors facing the economy and the household sector in particular are intensifying, so economists expect growth to slow to 1.5% in the last three months of the year. Also strong is the 4.7% rise in US durable goods orders for September, which is much stronger than expectations of rising by 1.9%. US weekly jobless claims rose by 10,000 to 210,000, indicating a slightly weaker labor market compared to expectations for a rise to 207,000.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 1.08%, France’s CAC 40 (FR40) lost 0.38% on Thursday, Spain’s IBEX 35 (ES35) decreased by 0.28%, and the UK’s FTSE 100 (UK100) closed negative by 0.81%.

The European Central Bank (ECB) left key rates unchanged on Thursday, in line with market expectations: the deposit rate at 4.00% and the main refinancing rate at 4.50%. Markets had expected the ECB to suspend its rate hike regime on Thursday, given the weakness in the eurozone economy and the recent rise in European bond yields. There is only a 5% chance of an ECB rate hike at the December meeting, but markets are forecasting an ECB rate cut in 2024.

Natural gas prices rose on Thursday amid a bullish EIA report and forecasts of colder-than-normal weather for next week. Natural gas prices received support from global supply concerns after Chevron shut down a natural gas field in Israel over security concerns related to the conflict between Israel and Hamas. As a result of the supply cut, Egypt said it was reviewing plans to export LNG to Europe.

Asian markets were predominantly falling yesterday. Japan’s Nikkei 225 (JP225) fell by 2.14%, FTSE China A50 (CHA50) added 0.63%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.24%, and Australia’s ASX 200 (AU200) ended Thursday negative by 0.61%. Uncertainty over the war between Israel and Hamas and rising yields led Asian indices lower this week, while anticipation of a series of central bank meetings next week also made investors largely risk-averse.

With the Bank of Japan conducting another FX intervention yesterday, markets expect the BoJ to consider a change in yield curve management policy next week with an adjustment to the outlook. The latest data showed that Tokyo’s inflation rose more than expected in October, indicating that inflation is picking up again in the country and could lead to a more hawkish bias from the BoJ at its meeting next Tuesday.

S&P 500 (F)(US500) 4,137.23 −49.54 (−1.18%)

Dow Jones (US30) 32,784.30 −251.63 (−0.76%)

DAX (DE40)  14,731.05 −161.13 (−1.08%)

FTSE 100 (UK100) 7,354.57 −59.77 (−0.81%)

USD Index  106.65 +0.12 (+0.11%)

News feed for 2023.10.27:
  • – Japan Unemployment Rate (m/m) at 02:30 (GMT+3);
  • – Japan Tokyo Core CPI (m/m) at 02:30 (GMT+3);
  • – Australia Producer Price Index at 03:30 (GMT+3);
  • – US PCE Price index (m/m) at 15:30 (GMT+3);
  • – US FOMC Member Barr Speaks at 16:00 (GMT+3);
  • – US Michigan Consumer Sentiment (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
27 Oct

Week Ahead: US dollar set for scary rollercoaster ride?

By ForexTime 

  • High-risk events could “trick or treat” investors next week
  • Watch out for central bank decisions, key data & earnings
  • US dollar to be influenced by Fed decision & NFP
  • USDInd trapped within a range on daily chart
  • Key levels of interest at 105.50 and 107.20

An exceptional list of high-risk events could “trick or treat” investors in the week ahead.

All eyes will be on rate decisions by the Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BoJ) to top-tier data from major economies including the latest US employment report. This will be complemented by a barrage of corporate earnings from the largest economies in the world.

Here are the major economic data releases and events on the week of Halloween:

Monday, October 30th 

  • AUD: Australia retail sales
  • EUR: Eurozone confidence, Germany CPI and GDP

Tuesday, October 31st 

  • Halloween
  • CNH: China PMI’s
  • EUR: Eurozone CPI, GDP
  • JPY: BoJ rate decisions, unemployment, retail sales
  • USD: Conference Board consumer confidence

Wednesday, November 1st 

  • CNH: China Caixin manufacturing PMI
  • NZD: New Zealand unemployment
  • GBP: UK S&P Global/CIPS Manufacturing PMI
  • USD: FOMC rate decision, ISM Manufacturing

Thursday, November 2nd 

  • AUD: Australia trade balance
  • EUR: Eurozone/Germany S&P Global Manufacturing PMI
  • GBP: BoE rate decision
  • USD: US factory orders, initial jobless claims
  • NQ100_m: Apple earnings

Friday, November 3rd 

  • CNH: China Caixin services PMI
  • EUR: Eurozone unemployment
  • GBP: BoE’s Jonathan Haskel, BoE’ Huw Pill speech
  • CAD: Canada unemployment
  • USD: US October nonfarm payrolls (NFP)

The scheduled data releases and events may create fresh opportunities across the board. Our focus falls on the USD Index which is set to be influenced by the Fed decision and US employment report.

