Big Tech rebound helps S&P 500 pare biggest weekly drop since March
Gold resurfaces above $1900 after hitting 5-month low
Higher Treasury yields should be headwind for stocks, gold
Look out for Nvidia earnings, Powell’s speech this week
US stock futures are building on Monday’s gains, after a strong rebound in technology stocks.
The SPX500_m has broken past the psychologically-important 4,400 mark, making an about-turn after halting a four-day drop.
This rebound comes after global stocks had their biggest weekly drop since March last week.
The “magnificent seven” of megacap tech stocks – Alphabet, Amazon, Apple Meta, Microsoft, Nvidia and Tesla – lost more than $900 billion in value over three consecutive weeks of falls. That was their worst run of combined market cap decline this year.
But yesterday saw Tesla jump over 7% while Nvidia rose 8.5% ahead of its results after the closing bell on Wednesday which will be a key focus.
Oversold gold finds a bid
Gold dipped $1885 to post a five-month low yesterday which came after four straight weeks of losses, something not seen since February.
Rampant Treasury yields are not a good sign for bullion as it is a non-interest-bearing asset.
Indeed, the 10-year “real” yield has hit 2% for the first time since March 2009. However, prices have been oversold on momentum indicators and buyers have stepped in recently as we are now seeing a third day of gains this morning.
The yellow metal still currently trades below the 200-day simple moving average (SMA), though has resurfaced above the psychologically-important $1900 level for the time being.
We also note that hedge funds cut their gold longs to a six-month low in the week to August 15 while ETF holdings have seen 12 straight weeks of outflows.
Of course, investors and traders will be wondering whether or not this rebound has legs.
Markets have half an eye on Fed Chair Powell’s speech on Friday at Jackson Hole while trying to navigate surging borrowing costs.
Higher rates for longer should be a headwind for stocks and also gold, potentially exerting an ultimate cap on how high these assets can climb.
But for now, markets are putting such thoughts aside, with US stocks and gold attempting to enter the tail-end of August on a less dour note.
At Friday’s close, the Dow Jones (US30) index increased by 0.07% (-2.19% for the week), while the S&P 500 (US500) index was down by 0.02% (-1.98% for the week). The NASDAQ Technology Index (US100) closed Friday by negative 0.20% (-2.27% for the week). August is a seasonally weak month for stock indices, and this time is no exception. This is partly due to the vacation period in the banking sector. Partly it is because the latest economic data in the US showed that the economy is not in danger of recession in the near future. As a result, rising government bond yields have lifted the dollar index, causing stock indices to decline.
The Jackson Hole Symposium is scheduled to begin on Thursday of this week. Various academics, bank chiefs, and central bank governors gather to discuss monetary policy and financial markets. The policymakers will give their interviews at the end of the conference. These interviews could cause significant volatility as they could foreshadow future monetary policy dynamics. In particular, investors will be waiting for Fed Chairman Jerome Powell to speak to clarify the economic outlook and the future trajectory of interest rates.
Equity markets in Europe were mostly down on Friday. Germany’s DAX (DE40) decreased by 0.65% (-1.54% for the week), France’s CAC 40 (FR40) fell by 0.38% (-2.22% for the week) on Friday, Spain’s IBEX 35 (ES35) fell by 0.19% (-1.73% for the week), and the UK’s FTSE 100 (UK100) closed on negative 0.65% (-3.48% for the week). This week, a slew of manufacturing and service sector business activity data will be released on Wednesday. This data could provide insight into whether the European Central Bank will raise interest rates again in September and whether the Bank of England will decide to raise rates more aggressively at its next meeting.
On Friday, crude oil prices broke a seven-week winning streak. Investors are now focused on the distinct possibility of lower energy demand rather than the certainty of supply cuts. Over the past few weeks, increasingly contradictory economic news has come out of China, crowned by the release of alarming consumer price data indicating that the country is in complete deflation. Problems at some significant real estate construction companies further underscore the slowdown in China’s economic recovery. Over the weekend, another major real estate developer Country Garden found itself in the grip of a debt crisis. China is the world’s largest energy importer, and any sign of economic stagnation will always be bad news for oil bulls.
