Economics & Fundamentals

Archive for Economics & Fundamentals – Page 88

The situation in the Middle East is heating up. Inflation data in China disappointed investors

At Wednesday’s stock market close, the Dow Jones Index (US30) decreased by 0.51%, while the S&P 500 Index (US500) lost 0.62%. The NASDAQ Technology Index (US100) closed yesterday negative by 0.63%. Stocks posted moderate losses on Thursday amid a stronger-than-expected US CPI report for September. In addition, weekly US initial jobless claims remained unchanged, which was hawkish for Fed policy. Thursday’s hawkish reports keep the likelihood of another Fed rate hike this year alive. Stocks continued to lose ground Thursday afternoon as T-bond yields rose further amid weak demand at the $20 billion auction of 30-year Treasury bonds.

Concerns that the conflict between Israel and Hamas will spread to the Middle East was another negative factor for stocks amid reports that Israel launched airstrikes on major airports in Damascus and Aleppo in Syria. In turn, Iran has begun moving military equipment to its western border. Whether this equipment will travel further through Iraq toward Israel is still unknown, but the geopolitical risks of another major war have increased significantly in recent days.

The US Consumer Price Index for September came in at 3.7% y/y, unchanged from August and stronger than the 3.6% y/y decline. The core CPI excluding food and energy for September declined to 4.1% y/y from 4.3% y/y in August, which was in line with expectations. US weekly initial jobless claims were unchanged at 209,000, indicating a slight strengthening of the labor market compared to expectations of a rise to 210,000.

FRB Boston President Collins commented that she favors a pause in Fed rate hikes.

Equity markets in Europe traded lower yesterday. Germany’s DAX (DE40) decreased by 0.23%, France’s CAC 40 (FR40) lost 0.37% on Thursday, Spain’s IBEX 35 (ES35) was 0.26% cheaper, and the UK’s FTSE 100 (UK100) closed positive by 0.32%.

ECB Governing Council spokesperson Centeno said yesterday, “At the current level of interest rates, we will make a significant contribution to the 2% inflation target. We will achieve this target by continuing with this monetary policy stance, holding it for some time until we are fully confident that inflation is falling.” Another representative of the ECB Governing Council, Wunsch, said, “If we continue to see inflation figures in line with the forecast, we will not need to raise interest rates again.” Minutes from the ECB’s September 13-14 meeting showed that the risks of too much tightening and too little tightening have become more balanced and the ECB will hold off on raising interest rates.

Crude oil prices gave up early gains on Thursday amid a stronger dollar and after the EIA’s weekly crude oil inventories report showed an unexpected rise in crude stockpiles and US crude production hit a record high. Oil initially opened higher on Thursday on concerns over the escalating conflict between Israel and Hamas. Oil was also supported by comments from Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, who said oil producers will continue to work together and be proactive to keep the oil market balanced.

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) rose by 1.75%, China’s FTSE China A50 (CHA50) gained 0.85%, Hong Kong’s Hang Seng (HK50) rose by 1.93% and Australia’s ASX 200 (AU200) ended the day positive by 0.04%.

In China, the Consumer Price Index (CPI) was unchanged in September, missing forecasts for a 0.2% y/y rise. In August, the CPI rose by 0.1% y/y. On an annualized basis, core inflation, excluding food and fuel prices, was up by 0.8%, the same as in August. The Producer Price Index (PPI) fell to 2.5% y/y, marking the 12th consecutive negative month, although the rate of decline slowed from August. Economists had forecast a drop to 2.4% y/y. CPI inflation at zero indicates that deflationary pressures in China remain a real threat to the economy. The recovery in domestic demand will not be strong without significant stimulus from the government.

S&P 500 (F)(US500) 4,349.61 −27.34 (−0.62%)

Dow Jones (US30) 33,631.14 −173.73 (−0.51%)

DAX (DE40) 15,425.03 −34.98 (−0.23%)

FTSE 100 (UK100) 7,644.78 +24.75 (+0.32%)

USD Index 106.58 +0.76 (+0.72%)

News feed for 2023.10.13:

– Singapore GDP (q/q) at 03:00 (GMT+3);
– China Consumer Price Index (m/m) at 04:30 (GMT+3);
– China Producer Price Index (m/m) at 04:30 (GMT+3);
– China Trade Balance (m/m) at 06:00 (GMT+3);
– Sweden Consumer Price Index (m/m) at 09:00 (GMT+3);
– Switzerland Producer Price Index (m/m) at 09:30 (GMT+3);
– UK BoE Gov Bailey Speaks at 11:00 (GMT+3);
– Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
– US FOMC Member Harker Speaks at 16:00 (GMT+3);
– Eurozone ECB President Lagarde Speaks (m/m) 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

12 Oct

US CPI comes in above expectations – what should you do with investments?

By George Prior

US Consumer Price Index (CPI) data published Thursday supports the case that the Federal Reserve will likely implement one more interest rate hike, says the CEO of one of the world’s leading financial advisory, asset management and fintech organizations.