The USD Index tracks how the dollar is performing against a basket of six different G10 currencies, including the Euro, British Pound, Japanese Yen, and Canadian dollar.

It is worth noting that the dollar has appreciated against almost every single G10 currency month-to-date excluding the Swiss Franc.

Dollar bulls found a friend in rising Treasury yields as sticky US inflation supported expectations around rates remaining “higher for longer”.

The USD Index could kick off November with a bang! Here are some things to watch out for:

  1. Federal Reserve rate decision 

The Fed is widely expected to leave interest rates unchanged at its next meeting on November 1st, a second consecutive pause.

This is in line with recent dovish comments from Fed officials including Jerome Powell and mixed US economic data. Investors will be paying close attention to Powell’s press conference for any fresh clues on future rate moves.

  • The USDInd could find itself under fresh selling pressure if the Fed strikes a dovish tone and signals that no more hikes are on the cards for the rest of 2023.
  • Should the central bank sound hawkish and leave the doors open for a December move, this may give the USDInd a boost.

As of writing, traders are currently pricing in a 1 in 5 chance of a 25 basis point Fed hike by the end of 2023.

  1. US October nonfarm payrolls (NFP)

Markets expect the US economy to have created 168,000 jobs in October, essentially half of the whopping 336,000 jobs in September, while the unemployment rate is forecast to remain unchanged at 3.8%.

  • A stronger-than-expected US jobs report may leave the doors open to a December rate hike, pushing the USDInd higher as a result.
  • However, evidence of a cooling US jobs market may support the argument that the Fed is done with hikes this year – dragging the USDInd lower.

  1. Technical forces: breakout?

The USDInd has been trapped within a range since late September with support at 105.50 and resistance at 107.20. Prices are trading above the 50, 100, and 200-day SMA while the MACD trades above zero. Although technical forces are in favour of bulls, the fundamentals could throw the USDInd on a scary rollercoaster ride. 

  • A solid breakout and daily close above 107.20 could push prices to levels not seen since November 2022 at 107.80.
  • Should the USDInd slip back below the 105.50 support, this may open the doors towards 104.60.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Opinions
26 Oct

Extreme weather could burn many investment portfolios by mid-century

By Noël Amenc, EDHEC Business School; Abhishek Gupta, EDHEC Business School; Bertrand Jayles, EDHEC Business School; Darwin Marcelo, EDHEC Business School; Frédéric Blanc-Brude, EDHEC Business School; Leonard Lum, EDHEC Business School; Nishtha Manocha, EDHEC Business School, and Qinyu Goh, EDHEC Business School 

Climate change is one of the most pressing challenges facing humanity today, with potentially severe implications for infrastructure assets. Infrastructure investments such as roads, bridges, ports, airports, and power plants have long lifetimes, typically spanning several decades, and are designed to operate under specific climatic conditions. However, climate change is causing more frequent and intense extreme weather events, such as floods, droughts, heat waves, and storms, which can damage or disrupt infrastructure assets. These physical risks can lead to direct losses, increased maintenance costs, and lower asset values.

At the same time, climate change induces changes in policy, technology, and consumer preferences that can impact the value of infrastructure assets. This is known as transition risks. For example, new regulations and carbon-pricing schemes could make carbon-intensive infrastructure assets less attractive or even “stranded”, leading to significant financial losses . Additionally, changes in consumer behaviour, such as a shift toward electric vehicles or renewable energy sources, could render certain infrastructure assets obsolete.

50% potential loss of value

If the energy transition has a cost for private investors (transition risks), so does climate change (physical risks). Extreme weather events, which experts predict will increase over the next few years, thus greatly increase the risk of losing value in portfolios.

In an August 2023 study, “It’s getting physical”, EDHEC Infrastructure and Private Assets Research Institute shows that some investors could see the value of their portfolio fall by more than 50% before 2050. The average investor’s portfolio, which generally holds around 10 assets, could drop by a quarter.

The reason is that over the past two decades, institutional investors – such as insurance companies, mutual and pension funds – have been allocating more and more capital to private infrastructure companies, which operate motorway toll roads, airports, power stations, bridges, pipelines, wind and photovoltaic farms, and so on. This represents a total value of 4.1 trillion dollars in the 25 most active markets. These markets include sectors like renewable energy projects, sustainable infrastructure development, clean technology ventures, electric vehicle manufacturing, carbon offset trading, and green real estate investment, among others. These infrastructures are particularly exposed to climate risks.

In the aftermath of the Covid-19 pandemic, public spending on physical infrastructure has persistently failed to keep up with economic growth; the United States spends only 2.3% of its GDP on infrastructure, compared to 5% for European countries and 8% for China. Still, private-investor exposure appears to be considerable.