Asian markets were also down last week. Japan’s Nikkei 225 (JP225) fell by 3.10% for the week, China’s FTSE China A50 (CHA50) lost 0.88%, Hong Kong’s Hang Seng (HK50) ended the week down by 3.99%, and Australia’s S&P/ASX 200 (AU200) ended the week on negative 2.62%.
On Monday, the People’s Bank of China (PBoC) lowered the benchmark one-year lending rate (LPR) to 3.45% from 3.55% previously (3.40% expected). Meanwhile, China’s Central Bank kept the five-year interest rate unchanged at 4.20%. The rate cut is being implemented to support economic development, which is a positive for Chinese stocks. It is also a positive factor for countries with close trade cooperation with China, Singapore, New Zealand, and Australia.
S&P 500 (F)(US500) 4,369.71 −0.65 (−0.02%)
Dow Jones (US30) 34,500.66 +25.83 (+0.075%)
DAX (DE40) 15,574.26 −102.64 (−0.65%)
FTSE 100 (UK100) 7,262.43 −47.78 (−0.65%)
USD Index 102.85 +0.33 (+0.32%)
Important events for today:
– New Zealand Trade Balance (q/q) at 01:45 (GMT+3);
– China PBoC Loan Prime Rate at 04:15 (GMT+3);
– German Producer Price Index (m/m) at 09:00 (GMT+3).
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.
It’s that time of year again with the annual Jackson Hole Economic Symposium around the corner…
This is a major event where central bankers and financial heavyweights come together to tackle pressing economic issues that impact the entire world. When considering how such a gathering could provide investors with critical insights into the Fed’s stance on rates, financial markets are in for a rollercoaster ride.
But before we unpack the key details of Jackson Hole, let’s take a quick look at the economic data releases and events scheduled for the upcoming week:
Monday, 21 August
CNH: China loan prime rates
NZD: New Zealand trade
Tuesday, 22 August
USD: US existing home sales
Wednesday, 23 August
CAD: Canada retail sales
EUR: Eurozone/Germany S&P Global PMI, Eurozone consumer confidence
GBP: UK S&P Global/CIPS UK Manufacturing PMI
USD: US new home sales, S&P Global Manufacturing PMI
Thursday, 24 August
Jackson Hole Economic Policy Symposium, Wyoming
USD: US initial jobless claims
Friday, 25 August
JPY: Tokyo CPI
EUR: Germany IFO business climate, GDP
USD: US University of Michigan consumer sentiment
Fed Chair Jerome Powell Speech at Jackson Hole
Mark your calendars – Federal Reserve Chair Jerome Powell’s highly anticipated speech at Jackson Hole on Friday, August 25th is the main event everyone’s talking about.
As we dive deeper into the second half of 2023, the burning question on everyone’s mind is whether the Fed will raise interest rates again before the year is out. The July Fed minutes show that policymakers are still seeing significant risks to inflation, which might lead to more rate hikes in the future. Adding fuel to the fire, the recent US retail sales figures surpassed expectations, further supporting the case for higher rates.
But here’s the thing – traders are currently pricing in only an 11% probability of a 25-basis point hike at September’s FOMC meeting, with that number rising to 38% in November. So, the uncertainty is real.
The Jackson Hole event could have a lasting impact on global markets, especially on Friday when Powell takes the stage. Powell is expected to re-affirm the data-dependent approach and emphasize the need to keep rates higher for a longer period to tame inflation. However, investors will be listening closely to his overall tone, as it has the power to influence Fed hike expectations.
There are a handful of assets that could be significantly influenced by Powell’s speech, but two have caught our attention:
Gold
Gold has had a tough August so far, shedding nearly 4% and closing below the 200-day SMA for the first time since December 2022! Bears are clearly in the building and could dominate the scene further given the right fundamentals forces.