The prediction from Nigel Green of deVere Group comes as September CPI inflation rises 3.7%, above expectations of 3.6%. US CPI is now up for four consecutive months. Core CPI inflation fell to 4.1%, in line with expectations.

He comments: “Taking into account the latest US CPI data, and the minutes from the most recent Federal Reserve meeting, which were published on Monday, we expect there to be one last 25 basis point hike at its two-day meeting beginning October 31.

“The Fed will be conscious of growing uncertainty of the trajectory of the world’s largest economy and the risks of overtightening – especially in times of growing geopolitical uncertainty; while at the same time, want to avoid complacency in the continuing battle against inflation.”

The deVere CEO continues: “As a result, we expect that interest rates will still continue to remain higher for longer.”

Based on the assertion that interest rate hikes are likely to be nearing an end, and high-interest rates are expected to continue, investors may want to consider rebalancing their portfolios.

“Financial institutions, such as banks and insurance companies, tend to benefit from higher interest rates as they can charge more for loans and earn higher yields on their investments. A portfolio allocation to financial services stocks or exchange-traded funds (ETFs) may be considered,” says Nigel Green.

“The energy sector also benefits from a robust economy and high interest rates. It’s typically positively correlated with economic growth and tends to perform well in such environments.

“Certain segments of the consumer discretionary sector, such as automotive, housing, and luxury goods, can perform well when interest rates are high. Consumer spending can remain strong, particularly if the economy is healthy, and these industries can benefit.

“Industrial companies often benefit from increased infrastructure spending and a robust economy. With expectations of continued high interest rates, these companies are likely to see growth opportunities in construction, manufacturing, and transportation.”

He goes on to add: “While technology stocks can be sensitive to interest rate changes, some tech companies continue to thrive in a high-interest rate environment, especially those with strong fundamentals and growth potential.

“Meanwhile, the healthcare sector is typically less sensitive to interest rate changes, making it a relatively stable option for a portfolio, as will essential goods, such as food, beverages, and household products.”

As ever, an investor’s best tool for mitigating risk and seizing opportunities is to remain properly diversified and by working with an independent financial advisor.

The FOMC since March 2022 has raised its key interest rate 11 times, taking it to a targeted range of 5.25%-5.5%, the highest level in 22 years.

Nigel Green concludes: “We don’t think we’re at the end of the hiking cycle just yet, even though we’re close, and rates will continue to be high, potentially impacting your investment portfolio.”

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 Financial News

12 Oct

Claudia Goldin’s Nobel Prize win is a victory for women in economics – and the field as a whole

By Veronika Dolar, SUNY Old Westbury

Economic history has long been chronicled through a male lens, emphasizing the contributions of men and their viewpoints. For proof, just look to the Nobel Memorial Prize in Economic Sciences. It’s been awarded to 90 men since 1969 – and just three women.

The third woman to win the prize, distinguished Harvard labor economist Claudia Goldin, was honored on Oct. 9, 2023, for her decades of work studying the gender pay gap. It wasn’t a victory just for her but for women in the field.

As an economist, I take this issue personally. My field has a huge gender gap. Only 24% of tenure-track faculty in economics are women. In contrast, women make up 43% of tenure-track faculty across academia as a whole.

More than just stocks and bonds

Part of the problem is that economics is often stereotypically associated with finance, money and banking. This narrow perception might not appeal to everyone. Women in particular tend to be drawn to areas that have direct bearing on social challenges.

But economics is about much more than just the stock market. In fact, vast areas of the discipline deal with social issues – health, development, education and, yes, gender inequality.

For instance, labor economists study issues like family leave policies and the gender pay gap – areas that directly affect women’s lives.

It shouldn’t come as a surprise, then, that women have had a greater presence in labor economics than in other subfields.

Women have also historically been drawn to health economics, development economics and education economics. But those fields don’t get as much attention, and the public sometimes doesn’t even recognize them as being part of economics at all.

They may even get the short shrift in Econ 101. A study of introductory economics textbooks found that 75% of people named in them were men. Women weren’t even equally represented in hypothetical examples.

Where are the women?

Not only are women underrepresented as economists, economics as a field has historically ignored the role women play in the economy. Even as the study of family economics gained traction in the 1970s, the pivotal roles of women were often sidelined.

Traditional models often oversimplified households’ decision-making processes and overlooked women’s contributions. This led economists to undervalue the unpaid labor women provided in households and perpetuate stereotypical gender roles in their analyses.

Goldin has challenged these traditional male-centric narratives. Through her groundbreaking research – particularly on wage inequalities and the “motherhood penalty” – Goldin has turned the spotlight on women’s economic roles and challenges.

Her findings reveal the complexities of wage disparities, emphasizing issues like the challenges women face after childbirth. For instance, career interruptions such as maternity leave or reduced work hours to care for children and other relatives can reduce women’s earnings and job prospects in the long term.