27% loss of value on average

To measure the likely losses of infrastructure investors, we randomly constructed thousands of portfolios. To do this, we included hundreds of assets belonging to infrastructure investments across eight industrial superclasses, including transport (air, rail and road), power generation (gas- and coal-fired, nuclear, etc.), renewable energy (wind, solar, hydroelectric, etc.), network utilities (electricity, gas or water distribution), water resources (oil, gas or water pipelines, gas or liquid storage), etc. For all these assets, it is possible to obtain information on the associated climate risks in EDHEC’s InfraMetrics database.

Overall, we observed a high concentration of risk. Most infrastructure investors generally have few assets in their portfolios (between 5 and 20 on average). Their portfolios are poorly diversified, with a relatively limited number of assets held directly by each investor.

Furthermore, portfolios containing infrastructure assets are often concentrated in a single sector – for example, wind farms. In practical terms, an investor who started building a portfolio in 2018 and plans to hold the assets for another 30 years is exposed to losses solely due to physical risks ranging from -54% to -10%, depending on the number of assets held.

In addition, the loss in value of assets exposed to climate change is -27% on average [by 2050]. In a scenario where temperatures rise faster than expected, they could reach 54% for the most-concentrated portfolios. For instance, the “Hot House World” scenario predicts a rise in temperatures of about 3.2ºC above pre-industrial levels by 2100.

Some sectors are also more exposed to climate risks than others. In the transport sector, for example, the loss in net asset value would be four times greater than in the renewable energies sector. Investors in developed countries – in particular the United States, Europe and Australia and others – are the most exposed to losses in value worldwide. Indeed, the more valuable assets are concentrated in a given location, the greater the risk of value destruction.

More inaction, even greater risk

This study shows the scale of the potential losses that investors will have to face. And that’s before the 2050 deadline, as long as climate change predictions remain unchanged. Without action from governments and other stakeholders, climate risks could have a major impact on the overall value of investments, and on the economy as a whole.

However, there is still a glimmer of hope: if the stakeholders manage to organise an effective transition to a low-carbon economy, the losses mentioned in the article could be halved for all investors. All that remains – and this is undoubtedly the most difficult part – is to take action.The Conversation

About the Authors:

Noël Amenc, Professeur de finance, EDHEC Business School; Abhishek Gupta, Associate Director at the EDHEC Infrastructure Institute, EDHEC Business School; Bertrand Jayles, Senior Sustainability Data Scientist, EDHEC Infrastructure & Private Assets Research Institute, EDHEC Business School; Darwin Marcelo, Project Director at the EDHEC Infrastructure & Private Assets Research Institute, EDHEC Business School; Frédéric Blanc-Brude, Directeur de l’EDHEC Infrastructure Institute, EDHEC Business School; Leonard Lum, Data analyst, EDHECinfra, EDHEC Business School; Nishtha Manocha, EDHECinfra Senior Research Engineer, EDHEC Business School, and Qinyu Goh, MSc Urban Science, Sustainability Data Scientist at the EDHEC Infrastructure & Private Assets Research Institute, EDHEC Business School

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

Economics & Fundamentals Financial News
26 Oct

Blowout US GDP growth data but it is what’s coming next that matters…

By George Prior 

The strong third-quarter Gross Domestic Product growth for the US economy should not be the focus for investors, warns the CEO of deVere Group.

The warning from Nigel Green, chief executive of one of the world’s largest independent financial advisory, asset management and fintech organizations, comes as GDP, or the sum of all goods and services produced in the US economy, is revealed to be a 4.9% annualized gain for the third quarter.

“This is the strongest output since the fourth quarter of 2021. It appears that consumers are still happy to spend despite the higher interest rates.

“While its important data that shows the resilience of the world’s largest economy, it should not be the focus of investors,” he says.

“This data shows what has already happened. Investors need to focus on what will happen, if they’re serious about preserving their capital and growing their wealth, because the US economy faces serious headwinds in the months ahead.”

The deVere CEO cites three major reasons that indicate the economic trajectory might not be as rosy in the near future.

“First, the bond market is sending red-flag signals that it believes a recession is looming. For more than a year now, we’ve seen an inverted yield curve, which is when the yield on the two-year Treasury has overtaken that of the 10-year note.

“From the 1960s to today, every time the long-term rate was lower than a short-term rate, a recession followed. It’s happened for the last eight recessions – and it’s never been wrong.”

He continues: “Second, the new US Speaker, Mike Johnson, a close ally of Donald Trump, will be less inclined to make deals than Kevin McCarthy.

“Therefore, he’s more likely to affect a partial government shutdown in mid-November in order to try and seize a political advantage.  It is also more likely that under this scenario, a shutdown would be extended – unlike the previous, more symbolic, ones.