Gold prices could sink towards $1870 if Powell strikes a firmly hawkish tone during his speech, fuelling bets around US rates remaining higher for longer.
However, if Powell conveys a more cautious and dovish stance, we could see a rebound in gold that pushes prices back above the 200-day SMA, reaching towards $1920.
SPX500_m
The SPX500_m has taken a real beating over the last few days with prices back below the 50-day SMA for the first time since March 2023.
Bears are capitalising on China’s woes and fears surrounding a hawkish Federal Reserve. The SPX500_m looks to be in the early stages of a downtrend on the daily charts, with the potential for further losses if key support is breached.
The SPX500_m could break below the 100-day SMA if Powell strikes a firmly hawkish tone during his speech, boosting bets for higher US interest rates.
If Powell strikes a cautious and marginally dovish tone, this could push prices back towards the 50-day SMA at 4463 and beyond.
At yesterday’s stock market close, the Dow Jones Index (US30) decreased by 0.84%, while the S&P500 Index (US500) lost 0.77%. The NASDAQ Technology Index (US100) closed at negative 1.17% on Thursday. Rising US bond yields pressured stocks after 10-year Treasuries rose to their highest in nearly ten months. A strong labor market coupled with hawkish FOMC minutes gives the Federal Reserve more room to keep rates higher.
US weekly initial jobless claims fell by 9,000 to 239,000, showing a stronger labor market than expected at 240,000. The August FRB Philadelphia Business Outlook Survey rose by 25.5 to a 16-month high of 12.0, stronger than expectations of 10.4.
Equity markets in Europe traded lower yesterday. Germany’s DAX (DE40) fell by 0.71%, France’s CAC 40 (FR40) fell by 0.94% on Thursday, Spain’s IBEX 35 (ES35) declined by 0.78%, and the UK’s FTSE 100 (UK100) closed at negative at 0.65%.
Due to lower energy prices, the EU trade balance showed a €2 billion deficit in the first quarter of 2023 after a €150 billion deficit in the third quarter of 2022 and a €78 billion deficit in the fourth quarter of 2022.
Norway’s Сentral Bank raised its key interest rate by 0.25% to combat high inflation. Norges Bank raised the rate to 4%, the highest level since 2008. The bank said in a report that inflation, which reached 5.4% in July, has eased but remains high and markedly above the 2% target. The head of Norges Bank said the future trajectory of the discount rate will depend on economic developments and added that the rate is likely to be raised again next month.
Oil rose slightly yesterday, supported by an EIA report on Wednesday that showed US crude inventories fell to an 8-month low. Oil was also backed by better-than-expected US economic data on Thursday, which showed the economy’s strength supporting energy demand. A negative factor for oil prices is progress in Iran-US relations, which could lead to increased oil exports from Iran. An agreement on Iran’s nuclear program could prompt the US and its allies to lift sanctions on Iranian oil exports, increasing global oil supplies.
Natural gas prices are still down due to high inventories caused by weak heating demand during an abnormally mild winter. Last winter’s warm temperatures increased natural gas inventories in Europe and the United States. As of August 15, natural gas storage in Europe was 90% full, well above the 5-year seasonal average of 76% for this time of year. Natural gas inventories in the United States as of August 11 are 10.8% above the 5-year seasonal average.
Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.44% yesterday, China’s FTSE China A50 (CHA50) added 0.30%, Hong Kong’s Hang Seng (HK50) was little changed on the day, and Australia’s S&P/ASX 200 (AU200) was negative 0.68% on Thursday. Signals of new stimulus measures from China helped local stocks post gains.
Japan faced a trade deficit last month as exports fell for the first time in more than two years due to slowing growth overseas. Japan’s trade deficit totaled 78.7 billion yen ($539 million), the first trade deficit for the world’s third-largest economy in two months.