It’s vital to note that Goldin’s research doesn’t attribute the gender pay gap to employer discrimination. Instead, her insights advocate for the establishment of robust support systems.

Strengthening child care facilities, improving parental leave policies, offering workplace flexibility and otherwise bolstering policies that support families with kids can play a pivotal role in addressing the wage gap, her findings suggest. In the absence of such supports, women are bound to keep earning less than men after they become parents.

A win for one, a victory for many

Goldin’s Nobel recognition isn’t merely an honor for her individual achievements. It serves as a beacon for women in economics and academia as a whole.

First, her win challenges the historical gender imbalance in such prominent awards, signaling a long-overdue recognition for women’s contributions to economics. It provides hope for young female economists that their work can also achieve such renown.

Beyond this, her Nobel nod underscores a crucial point: Economics is a rich and complex discipline that goes beyond traditional monetary and financial issues. It’s about parenthood. It’s about child care. It’s about people’s struggles. It’s about social change.

In essence, Goldin’s win shows the world just how expansive, inclusive, diverse and interconnected the field really is. Economics isn’t just the dismal science. It’s a human science.

About the Author:

Veronika Dolar, Associate Professor of Economics, SUNY Old Westbury

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

Economics & Fundamentals Opinions

12 Oct

Oil prices are declining amid growing geopolitical risk in the Middle East. The FOMC minutes were mixed

By JustMarkets

At Wednesday’s close, the Dow Jones Index (US30) added 0.19%, while the S&P 500 Index (US500) was up by 0.43%. The NASDAQ Technology Index (US100) closed positive by 0.71% yesterday.

According to the FOMC minutes released on Wednesday last month, the Federal Reserve leadership considered the outlook for the US economy uncertain and said it would “proceed cautiously” in deciding whether to raise the benchmark interest rate further. Such caution is generally seen as an indication that the Fed is not inclined to raise rates in the near future. Economic data over the past few months have indicated that inflation is slowing, according to the September 19-20 meeting minutes. Policymakers added that more evidence of inflation slowing to the Fed’s 2% target is needed to be confident that inflation will slow to the Fed’s 2% target. Officials generally acknowledged that the risks to Fed policy are increasingly balanced between raising rates too high, which hurts the economy, and not raising them enough to contain inflation.

Late Tuesday, San Francisco Fed spokeswoman Daly said that tighter financial conditions could mean the Fed wouldn’t have to do as much in terms of interest rates. Also on Wednesday, Fed spokesman Waller said that the Fed finally got a very good hold on inflation and can now take an observational stance.

The US PPI for September rose by 0.5% m/m and 2.2% y/y, which was stronger than expectations of 0.2% m/m and 1.6% y/y. In addition, the Food & Energy Price Index rose by 0.3% m/m and 2.7% y/y, stronger than expectations of 0.2% m/m and 2.3% y/y.

Equity markets in Europe traded yesterday without any unified dynamics. German DAX (DE40) increased by 0.24%, French CAC 40 (FR40) declined by 0.44% on Wednesday, Spanish IBEX 35 (ES35) added 0.06%, and British FTSE 100 (UK100) closed negative by 0.11%.

The European currency retreated from its best levels amid dovish comments from ECB Governing Council representative and Bundesbank President Nagel, who said a pause could be an option for the ECB at its next policy meeting later this month.

WTI crude oil and gasoline prices fell sharply on Wednesday amid early signs that the war between Israel and Hamas will have a limited impact on oil flows in the Middle East. In addition, Wednesday’s US producer price index report came in stronger than expected, reinforcing speculation that the Federal Reserve will hold interest rates longer, which could dampen economic growth and energy demand.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) increased by 0.60%, China’s FTSE China A50 (CHA50) gained 0.37%, Hong Kong’s Hang Seng (HK50) added 1.29% and Australia’s ASX 200 (AU200) ended the day positive by 0.68%.

Hong Kong’s Hang Seng Index jumped by 1.8% on Thursday thanks to a 3% rise in banking stocks after China’s state fund Central Huijin Investment increased stakes in four major banks.

Japan’s September machine tool orders fell by 11.2% y/y, the ninth consecutive decline.

S&P 500 (F)(US500) 4,376.95 +18.71 (+0.43%)

Dow Jones (US30) 33,804.87 +65.57 (+0.19%)

DAX (DE40) 15,460.01 +36.49 (+0.24%)

FTSE 100 (UK100) 7,620.03 −8.18 (−0.11%)

USD Index 105.73 −0.10 (−0.09%)

News feed for 2023.10.12:

– Japan Producer Price Index (m/m) at 02:50 (GMT+3);
– UK GDP (m/m) at 09:00 (GMT+3);
– UK Industrial Production (m/m) at 09:00 (GMT+3);
– UK Manufacturing Production (m/m) at 09:00 (GMT+3);
– UK Trade Balance (m/m) at 09:00 (GMT+3);
– Eurozone ECB Monetary Meeting Accounts at 14:30 (GMT+3);
– US Consumer Price Index (m/m) at 15:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3);
– US Crude Oil Reserves (w/w) at 18:00 (GMT+3);
– US FOMC Member Bostic Speaks at 20:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