“A government shutdown creates uncertainty about the world’s largest economy, budgetary decisions, and the potential for disruptions in federal services. It erodes investor confidence, both domestically and internationally, meaning investors pull back from the US financial markets, leading to a decrease in asset prices and potential capital flight.

“We expect that should a shutdown occur, it will prompt Moody’s to cut the US credit rating below AAA.  This would be the third rating agency to downgrade the US.”

Nigel Green adds: “And third, the Israel-Hamas war will weigh on sentiment as individuals and businesses become more risk averse about spending and investing, which could lead to a recession.

“Also, conflicts in the Middle East tend to lead to spikes in oil prices which can trigger significant uncertainty in global markets.”

Against this backdrop, investors are being urged not to feel “too fuzzy” about the latest Gross Domestic Product growth data for the US economy.

“Investors shouldn’t be complacent about this strong data. They shouldn’t focus on the backward-looking; they should be thinking about what’s next, particularly the headwinds on the horizon.

“We would urge them to review their portfolios to mitigate risks and seize the opportunities that will come from a shifting investment environment,” concludes Nigel Green.

About:

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

Economics & Fundamentals Opinions
26 Oct

Euro shaky ahead of ECB meeting

By ForexTime 

  • ECB expected to pause on rate hikes
  • Inflationary pressures have eased in Europe
  • However, economic outlook paints gloomy picture
  • Hawkish messaging may leave doors open to December hike
  • EURUSD back within range, potential breakout on horizon.

As far as markets are concerned, the European Central Bank (ECB) is expected to leave rates unchanged in October for the first time in over a year, amid signs of cooling inflation. Over the past few months, price pressures have eased in Europe, with the headline rate falling to 4.3% in September, which was the lowest since October 2021.

ECB officials signalled at their previous September meeting that rates were high enough to bring inflation back towards the 2% target. However, concerns are rising about the worsening economic outlook, along with geopolitical tensions in the Middle East.  Indeed, the string of recent disappointing data paints a gloomy picture with recession fears rife as high rates impact households and businesses.

Investors will pay close attention to any fresh clues the ECB has to offer on monetary policy for the rest of 2023 and beyond. Should the ECB communicate that rates will remain higher for longer, this could leave the door open for one final hike in December. As of writing, traders are pricing in only around a 10% probability of an ECB rate hike by December with the odds of a rate cut by April roughly 50%.

Looking at the technical picture, EURUSD remains under pressure on the daily charts.

Prices are back within a wide range with support at 1.0450 and resistance at 1.0630. The euro could find itself under fresh pressure if the ECB strikes a cautious tone and hints that no more hikes are expected down the road. This may drag the EURUSD back towards the 1.0450 support level as a result.

Should the central bank strike a hawkish note, this could push EURUSD back towards 1.0630 and beyond as bets increase on a December rate move.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
25 Oct

US tightening sanctions on Iran oil could impact your investments

By George Prior 

Should the US tighten sanctions on Iran’s crude oil exports in response to the country backing Hamas, it will impact investment portfolios around the world, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The analysis from deVere Group’s Nigel Green comes ahead of a widely expected ground offensive by Israel into Gaza, which could shift the mood music for the West’s response to Iran.

He says: “These sanctions, while driven by geopolitical concerns, are likely to significantly impact portfolios for individual and institutional investors globally. As ever, with increased volatility, there will be fresh opportunities and fresh risks.

“Portfolios that include energy sector assets can be directly affected by the sanctions on Iran’s crude oil. Iran is a major oil producer, and restrictions on its exports can result in a reduction in global oil supply, which, in turn, could boost the profitability of energy companies.

“While some energy stocks may benefit from rising oil prices, others may face challenges due to increased production costs.

“Dividend stocks in the energy sector could see price increases, which might be positive for income-focused investors. However, dividend sustainability may be threatened if higher oil prices lead to increased expenses for energy companies.”

The rise in oil prices due to sanctions can lead to broader economic consequences, particularly in the form of inflation.

“Central banks, which have been battling to bring down multi-decade high inflation peaks over the last two years, may respond to rising inflation by considering increasing interest rates again.

“Higher interest rates make borrowing more expensive for businesses, impacting their expansion plans and investments. This, in turn, affects stock prices and overall portfolio performance.”

Nigel Green continues: “Companies across various industries would also face increased production costs due to higher oil prices. These added expenses can pressure businesses to pass the costs onto consumers, potentially impacting their profitability and share prices.

“Developing economies are particularly vulnerable to oil price spikes. Many of these countries rely heavily on imported oil, and surging prices can strain their trade balances and currencies. As such, investors with heavy exposure to these markets need to be extra cautious as risks are heightened.

“In addition, changes in oil prices influence currency exchange rates. Investors in currency markets may need to navigate these shifts, which can impact the value of their investments.”