S&P 500 (F)(US500) 4,370.36 −33.97 (−0.77%)
Dow Jones (US30) 34,474.83 −290.91 (−0.84%)
DAX (DE40) 15,676.90 −112.55 (−0.71%)
FTSE 100 (UK100) 7,310.21 −46.67 (−0.63%)
USD Index 103.43 +0.00 (+0.00%)
Important events for today:
– Japan National Consumer Price Index (m/m) at 02:30 (GMT+3);
– UK Retail Sales (m/m) at 09:00 (GMT+3);
– Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3).
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.
At yesterday’s stock market close, the Dow Jones (US30) index decreased by 0.52%, while the S&P 500 (US500) index lost 0.76%. The NASDAQ Technology Index (US100) closed negative 1.15% on Wednesday. The S&P 500 (US500) fell to a 5-week low, the Dow Jones (US30) fell to a 4-week low, and the Nasdaq 100 (US100) fell to a one-and-a-half-month low. Stock indices came under pressure as government bond yields jumped sharply after hawkish FOMC minutes.
According to the FOMC minutes of the US Federal Reserve’s July 25-26 meeting released Wednesday last month, most Fed officials still viewed high inflation as a persistent threat that could warrant further interest rate hikes. At the same time, officials saw some tentative signs that inflationary pressures may be easing. Most investors and economists believe the July rate hike was the last. Earlier this week, Goldman Sachs economists predicted the Fed would begin cutting rates by the middle of next year.
Other economic data showed that US housing starts rose by 3.9% m/m to 1.452 million in July, beating expectations of 1.450 million. However, July building permits, an indicator of future construction, rose just by 0.1% m/m to 1.442 million, weaker than expectations of 1.463 million. US manufacturing production unexpectedly rose by 0.5% m/m in July, beating expectations. Rising economic data, along with hawkish FOMC reports, supported the US index yesterday.
Equity markets in Europe traded flat yesterday. German DAX (DE40) rose by 0.14%, French CAC 40 (FR40) fell by 0.10% on Wednesday, Spanish IBEX 35 (ES35) added 0.05%, British FTSE 100 (UK100) closed negative 0.44%.
The Eurozone GDP report showed a slight increase from the previous quarter. Over the past three months, the Eurozone economy grew by 0.3%. On an annualized basis, GDP fell from 1.1% to 0.6%. Dutch GDP contracted by 0.3% in the second quarter of 2023. This marked the second consecutive quarterly contraction for the economy, meaning that the Netherlands is in a “technical recession.” Eurozone countries are gradually slipping into recession one by one.
The UK inflation report reinforced economists’ view that the Bank of England will continue to raise rates at its upcoming meetings. Although the consumer price index fell from 7.9% to 6.8% year-on-year, inflation remains the highest among the major developed economies, and the slowdown in inflation is again more modest than expected. Meanwhile, core inflation (which excludes energy and food prices) remained at 6.9% y/y in June, only slightly better than May’s record 7.1% y/y.
The dollar strengthening on Wednesday and the S&P 500 falling to a 5-week low put pressure on energy prices. In addition, oil is under pressure due to concerns about China’s economic growth after JPMorgan Chase and Barclays lowered their forecasts for China’s growth in 2023. Crude oil prices fell on Wednesday despite the EIA’s weekly crude inventories falling more than expected.
Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.46% yesterday, China’s FTSE China A50 (CHA50) fell by 0.29%, Hong Kong’s Hang Seng (HK50) was down by 1.26% for the day, and Australia’s S&P/ASX 200 (AU200) was in negative 1.50% for Wednesday.
China’s economic problems continue to weigh on global markets. Yesterday, the Chinese yuan fell to its lowest in 9.5 months, and Chinese indices closed lower after China’s July home sales fell for the second month, the biggest drop in 7 months. In addition, liquidity concerns in China’s shadow banking system intensified after Zhongrong International Trust missed payments on dozens of its investment products. JPMorgan Chase cut China’s 2023 GDP forecast to 4.8% from an estimate of 6.4% in May. Barclays cut China’s 2023 GDP forecast to 4.5% from a previous estimate of 4.9%.