11 Oct

China is preparing a massive economic stimulus. The International Monetary Fund has lowered its GDP forecast for 2024

By JustMarkets

At Tuesday’s stock market close, the Dow Jones Index (US30) increased by 0.40%, while the S&P 500 Index (US500) added 0.52%. The NASDAQ Technology Index (US100) closed positive by 0.58% yesterday. All three indices hit their 2-week price highs. On Tuesday morning, stocks opened higher amid prospects of additional stimulus in China, which will favor global growth after Bloomberg reported that China is preparing for a new round of stimulus to support its economy. Stocks further extended gains after comments from FRB Atlanta President Bostic reinforced speculation that the Fed is about to take a pause in raising interest rates.

The International Monetary Fund (IMF) warned of persistent inflation and urged the world’s central banks to maintain tight policy until price pressures ease, lowering its 2024 global GDP forecast to 2.9% from July’s forecast of 3.0% and raising its 2024 global inflation forecast to 5.8% from July’s forecast of 5.2%.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) increased by 1.95%, France’s CAC 40 (FR40) gained 2.01% on Tuesday, Spain’s IBEX 35 (ES35) jumped by 2.19%, and the UK’s FTSE 100 (UK100) closed up by 1.82%. Eurozone economic news on Tuesday lent support to the euro after Italian industrial production unexpectedly rose by 0.2% m/m in August, exceeding expectations of a decrease by 0.3% m/m. ECB Governing Council spokesman Holzmann said yesterday that inflation needs to be kept under control, and supply shocks could force the ECB to raise interest rates one or two more times. This is a more hawkish stance than was previously the case.

Minutes from the Bank of England’s last monetary policy meeting showed that the UK Banking System remains strong enough to support households and businesses even if economic conditions are worse than we expect. The UK banking system has substantial capital reserves and other resources to cover potential losses or cash outflows. Participants believe that interest rates are likely to remain high for an extended period of time.

There was profit taking in crude oil after the IMF lowered its global GDP forecast for 2024. But losses in crude oil were limited by a weaker dollar and heightened fears that the conflict between Israel and Hamas could widen and disrupt crude oil supplies from the Middle East. In addition, the prospect of additional stimulus from China is supporting energy demand and oil prices.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up by 2.43%, China’s FTSE China A50 (CHA50) decreased by 0.58%, Hong Kong’s Hang Seng (HK50) added 0.84%, and Australia’s ASX 200 (AU200) ended the day positive by 1.01%.

China is considering widening its budget deficit for 2023 as the government prepares for a new round of stimulus to help the economy reach its 5% growth target. Policymakers may issue an additional 1 trillion yuan ($137 billion) worth of government debt to finance infrastructure spending.

S&P 500 (F)(US500) 4,358.24 +22.58 (+0.52%)

Dow Jones (US30) 33,739.30 +134.65 (+0.40%)

DAX (DE40) 15,423.52 +295.41 (+1.95%)

FTSE 100 (UK100) 7,628.21 +136.00 (+1.82%)

USD Index 105.77 -0.31 (-0.29%)

News feed for 2023.10.11:

– US FOMC Member Daly Speaks at 01:00 (GMT+3);
– German Consumer Price Index (m/m) at 09:00 (GMT+3);
– US FOMC Member Bowman Speaks at 11:15 (GMT+3);
– US Producer Price Index (m/m) at 15:30 (GMT+3);
– Canada Building Permits (m/m) at 15:30 (GMT+3);
– US FOMC Member Bostic Speaks at 19:15 (GMT+3);
– US FOMC Meeting Minutes at 21:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

10 Oct

Oil rises amid concerns about lower supplies from the Middle East. Chinese stocks are showing weakness after the holidays

By JustMarkets

As of Monday’s stock market close, the Dow Jones Index (US30) added 0.59%, while the S&P 500 Index (US500) increased by 0.63%. The NASDAQ Technology Index (US100) closed positive by 1.60% yesterday. The S&P 500 (US500) and Nasdaq 100 (US100) indices rose to 2-week highs, while the Dow Jones Industrials (US30) reached a one-week-high. Stock indices rose on Monday amid dovish comments from the Federal Reserve, suggesting that the Fed may pause its rate hike cycle. Fed Vice Chairman Jefferson said policymakers are “in a position to proceed cautiously in assessing the degree of additional policy tightening that may be necessary” as the recent rise in Treasury bond yields acts as a potential additional constraint on the economy.

Another positive upside for equities is Monday’s 4% rise in crude oil prices, which sparked a rally in energy stocks. In addition, the surprise Hamas attack on Israel over the weekend contributed to a rally in defense stocks.