Sanctions on Iranian oil can introduce geopolitical risks to your investment portfolio. To mitigate these risks, you need to ensure proper diversification of your portfolio across different asset classes, industries, and geographical regions to spread risk and reduce the impact of sanctions on specific sectors.

Also, you should develop a risk management strategy that includes setting stop-loss orders, adjusting your asset allocation, and staying informed about geopolitical events that can impact your investments.

Working with financial advisors who can provide insights and recommendations tailored to your specific investment goals and risk tolerance is likely to prove highly beneficial.

“The US tightening sanctions on Iranian oil could have a negative impact on individual and institutional investment portfolios by disrupting the energy sector, contributing to inflationary pressures, and intensifying geopolitical risks. You need to be aware of the risks – but also the opportunities,” concludes the deVere Group CEO.

About:

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

Economics & Fundamentals Opinions
25 Oct

Inflationary pressures are rising sharply in Australia. Corporate earnings keep indices from falling

By JustMarkets

As of Tuesday’s stock market close, the Dow Jones Index (US30) was up by 0.54%, while the S&P 500 (US500) increased by 0.73%. The NASDAQ Technology Index (US100) closed positive by 0.93% yesterday. Stocks rose moderately on Tuesday on the back of better-than-expected corporate earnings results. A negative factor for stocks was Tuesday’s stronger-than-expected US manufacturing activity data, which was hawkish for Fed policy. The S&P US manufacturing PMI for October unexpectedly rose to a 6-month high of 50.0, which was stronger than expectations of a decline to 49.5.

General Electric (GE) closed higher by more than 6% after reporting third-quarter adjusted EPS of 82 cents, well above the consensus of 56 cents, and raising its 2023 adjusted EPS guidance. Verizon Communications (VZ) shares are up more than 9%, leading gains in the S&P 500 (US500) and Dow Jones Industrials (US30), after the company reported third-quarter adjusted earnings per share of $1.22, which was better than the consensus estimate of $1.18. Coca-Cola Co (KO) closed higher by more than 3% after reporting 11% organic revenue growth in the third quarter, well above the consensus of 6.91%. Shares of Google Alphabet (GOOG) Inc. are down more than 5% after weaker-than-expected revenue growth from its cloud computing operations. Microsoft (MSFT) reported fiscal first-quarter results on Tuesday that beat Wall Street forecasts, as the tech giant’s investments in artificial intelligence fueled growth in its Azure cloud business. The stock price rose more than 4% after the report was published.

In the Middle East, French President Macron met with Prime Minister Netanyahu in Israel on Tuesday before calling for an international coalition to fight Hamas and warning other Iranian-backed militant groups against opening new fronts in the war between Israel and Hamas.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 0.54%, France’s CAC 40 (FR40) gained 0.63% on Tuesday, Spain’s IBEX 35 (ES35) fell by 0.28%, and the UK’s FTSE 100 (UK100) closed positive 0.20%.

The Eurozone manufacturing PMI for October unexpectedly fell by 0.4 to 43.0, weaker than expectations of a rise to 43.7. The German GfK consumer confidence index for November fell by 1.4 to a 7-month low of 28.1, weaker than expectations of 27.0. In her speech yesterday, ECB President Lagarde told the Presidents of the European Commission, European Council, and Eurogroup that stagnation and downside risks await the Eurozone economy in the next few quarters, although inflation risks have become more balanced.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) increased by 0.20%, China’s FTSE China A50 (CHA50) added 0.03%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.05%, and Australia’s ASX 200 (AU200) ended Tuesday positive 0.19%. Chinese stocks continued their recovery rally on Wednesday after the government announced plans for a massive bond issue. Beijing announced plans to issue 1 trillion yuan ($1=7.3088 yuan) worth of government bonds to support the economy. Nevertheless, Chinese stocks remain near 2023 lows, having suffered significant losses on fears of slowing economic growth and a collapse in the real estate market. Despite Wednesday’s optimism, the factors that drove domestic markets lower are still in place.

Japan’s business activity index for the manufacturing sector for October was unchanged at 48.5. The services PMI for October fell by 2.7 to 51.1, the lowest reading in 10 months.

In Australia, the consumer price index unexpectedly rose. In annual terms, the inflation rate rose from 5.2% to 5.6%. In quarterly terms, the index rose from 0.8% to 1.2%. Such data gives grounds for further interest rate increase by the Reserve Bank of Australia next week.