S&P 500 (F)(US500) 4,404.33 −33.53 (−0.76%)
Dow Jones (US30) 34,765.74 −180.65 (−0.52%)
DAX (DE40) 15,789.45 +22.17 (+0.14%)
FTSE 100 (UK100) 7,356.88 −32.76 (−0.44%)
USD Index 103.48 +0.27 (+0.26%)
Important events for today:
– New Zealand Producer Price Index (q/q) at 01:45 (GMT+3);
– Japan Trade Balance (m/m) at 02:50 (GMT+3);
– Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
– Norwegian Norges Interest Rate Decision at 11:00 (GMT+3);
– Eurozone Trade Balance (m/m) at 12:00 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
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.
Is the tide finally turning for Turkey? Three months after the re-election of Recep Tayyip Erdoğan for his third term as president, which many feared would lead to economic chaos, ratings agency Moody’s has indicated that Turkey’s credit rating is on course for an upgrade.
Since the election, Erdoğan has installed a new economic team with a commitment to reintroduce conventional monetary policies after years of a more singular approach. This has yielded some early positive results, with June recording the first current account surplus in 18 months – meaning more money came into the country than went out (mostly due to tourism and lower energy imports).
Meanwhile, Turkey’s stock market has been attracting surging interest from foreign investors, and the cost of insuring against the risk of the government defaulting on its debts has sharply declined. So what’s going on?
The mess
When Erdoğan won the May election, contrary to the opinion polls, it extended his tenure as prime minister and then president to almost 20 years. This five-year term is likely to be his last, due to his deteriorating health and constitutional constraints. Thanks to the economic debacle that he created himself, it is also likely to be his most challenging.
There are two pillars to Erdoğanomics: the “unorthodox” view that high interest rates cause inflation rather than the other way around, and a fixation on keeping rates as low as possible. It became much easier for him to implement after becoming executive president in 2018, which gave him much more power.
Central bank governors who have disagreed with Erdoğan’s agenda have been shown the door, most notably Naci Ağbal, who was sacked in March in 2021 after only four months in office. It was the next governor, Şahap Kavcıoğlu, a former MP in the ruling party and columnist in a pro-Erdoğan newspaper, who put Erdoğanomics into overdrive. Turkey experimented with aggressively cutting rates at a time when inflation was already close to 20% and most central banks were tightening.
Official inflation skyrocketed to over 80% and the lira plummeted, forcing the central bank to sell substantial foreign exchange reserves to try and shore up the currency. The current account deficit widened to a record level in January and the earthquake in February further worsened the situation.
Turkish inflation and the falling lira
Author provided
This all happened despite the fact that the authorities struggled to impose their interest rate cuts on the wider economy. Whereas normally high-street interest rates move in line with the central bank rate, Turkish banks responded to the central-bank rate cut by increasing rates on consumer and business loans and savings accounts, signalling they didn’t think the central bank’s policy was sustainable. Loan rates for businesses only later came down after the state-owned banks received a capital boost in the run-up to the election.
The interest rate divergence
Author provided
A new approach?
The president has now taken a different path. He has appointed former investment banker Mehmet Şimşek as finance minister. Şimşek is respected by the markets due to a previous successful stint managing Turkey’s economy between 2007 and 2018. He has vowed to return to rational economic policies, announcing: “We will prioritise macro financial stability.”
Another reversal signal has been the appointment of Hafize Gaye Erkan as the first female governor of Turkey’s central bank. She too comes from investment banking, having formerly been managing director at Goldman Sachs and co-CEO of First Republic Bank in the US. She has no central banking experience, but markets nonetheless welcomed her appointment. She has an outstanding resume compared to her predecessor, Kavcıoğlu.
Erkan hiked rates on June 22 from 8.5% to 15%, the highest in nearly two years. The accompanying press release expressed a clear view that this is the way to reduce inflation.