On Monday, the Bank of Israel announced its intention to sell up to $30 billion in foreign exchange reserves to support its national currency, which has fallen sharply since the weekend incursion by Hamas militants. The Israeli shekel traded at 3.90 against the US dollar yesterday, the weakest in seven years.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) decreased by 0.67%, France’s CAC 40 (FR40) fell by 0.55% on Monday, Spain’s IBEX 35 (ES35) lost 0.91% and the UK’s FTSE 100 (UK100) closed down by 0.03%. German industrial production for August fell by 0.2% m/m, weaker than expectations of 0.1% m/m.

Hamas’ attack on Israel drove crude oil prices up over 4% amid concerns that the conflict could widen and jeopardize Middle East oil supplies. The US has sent a group of warships to the eastern Mediterranean. The Wall Street Journal reports that Iranian intelligence services helped Hamas plan Saturday’s surprise attack, raising the risk of retaliation against Iran.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was not trading yesterday, China’s FTSE China A50 (CHA50) decreased by 0.69%, Hong Kong’s Hang Seng (HK50) added 0.18%, and Australia’s ASX 200 (AU200) ended the day positive by 0.23%.

Japan is unlikely to try to reverse the yen’s downtrend through currency intervention as the currency’s fall reflects real economic fundamentals, former chief currency diplomat Naoyuki Shinohara said yesterday. Shinohara said there are no set rules or general agreement among the G7 advanced economies on what currency movements are defined as “excessive volatility” that justifies intervention. The remarks contrast with the views of current chief foreign exchange diplomat Masato Kanda, who said last week that a sustained fall in the yen over a long period could be grounds for intervention.

S&P 500 (F)(US500) 4,335.66 +27.16 (+0.63%)

Dow Jones (US30) 33,604.65 +197.07 (+0.59%)

DAX (DE40) 15,128.11 −101.66 (−0.67%)

FTSE 100 (UK100) 7,492.21 −2.37 (−0.032%)

USD Index 106.09 +0.05 (+0.04%)

News feed for 2023.10.10:

– Australia NAB Business Confidence (m/m) at 03:30 (GMT+3);
– Norway Consumer Price Index (m/m) at 09:00 (GMT+3);
– UK FPC Meeting Minutes at 12:30 (GMT+3);
– US FOMC Member Bostic Speaks at 16:30 (GMT+3);
– US FOMC Member Kashkari Speaks at 22:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

09 Oct

Israel-Hamas war spooks markets as investors urged to avoid knee-jerk

By George Prior

Oil prices surged by 5% following Hamas’ unexpected attack on Israel over the weekend, but investors need to avoid knee-jerk reactions, warns the CEO 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 global investors digest the news that the Palestinian Islamist group Hamas on Saturday launched the largest military assault on Israel in decades, killing hundreds of Israelis and triggering a wave of retaliatory Israeli air strikes on the Gaza Strip.

Heading into the third day, the death toll was 1,100, while the US said it was sending warships to the region.

The deVere CEO says: “The events in this region are now directly impacting financial markets worldwide, which, as ever in times of increased volatility, is immediately prompting some investors into selling off riskier parts of their portfolios, such as stocks and some currencies.

“Oil has a disproportionate impact on global financial markets due to its pivotal role in the world economy, its interconnectedness with various sectors, and its potential to influence broader economic conditions and investor sentiment.

“I would urge investors to avoid knee-jerk reactions to the oil price surge and geopolitical tensions that are creating the market turbulence.

“Investors are likely to profit by sitting still and not selling and then having to buy back at higher prices.”

He continues: “Indeed, savvy investors, including the likes of Warren Buffett, will likely use the volatility and lower entry points to top-up their portfolios for the long-term with high quality stocks that have robust fundamentals.”

Ensure your investment portfolio is diversified across various asset classes, such as stocks, bonds, and commodities. “Diversification is your best weapon to mitigate the risks associated with geopolitical events,” observes Nigel Green.

He also recommends that you keep a close eye on energy-related stocks and companies, as they are likely to be directly impacted by the fluctuating oil prices. Companies involved in oil production and exploration may benefit from higher prices, while industries that rely heavily on energy consumption may face challenges.

“While short-term market fluctuations can be unsettling, it’s essential to maintain a long-term perspective when making investment decisions. Historically, markets have rebounded from geopolitical crises, and a well-constructed portfolio can weather such storms,” he concludes.

About:

Economics & Fundamentals Financial News

09 Oct

Geopolitical risk returns with renewed vigor

By JustMarkets

As of Friday’s stock market close, the Dow Jones Index (US30) increased by 0.87% (week-to-date -0.14%), while the S&P 500 Index (US500) added 1.18% (week-to-date +0.56%). The NASDAQ Technology Index (US100) closed positive 1.60% (week-to-date +1.61%) on Friday. Stock indexes rose sharply on Friday despite a strong Nonfarm Payrolls report. Stocks retreated initially Friday morning, with the Dow Jones Industrials Index falling to a 4-month low after bond yields jumped on the back of a 336,000 increase in US employment numbers. Additionally, August employment data was revised upward by 40,000 to 227,000 from the originally announced 187,000. The unemployment rate for September was unchanged at 3.8%. But a short time later, stocks returned to the upside amid a falling dollar. The US consumer credit for August unexpectedly contracted by $15.62 billion, the largest decline in 3 years and weaker than expectations for a $11.70 billion increase.