S&P 500 (F)(US500) 4,247.68 +30.64 (+0.73%)

Dow Jones (US30) 33,141.38 +204.97 (+0.62%)

DAX (DE40)  14,879.94  +79.22 (+0.54%)

FTSE 100 (UK100) 7,389.70 +14.87 +(0.20%)

USD Index  106.26 +0.73 (+0.69%)

News feed for 2023.10.25:
  • – Australia Consumer Price Index (m/m) at 03:30 (GMT+3);
  • – German Ifo Business Climate (m/m) at 11:00 (GMT+3);
  • – US Building Permits (m/m) at 15:00 (GMT+3);
  • – US New Home Sales (m/m) at 17:00 (GMT+3);
  • – Canada BoC Monetary Policy Report at 17:00 (GMT+3);
  • – Canada BoC Interest Rate Decision at 17:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – Canada BoC Press Conference at 18:00 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 20:00 (GMT+3);
  • – US Fed Chair Powell Speaks at 23:35 (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
24 Oct

The situation in the Middle East has a negative impact on market sentiment

By JustMarkets

American stock indices traded yesterday without any unified dynamics. At Monday’s close, the Dow Jones Index (US30) decreased by 0.58%, while the S&P 500 Index (US500) was down by 0.17%. The NASDAQ Technology Index (US100) closed positive by 0.27%. The decline in T bond yields on Monday was bearish for the US dollar and bullish for stock indices. The dollar on Monday initially found support in the jump in the 10-year bond yield to a new 16-year high, but then bond yields reversed and headed lower. From a fundamental perspective, the tightening of financial conditions in the US is certainly reducing the need for further monetary tightening, and many US Fed officials have moved to a less hawkish tone. Markets are currently pricing in just a 2% chance that the FOMC will raise the lending rate by 25 bps at its next meeting, which ends on November 1, and a 23% chance that the rate will be raised by 25 bps at its December 13 meeting.

The fear that the war between Israel and Hamas could escalate into a regional conflict is weighing on market sentiment. Western countries stepped up efforts to prevent the war between Israel and Hamas from escalating, and EU leaders supported the UN’s call for a “humanitarian pause” in the war. President Biden held talks with the presidents of Canada, France, Germany, and Italy to strengthen coordination among the allies. At the same time, late yesterday, there was news of explosions at three US military bases in the Middle East. This news interrupted Biden’s live-streamed remarks. Intelligence reports indicate that Iranian-backed militias are poised to step up attacks on US troops in the Middle East. Israel has said it supports diplomatic efforts to get Hamas to release hostages from Gaza, which could delay a possible ground invasion, but is not going to wait long to launch a ground offensive. Iran and its proxy forces in Lebanon, Iraq, and Yemen have warned they could retaliate against Israel if Israeli troops enter Gaza.

Equity markets in Europe traded flat yesterday. Germany’s DAX (DE40) rose by 0.02%, France’s CAC 40 (FR40) added 0.50% on Monday, Spain’s IBEX 35 (ES35) decreased by 0.37%, and the UK’s FTSE 100 (UK100) closed negative by 0.37%.

British consumers are curbing their spending ahead of the festive season, and the latest survey from Gfk suggests that the weather is not the only reason for this. Retail sales fell by 0.9% in September, well above expectations of a 0.3% decline. The Gfk Consumer Confidence Index fell back to 30. The outlook for the British economy remains bleak as growth is sluggish, and recent economic indicators point to a slowdown in manufacturing activity, while UK inflation remains stubbornly high.

The potential for an escalation of the conflict between Israel and Hamas and poor corporate earnings have left investors looking for safe havens, of which there are few left. The US dollar is not in the best position at the moment, as the US Federal Reserve does not plan to continue its tightening policy in the near future. According to economists, apart from the US dollar, only gold and the Swiss franc remain as safe havens. The Swiss franc is a longtime safe haven asset that recently hit its highest level against the euro since 2015 and has held up against the losses of its traditional peers.

Last Wednesday, the US said it would ease sanctions on Venezuela’s oil exports for six months in exchange for measures to ensure the country holds fair presidential elections next year. The easing of sanctions will bring additional oil supplies to the global market, which some analysts estimate will be about 200,000 barrels per day. However, oil traders believe that tension in the oil market will still remain due to the extension of the OPEC+ agreement on production cuts.

Asian markets were mostly declining yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.83%, China’s FTSE China A50 (CHA50) was down by 0.62%, Hong Kong’s Hang Seng (HK50) lost 0.72% on the day, and Australia’s ASX 200 (AU200) was negative by 0.82% on Monday. On Tuesday, most Asian stocks extended losses after weak business activity data in Japan and Australia. At the same time, Chinese markets rebounded from pre-pandemic lows thanks to a government fund starting to buy some stocks.

Japanese government bond (JGB) yields rose to new multi-year highs on Monday as investors assess the likelihood that the Bank of Japan will continue to adjust its yield curve control (YCC) policy next week. One possibility being discussed is an increase in the 1% ceiling for the 10-year yield.