The lira has nevertheless kept losing value, while annual inflation rose from 38% to 48% in July. But along with the other improvements I mentioned at the beginning, there has also been a slight improvement in foreign exchange reserves, indicating that the central bank is under less pressure to defend the currency.
In July, the markets were further reassured by the appointments of high-profile economists as new deputy governors for the central bank. This further decreased Turkey’s credit risk. On July 20, the bank hiked interest rates again, to 17.5%.
What next
Raising interest rates may have side effects. Turkey has one of the world’s highest percentages of “zombie firms” that have only been able to stay afloat because of low borrowing costs, so there could well be bankruptcies. Also, we know from the recent US banking failures that rate hikes inflict significant stress on banks by reducing the value of their bond portfolios.
Turkey’s banks are obviously not new to life under Erdoğan. They have some fine management teams and effective risk-management practices that are used to weathering the country’s economic storms. All the same, they look vulnerable because they hold low-yielding government bonds that could be impaired by aggressive rate hikes – particularly since they are denominated in lira, which creates exposure to further currency collapses. The government could alleviate this concern by swapping these bonds in exchange for new high-yielding ones.
The bigger question is whether we’re really seeing the end of Erdoğanomics or just a lull. We can’t rule out a repeat of 2021, when Ağbal was installed as central bank governor despite his orthodox economic views, then removed shortly after. Erdoğan has already put Şahap Kavcıoğlu, his biddable governor from 2021-23, in charge of Turkey’s banking watchdog, which doesn’t suggest a total break from the past and has confused markets.
The danger is that Erdoğan won’t allow interest rate hikes in the run-up to the local elections in March 2024. On the other hand, voters in cities such as Istanbul and Ankara have been severely affected by inflation. They overwhelmingly voted against Erdoğan in the presidential election, having already handed metropolitan control to the opposition in 2019.
To regain these cities, Erdoğan must tame inflation and alleviate the cost of living crisis. He may also be motivated by a desire to hand a better economy to his preferred successor (likely to be either his son or son-in-law), who might not enjoy his levels of popularity.
Whatever happens, much damage has already been done. The nation’s current GDP per capita is US$10,616 (£8,335), well below its peak of US$12,508 in 2013 (albeit it has grown for the past couple of years). Turkey has lost significant numbers of skilled workers to other countries.
Halting this brain drain, or even reversing it, will be crucial for future economic growth. This seems unlikely under Erdoğan’s leadership. Avoiding a financial crisis is only the first step forward.
I’m a macroeconomistwho’s interested in understanding how these space-related innovations and the growing role of private industry have affected the economy. Recently, the U.S. government started tracking the space economy’s size. These data can tell us the size of the space-related industry, whether its outputs come mainly from government or private enterprise, and how they have been growing relative to the economy at large.
The broad definition comprises four parts: things used in space, like rocket ships; items supporting space travel, like launch pads; things getting direct input from space, like cell phone GPS chips; and space education, like planetariums and college astrophysics departments.
In 2021, the broad definition showed that total space-related sales, or what the government calls gross output, was over US$210 billion, before adjusting for inflation. That number represents about 0.5% of the whole U.S. economy’s total gross output.
The Bureau of Economic Analysis also has a narrow definition that excludes satellite television, satellite radio and space education. The difference in definitions is important because back in 2012 these three categories represented one-quarter of all space spending. However, by 2021, they only represented one-eighth of spending because many people had switched from watching satellite TV to streaming movies and shows over the internet.
Using the broad definition and adjusting for inflation, the relative size of the space economy fell by about one-fifth from 2012 to 2021. This is because sales of space-related items – everything from rockets to satellite TV – have barely changed since 2015.
Using the narrow definition also shows the space economy is getting relatively smaller. From 2012 to 2021, the space sector’s inflation-adjusted gross output grew on average 3% a year, compared with 5% for the overall economy. This suggests space is not growing as fast as other economic sectors.