Canada’s labor market beat expectations for the third consecutive month, and wage growth accelerated. The country added 63,800 jobs in September, and the unemployment rate was 5.5%, where it has been since July. The data beat expectations for a modest gain of 20,000 jobs and an unemployment rate of 5.6%. Workers’ compensation growth rose to 5.3%, also beating expectations of 5.1% and up from 5.2% a month earlier. This is the third consecutive month of accelerating growth. The data suggests that even in the face of rising interest rates, the economy continues to expand jobs and wage growth strongly. Overnight swap traders raised bets on further policy tightening by the Bank of Canada, with another 25 basis point rate hike expected by March 2024.

Equity markets in Europe were mostly up on Friday. The German DAX (DE40) rose by 1.06% (-1.36% for the week), the French CAC 40 (FR40) gained 0.88% (-1.45% for the week), the Spanish IBEX 35 (ES35) added 0.78% (-2.31% for the week), the British FTSE 100 (UK100) closed up by 0.58% (-1.49% for the week).

ECB Executive Board spokesperson Schnabel said on Friday, “I still see upside risks to inflation, and if they materialize, further interest rate hikes may be necessary.” European Central Bank President Christine Lagarde said in an interview published Sunday that she was confident the ECB would meet its inflation target of 2% and was relatively confident about Europe’s gas reserves situation.

On Saturday, militants from the Palestinian group Hamas launched an unprecedented attack on Israel. The number of Israelis killed since the attack began totaled more than 700, and another 750 were reported missing. In response, Israel imposed a state of war for the first time since 1973. The country’s leadership enacted a special clause, “40 alef,” which means a formal declaration of war and that the army is given full freedom of action. The Hamas attack was openly welcomed by Iran and the Lebanese group Hezbollah, an ally of Iran. Western countries, led by the US, condemned the attack and declared their support for Israel. The aftermath of the outbreak of the war between Israel and Hamas was reflected in the stock markets of Middle Eastern countries on Sunday. Israel’s TA-35 stock index, calculated in Tel Aviv, ended the session down about 7%, mainly due to a drop in bank stocks. It was the sharpest market decline in three years. Analysts say the impact on the Gulf and Middle East markets depends on whether the conflict spreads. If so, it will increase uncertainty in the markets, inflation, and economic growth will take a back seat to geopolitical risk. Analysts say rising geopolitical risk could lead to the buying of assets such as gold and the US dollar and potentially boost demand for US Treasuries. The dollar, considered a safe haven in tough times, rose against the euro and pound sterling in early trading. Gold also showed the gap up.

Over the past week, Brent Crude fell about 11%, and WTI crude fell more than 8% amid concerns that continued high interest rates will lead to a slowdown in global economic growth, which in turn will affect fuel demand. On Sunday, Bahrain, Iraq, Kuwait, Oman, Oman, Saudi Arabia, and the United Arab Emirates reaffirmed their commitment to “collective and individual voluntary adjustments” in oil production levels. In other words, OPEC+ countries may resort to further supply cuts if oil prices continue to decline.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) fell by 3.45% for the week, China’s FTSE China A50 (CHA50) did not trade all week due to holidays, Hong Kong’s Hang Seng (HK50) ended the week up by 0.01%, and Australia’s ASX 200 (AU200) ended the week negative by 1.34%.

US-listed Chinese stocks rose on Friday after it was reported that spending on Chinese internet platforms during the Golden Week holiday exceeded pre-pandemic levels. As a result, shares of PDD Holdings (PDD) rose more than 7% and led the Nasdaq 100 stock price gains. JD.com (JD) and Baidu (BIDU) also rose more than 3%. In addition, shares of Alibaba Group Holding (BABA) rose more than 2%.

S&P 500 (F)(US500) 4,308.50 +50.31 (+1.18%)

Dow Jones (US30) 33,407.58 +288.01 (+0.87%)

DAX (DE40) 15,229.77 +159.55 (+1.06%)

FTSE 100 (UK100) 7,494.58 +43.04 (+0.58%)

USD Index 106.10 −0.23 (−0.22%)

News feed for 2023.10.09:

– German Industrial Production (m/m) at 09:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

06 Oct

Markets are expecting a strong Nonfarm Payrolls report. Natural gas prices jumped to an 8-month high

By JustMarkets

At yesterday’s stock market close, the Dow Jones Index (US30) decreased by 0.03%, while the S&P 500 Index (US500) lost 0.13%. The NASDAQ Technology Index (US100) closed negative 0.12% on Thursday. Weekly jobless claims rose less than expected, a sign of a strengthening labor market that is hawkish for Fed policy.

The US weekly initial jobless claims rose by 2,000 to 207,000, a sign of a resilient labor market versus expectations of 210,000.