S&P 500 (F)(US500) 4,217.04 −7.12 (−0.17%)

Dow Jones (US30) 32,936.41 −190.87 (−0.58%)

DAX (DE40)  14,800.72 +2.25 (+0.015%)

FTSE 100 (UK100) 7,374.83 −27.31 (−0.37%)

USD Index  105.62 −0.54 (−0.51%)

News feed for 2023.10.24:
  • – Australia Manufacturing PMI (m/m) at 01:00 (GMT+3);
  • – Australia Services PMI (m/m) at 01:00 (GMT+3);
  • – Japan Manufacturing PMI (m/m) at 03:30 (GMT+3);
  • – Japan Services PMI (m/m) at 03:30 (GMT+3);
  • – UK Unemployment Rate (m/m) at 09:00 (GMT+3);
  • – German Manufacturing PMI (m/m) at 10:30 (GMT+3);
  • – German Services PMI (m/m) at 10:30 (GMT+3);
  • – Australia RBA Gov Bullock Speaks at 11:00 (GMT+3);
  • – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
  • – UK Services PMI (m/m) at 11:30 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 15:30 (GMT+3);
  • – US Manufacturing PMI (m/m) at 16:45 (GMT+3);
  • – US Services PMI (m/m) at 16:45 (GMT+3).

By 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
24 Oct

Warning: The anti-ESG movement could hit your wealth

By George Prior 

The backlash against ESG – the use of environmental, social, and governance factors in investing – could hit your wealth, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The warning from Nigel Green of deVere Group comes as the IEA’s World Energy Outlook for 2023 published on Tuesday reveals that demand for oil, coal and natural gas is set to peak by 2030.

It also follows findings from a separate report published in the journal Nature Communications that damage from the global climate crisis has amounted to $391 million per day over the past two decades.

The deVere CEO says: “The International Energy Agency’s World Energy Outlook shows that there’s a major evolution taking place in how the planet is powered. From 2030, oil, coal and natural gas will play a significantly less dominant role.

“The unprecedented rise of clean energy technologies, including wind, solar, heat pumps and electric cars, will play a vital role.

“Yet despite this evidence that cleaner energy is the future – and, therefore ,should be uncontroversially appealing to investors – the anti-ESG movement is real and is growing.”

In a recent survey by The Conference Board of more than 100 large US companies, almost half said they have already “experienced ESG backlash”, and 61% anticipate it to continue or intensify over the next two years.

“Much of this has been focused on the financial industry, and large asset managers in particular, which means that your investments could be being repositioned away from ESG.  This, we believe, could have a longer-term, detrimental impact on your wealth.”

Nigel Green continues: “Anti-ESG proponents, including some financial advisors, often argue that ESG investing is just a trend that will eventually fizzle out. However, the data suggests otherwise.

“The growing emphasis on ESG factors is not just a fleeting fashion, but rather a reflection of changing market dynamics and consumer preferences. Ignoring these shifts would put a company’s stock performance at risk – and therefore, potentially, your investments.”

“Anti-ESG proponents may encourage you to miss out on profitable investment opportunities. Numerous studies have shown that companies with strong ESG performance often outperform their peers. Ignoring this data may lead to missed opportunities for portfolio growth,” he notes.

One of the primary drivers of ESG investing is risk mitigation. “Companies that perform well in ESG criteria tend to be better prepared to navigate a range of challenges, from environmental disasters to social controversies.  Again, if you overlook these considerations, you may find your investment portfolio vulnerable to unforeseen risks that can lead to financial losses.”

An undeniable fact is that governments and regulatory bodies are increasingly recognising the importance of ESG factors. Ignoring ESG criteria can expose companies – and therefore their investors – to regulatory risks, including fines and legal liabilities associated with non-compliance with evolving ESG regulations.

Nigel Green concludes: “The anti-ESG movement – which is alive and well and becoming increasingly powerful – fails to see the bigger, longer-term picture.

“Our concern is that people will be coerced into this narrow, backward-looking view and miss out on major opportunities that could negatively affect their prospects for growing and safeguarding their wealth.”

About:

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

Economics & Fundamentals Opinions
17 Oct

Lego’s ESG dilemma: Why an abandoned plan to use recycled plastic bottles is a wake-up call for supply chain sustainability

By Tinglong Dai, Johns Hopkins University; Christopher S. Tang, University of California, Los Angeles, and Hau L. Lee, Stanford University 

Lego, the world’s largest toy manufacturer, has built a reputation not only for the durability of its bricks, designed to last for decades, but also for its substantial investment in sustainability. The company has pledged US$1.4 billion to reduce carbon emissions by 2025, despite netting annual profits of just over $2 billion in 2022.

This commitment isn’t just for show. Lego sees its core customers as children and their parents, and sustainability is fundamentally about ensuring that future generations inherit a planet as hospitable as the one we enjoy today.

So it was surprising when the Financial Times reported on Sept. 25, 2023, that Lego had pulled out of its widely publicized “Bottles to Bricks” initiative.