Space jobs
The number of jobs created by the space economy has also declined. In 2021, 360,000 people worked full- or part-time space-related jobs in the private sector, down from 372,000 about a decade earlier, according to the Bureau of Economic Analysis.
The Bureau of Economic Analysis could not track all space-related government jobs since spy agencies and parts of the military don’t provide much information. Nevertheless, it has tracked some since 2018. The military’s Space Force, which is the smallest branch, adds about 9,000 workers. NASA has about 18,000 employees, which is half of its 1960s peak.
Combining these government workers plus all private workers results in just under 400,000 people. To give some perspective, Amazon’s U.S. workforce is over twice as big and Walmart’s is four times bigger than reported U.S. space-related employment.
On July 14, 2023, India launched a rocket as part of its Chandrayaan-3 mission to put a lander and rover on the south pole of the Moon.
Growing competition in space
The U.S. has long dominated the space economy, especially in terms of government spending.
The U.S. government spent a little more than $40 billion in 2017, compared with about $3.5 billion spent by Japan and less than $2 billion by Russia.
Moreover, most of the top private space companies are based in the U.S., led by Boeing, SpaceX and Raytheon, which gives the U.S. a leg up in continuing to play a leading role with the rockets, satellites and other stuff needed to operate in space.
The U.S. has a strong foothold in space. But whether it can maintain its lead – as the space race moves into a new frontier of space mining and missions to Mars – remains to be seen.
At yesterday’s stock market close, the Dow Jones Index (US30) decreased by 1.02%, while the S&P 500 Index (US500) lost 1.16%. The NASDAQ Technology Index (US100) closed negative 1.14% on Tuesday.
Stronger-than-expected consumer spending increased the likelihood that the Federal Reserve may resume raising rates this year. Retail sales rose by 0.7% last month (the most significant increase since the beginning of the year), above expectations of 0.4%. According to the CME FedWatch Tool, bets on a Fed rate hike in November rose to 34% from 26%. But economists predict retail sales will weaken for the rest of the year as falling credit availability will weigh on economic activity and the labor market.
Fitch Ratings said yesterday that the agency might be forced to downgrade a number of US banks, including JPMorgan (JPM), if the banking sector deteriorates further. Another downgrade of the US banking industry to A+ from AA+ would force the agency to revise its ratings on each of the more than seventy US banks.
Equity markets in Europe traded lower yesterday. Germany’s DAX (DE40) was down 0.86%, France’s CAC 40 (FR40) fell by 1.10% on Tuesday, Spain’s IBEX 35 (ES35) lost 0.93%, and the UK’s FTSE 100 (UK100) closed negative 1.57%.
According to the ZEW report, German investor sentiment unexpectedly improved in August but is still in negative territory. The ZEW economic sentiment index rose to negative 12.3 points from 14.7 points in July. The slight increase in the reading indicates that investors expect Germany to improve by the end of the year.
Wage growth in the UK was slightly higher than expected, and this should only solidify the September interest rate hike by the Bank of England. But overall, the labor market showed signs of cooling as jobless claims rose sharply and the unemployment rate climbed from 4.0% to 4.2%. As for today’s CPI figures, there is some potential for a positive surprise on services inflation, but ultimately September’s 0.25% rate hike is considered a decided choice. Crude oil prices fell nearly 2% on Tuesday as deteriorating economic data from China, the largest oil importer, partially offset market enthusiasm for Saudi Arabia’s production cuts.
Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) rose by 0.56% yesterday, China’s FTSE China A50 (CHA50) gained 0.19%, Hong Kong’s Hang Seng (HK50) fell by 1.03% on the day, and Australia’s S&P/ASX 200 (AU200) was positive 0.38% on Tuesday. On Wednesday, most Asian stocks began to decline amid fresh signs of deteriorating economic conditions in China, coupled with renewed concerns over the hawkish policies of the US Federal Reserve, which undermined appetite for risky assets. The Goldman Sachs report showed that hedge funds have begun aggressively selling Chinese stocks amid heightened concerns about the country’s real estate sector and weak economic data. Goldman Sachs estimates that hedge funds sold 70% of what they bought in the first five days after China’s July 24 Party meeting in hopes of stimulating the economy.