Today, market attention will focus on the monthly US Nonfarm Payrolls employment report, which is expected to show a 170,000 increase and a 0.1 decline in the September unemployment rate to 3.7%. A stronger-than-expected reading would indicate a strong and resilient labor market. In turn, this would emphasize the Fed’s stance of “holding rates longer,” and this would directly pressure risk assets such as the euro, pound, stock indices, and even gold. But any hints of a slowing labor market or any unexpected jumps in unemployment will be seen as a negative interest rate impact by the economy, which will weaken the dollar, lower government bond yields, and put confidence back into risk assets, gold, and indices.

Markets are currently pricing in a 22% probability that the FOMC will raise rates by 25 bps at its next meeting on November 1 and a 35% probability that the rate will be raised by 25 bps at its December 13 meeting.

The Canadian dollar rose in September despite the overall strengthening of the US dollar. Given that the Bank of Canada (BoC) left the rate unchanged in early September and expressed concerns about the sustainability of core inflation, it is clear that the Bank of Canada has a desire to keep the possibility of an additional rate hike alive.

Equity markets in Europe traded flat on Thursday. Germany’s DAX (DE40) fell by 0.20%, France’s CAC 40 (FR40) closed around the opening price, Spain’s IBEX 35 (ES35) added 0.67%, and the UK’s FTSE 100 (UK100) closed positive by 0.53%. ECB Vice President de Guindos said yesterday that with inflation still high, it is “premature” to discuss the possibility of cutting interest rates. Economists regard this stance by the ECB as hawkish. German exports fell by 1.2% m/m in August, worse than forecasts of 0.6% m/m. Imports in August also unexpectedly fell by 0.4% m/m vs. expectations of 0.5% m/m growth. Germany’s construction PMI for September fell by 2.2 to 39.3, the sharpest decline since the data series began in 2020. The economic outlook for the Eurozone’s largest economy remains sluggish.

Oil and gasoline prices continued to fall on Thursday, with oil falling to a 5-week low and gasoline falling to a 9-month low. Oil prices have been falling on concerns that slowing global growth will reduce energy demand and consumption. But a weaker dollar on Thursday limited the decline in energy prices. Tension in the oil market is expected to continue as the OPEC+ agreement to cut production is extended. Saudi Arabia recently said it will maintain its unilateral 1.0 million BPD oil production cut through December. The move will keep Saudi oil production at around 9 million BPD, the lowest in three years.

Natural gas prices jumped to an 8-month high on Thursday amid a smaller-than-expected rise in weekly natural gas inventories at the EIA. EIA natural gas inventories rose by 86 Bcf, below expectations of 94 Bcf. The natural gas market is also supported by forecasts that cooler temperatures in the US will increase demand for gas for heating. As of October 2, European natural gas storage inventories were 96% full, above the 5-year seasonal average of 88% for this time of year. The US natural gas inventories as of September 29 were 5.3% above the 5-year seasonal average.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) increased by 1.80% on Thursday, China’s FTSE China A50 (CHA50) will not trade for the rest of the week due to holidays, Hong Kong’s Hang Seng (HK50) added 0.10%, and Australia’s ASX200 (AU200) was positive by 0.51%.

S&P 500 (F)(US500) 4,258.19 −5.56 (−0.13%)

Dow Jones (US30) 33,119.57 −9.98 (−0.030%)

DAX (DE40) 15,070.22 −29.70 (−0.20%)

FTSE 100 (UK100) 7,451.54 +39.09 (+0.53%)

USD Index 106.35 −0.45 (−0.42%)

News feed for 2023.10.03:

– Australia Retail Sales (m/m) at 03:30 (GMT+3);
– Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
– US Nonfarm Payrolls (m/m) at 15:30 (GMT+3);
– US Unemployment Rate (m/m) at 15:30 (GMT+3);
– Canada Unemployment Rate (m/m) at 15:30 (GMT+3);
– US FOMC Member Waller Speaks (m/m) at 19:00 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

05 Oct

Interest rates: Monetary policy is always political as central banks opt to back the financial sector

By Dan Cohen, Queen’s University, Ontario; Emily Rosenman, Penn State, and Martine August, University of Waterloo

As the Bank of Canada prepared to announce its decision on interest rates in early September, Tiff Macklem, the bank’s governor, received imploring letters from premiers spanning both the country and the political spectrum.

New Democrat David Eby of British Columbia wrote to the Bank of Canada, followed by Ontario’s Doug Ford, a Conservative, and by Liberal Andrew Furey of Newfoundland and Labrador.

In their letters, the premiers urged the bank against raising rates again and to think of the “human impact of rate increases” on Canadians already burdened by rising mortgage payments and financial pain.

When Macklem announced he was holding the rate at five per cent, Finance Minister Chrystia Freeland called the decision “a welcome relief for Canadians.”

Facing subsequent accusations from economists and journalists that she was meddling, Freeland made clear a few hours later that she respected the independence of the Bank of Canada.