This ambitious project aimed to replace traditional Lego plastic with a new material made from recycled plastic bottles. However, when Lego assessed the project’s environmental impact throughout its supply chain, it found that producing bricks with the recycled plastic would require extra materials and energy to make them durable enough. Because this conversion process would result in higher carbon emissions, the company decided to stick with its current fossil fuel-based materials while continuing to search for more sustainable alternatives.

As experts in global supply chains and sustainability, we believe Lego’s pivot is the beginning of a larger trend toward developing sustainable solutions for entire supply chains in a circular economy. New regulations in the European Union – and expected in California – are about to speed things up.

Examining all the emissions, cradle to grave

Business leaders are increasingly integrating environmental, social and governance factors, commonly known as ESG, into their operational and strategic frameworks. But the pursuit of sustainability requires attention to the entire life cycle of a product, from its materials and manufacturing processes to its use and ultimate disposal.

The results can lead to counterintuitive outcomes, as Lego discovered.

Understanding a company’s entire carbon footprint requires looking at three types of emissions: Scope 1 emissions are generated directly by a company’s internal operations. Scope 2 emissions are caused by generating the electricity, steam, heat or cooling a company consumes. And scope 3 emissions are generated by a company’s supply chain, from upstream suppliers to downstream distributors and end customers.

Lists of examples of sope 1, 2, 3 emissions sources with an illustration of a factory in the center
What scope 1, 2 and 3 emissions involve.
Chester Hawkins/Center for American Progress

Currently, fewer than 30% of companies report meaningful scope 3 emissions, in part because these emissions are difficult to track. Yet, companies’ scope 3 emissions are on average 11.4 times greater than their scope 1 emissions, data from corporate disclosures reported to the nonprofit CDP show.

Lego is a case study of this lopsided distribution and the importance of tracking scope 3 emissions. A staggering 98% of Lego’s carbon emissions are categorized as scope 3.

From 2020 to 2021, the company’s total emissions increased by 30%, amid surging demand for Lego sets during the COVID-19 lockdowns – even though the company’s scope 2 emissions related to purchased energy such as electricity decreased by 40%. The increase was almost entirely in its scope 3 emissions.

Lego’s tour of how its toy bricks are made doesn’t address the supply chain, where most of Lego’s greenhouse gas emissions originate.

As more companies follow in Lego’s footsteps and begin reporting scope 3 emissions, they will likely find themselves in the same position, realizing that efforts to reduce carbon emissions often boil down to supply chain and consumer-use emissions. And the results may force them to make some tough choices.

Policy and disclosure: The next frontier

New regulations in the European Union and pending in California are designed to increase corporate emissions transparency by including supply chain emissions.

The EU in June 2023 adopted the first set of European Sustainability Reporting Standards, which will require publicly traded companies in the EU to disclose their scope 3 emissions, starting in their reports for fiscal year 2024.

California’s legislature passed similar legislation requiring companies with revenues of more than $1 billion to disclose their scope 3 emissions. California’s governor has until Oct. 14, 2023, to consider the bill and is expected to sign it.

At the federal level, the U.S. Securities and Exchange Commission released a proposal in March 2022 that, if finalized, would require all public companies to report climate-related risk and emissions data, including scope 3 emissions. After receiving significant pushback, the SEC began reconsidering the scope 3 reporting rule. But SEC Chairman Gary Gensler suggested during a congressional hearing in late September 2023 that California’s move could influence federal regulators’ decision.

SEC Chairman Gary Gensler explains the importance of climate-related risk disclosures.

This increased focus on disclosure of scope 3 emissions will undoubtedly increase pressure on companies.

Because scope 3 emissions are significant, yet often not measured or reported, consumers are rightly concerned that companies that claim to have low emissions may be greenwashing without taking action to reduce emissions in their supply chains to combat climate change.

At the same time, we suspect that as more investors support sustainable investing, they may prefer to invest in companies that are transparent in disclosing all areas of emissions. Ultimately, we believe consumers, investors and governments will demand more than lip service from companies. Instead, they’ll expect companies to take actionable steps to reduce the most significant part of a company’s carbon footprint – scope 3 emissions.

A journey, not a destination

The Lego example serves as a cautionary tale in the complex ESG landscape for which most companies are not well prepared. As more companies come under scrutiny for their entire carbon footprint, we may see more instances where well-intentioned sustainability efforts run into uncomfortable truths.

This calls for a nuanced understanding of sustainability, not as a checklist of good deeds, but as a complex, ongoing process that requires vigilance, transparency and, above all, a commitment to the benefit of future generations.The Conversation

About the Author:

Tinglong Dai, Professor of Operations Management & Business Analytics, Carey Business School, Johns Hopkins University; Christopher S. Tang, Professor of Supply Chain Management, University of California, Los Angeles, and Hau L. Lee, Professor of Operations, Information & Technology, Stanford University

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

Economics & Fundamentals Opinions
← Previous Page
Next Page →