Social impact of monetary policy

But the criticism raises important questions. Is monetary policy really outside the realm of politics? What are the social ramifications of our current monetary policy system?

The view that central banks should be independent of politics has shifted many times over the history of central banks.

While central bank decision-making is independent from government, the banks follow mandates set by governments. These mandates vary in different countries.

The United States Federal Reserve (the Fed), for example, has a dual mandate: to manage inflation and pursue maximum stable employment. The Bank of Canada’s mandate, by contrast, is focused entirely on managing inflation, with an arbitrary target of two per cent.

In theory, central banks pursue these goals without interference from government.

But we don’t believe political debates over monetary policy should be off limits.

Ties between politics and monetary policy

In the 1970s, Fed chairman Paul Volcker famously used monetary policy — specifically a campaign of rapid interest rate increases — to erode the bargaining power of labour as a means of taming inflation.

That decision had wide-ranging effects — including a reduction in union membership — that continue to have an impact on American society and placed the burden of fighting inflation onto the working class.

This logic continues, crudely captured in a recent viral video when Australian real estate developer Tim Gurner argued:

“We need to see unemployment rise, we need to see pain in the economy … to remind people that they work for the employer, not the other way around.”

In more polite language, Phillip Lowe, outgoing governor of Australia’s central bank, recently acknowledged that the effects of monetary policy are “felt unevenly across the community.”

The scene in Canada

According to our research, monetary policy likewise has an impact on wealth inequality in Canada by supporting the financial sector over other parts of the economy.

Indeed, the overt goal of monetary policy is to stabilize the financial system, a priority that disproportionately benefits those in the financial sector.

This has become clear in recent decades, beginning with the 2008 global financial crisis and continuing to the COVID-19 pandemic, when central banks around the world began to use “quantitative easing” to stimulate the economy.

While monetary policy had previously centred on setting the rates at which regulated banks could borrow, central banks expanded their role by undertaking massive asset purchasing campaigns via quantitative easing.

Central banks began supporting not just regulated banks but investment funds, hedge funds and other “non-bank financial intermediaries” — also known as shadow banks — that are largely unregulated.

This involved tactics like purchasing corporate bonds to stabilize the corporate debt market.

Investors benefit

These new Bank of Canada policies grant “infrastructural power” over how monetary policy is implemented to the financial sector, buttressing the profits of investors with public dollars. This allows investors to determine how the capital provided by the bank will be invested — with little regulation or public oversight.

Acknowledging this shift, Bank of Canada deputy governor Toni Gravelle said the bank has moved from its traditional role as “lender of last resort” to “liquidity provider of last resort,” promising to “resolve market-wide stresses when the financial system cannot find its footing.”

When the working class cannot “find its footing,” however, the Bank of Canada doesn’t extend a helping hand. In 2022, for example, Macklem told employers not to increase wages despite rampant inflation, and told unionized workers not to ask for a raise.

The central bank’s decision to support the financial sector is, in fact, political. It benefits some — financial sector executives and investors — at the expense of others, and tilts economic decision-making in their favour.

When a public institution buys hundreds of billions in assets as the Bank of Canada did in March 2020, Canadians are right to ask questions about its impact, and politicians should respond.

Enriching the already rich

The premiers’ letters to the Bank of Canada, while described as unprecedented, expose how monetary policy involves fundamentally political questions about the distribution of wealth in our society.

As we demonstrated in our research, the Bank of Canada’s quantitative easing tactics during the pandemic had a vastly uneven impact, driving up house prices and enriching already wealthier homeowners, while lower-income households and renters faced higher rents and precarity.

It also helped investors who took advantage of cheap capital and rising asset values to scoop up multi-family apartments and houses in Canada.

The impact doesn’t stop at housing. As inflation rose, central banks hiked interest rates, assuming that would boost unemployment, reduce labour costs and slow the economy so that inflation would fall.

But at a time when the causes of inflation are highly contested (there are ongoing debates around supply chain disruptions and “sellers inflation,” for example) choosing to focus on wages is political.

What should central banks do?

Where does this leave us in terms of the politics of monetary policy and central bank independence?

While central bank decisions may need to be independent of government influence, the factors banks consider are determined by our political systems.

Central banks could consider factors that benefit workers and people who don’t own assets — from maximizing employment to promoting housing affordability and addressing climate change risks.

European Central Bank president Christine Lagarde, for example, has said climate change should factor into central bank decision-making.

Others argue monetary policy can be used to fund the green transition, building on the European Central Bank’s practice of using targeted loans to influence the financial sector rather than leaving decision-making in the hands of financial institutions.

Given the connection between monetary policy and inequality, it’s time for a serious debate on why central banks use public institutions to support private finance — and what they should be doing differently.

The authors would like to acknowledge and thank research assistant Yun Liu for her work on this article.

Dan Cohen, Assistant Professor, Queen’s University, Ontario; Emily Rosenman, Assistant Professor of Geography, Penn State, and Martine August, Associate Professor, School of Planning, University of Waterloo

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

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