The Central Bank of New Zealand (RBNZ) expectedly kept rates unchanged at 5.5% and said interest rates should remain high or rise further due to the country’s challenging inflation outlook. The Central Bank acknowledged that some aspects of the New Zealand economy are currently slowing due to higher rates. The RBNZ expects consumer inflation to remain stable in the coming months as the country still struggles with the effects of this year’s two devastating cyclones. Weakness in the Chinese economy, which is New Zealand’s leading trading partner, is also putting negative pressure on the economy, especially as export prices fall.
Japan spent over 9 trillion yen ($62 billion) intervening in foreign exchange markets last year to stem the yen’s fall, buying the yen in September and October – first at around 145 and then at 32-year lows just below 152. Currently, the yen has already surpassed the 145 yen per dollar mark.
S&P 500 (F)(US500) 4,437.86 −51.86 (−1.16%)
Dow Jones (US30) 34,946.39 −361.24 (−1.02%)
DAX (DE40) 15,767.28 −136.97 (−0.86%)
FTSE 100 (UK100) 7,389.64 −117.51 (−1.57%)
USD Index 103.22 +0.03 (+0.03%)
Important events for today:
– New Zealand RBNZ Interest Rate Decision (m/m) at 05:00 (GMT+3);
– New Zealand RBNZ Monetary Policy Statement (m/m) at 05:00 (GMT+3);
– New Zealand RBNZ Press Conference at 06:00 (GMT+3);
– UK Consumer Price Index (m/m) at 09:00 (GMT+3);
– UK Producer Price Index (m/m) at 09:00 (GMT+3);
– Eurozone GDP (q/q) at 12:00 (GMT+3);
– Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
– US Building Permits (m/m) at 15:30 (GMT+3);
– US Industrial Production (m/m) at 16:15 (GMT+3).
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.
Inflation in most major economies is likely to fall faster than many expect, and interest rates will drop accordingly within the next 12 months, predicts the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The prediction from Nigel Green of deVere Group comes as there are growing signs around the world that inflation has peaked.
He says: “We expect that major economies, including the US, UK and EU will see inflation fall faster than had previously been expected over the next 12 months.
“There are three key reasons for this.
“First, there’s unlikely to be a wage price spiral as real wages are typically going down despite the increases. Employers now seem to be holding back from increasing salaries on demand, which will help stifle wage inflation.
“Second, the time lag for monetary policies is incredibly lengthy. It takes around 18 months for the full effect of rate hikes to make their way into the economy – and that’s where we are – and so financial conditions will get squeezed even harder in the near term.
“And third, although many economies are now likely to avoid a full-blown recession, economic growth is still expected to be weak for the foreseeable future.”
Against this backdrop of inflation falling faster than expected, Nigel Green says that he expects “central banks, including the Federal Reserve, the Bank of England and the ECB, to start cutting interest rates within the next 12 months.”
This is why, he notes, that in the last earnings season, investors were pouring over the guidance more than usual.
“Guidance is critical as indicators show the economy is headed for a downturn and investors will be eager to know which companies are best-positioned to manage this. Guidance helps evaluate a company’s past performance in light of its future prospects.
“When costs are going up, investors should increasingly be looking at a company’s and a sector’s ability to maintain margin.
“Investors should be paying close attention to margin because it can indicate how well a company is managing costs and competing in its industry.
“It can also impact a corporation’s ability to invest in growth opportunities or pay dividends to shareholders.”
The deVere CEO concludes: “Investors should consider now the prospect of inflation falling faster than many have anticipated, to seize the opportunities and mitigate risks.”
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.
At yesterday’s stock market close, the Dow Jones Index (US30) increased by 0.07%, while the S&P 500 Index (US500) added 0.58%. The NASDAQ Technology Index (US100) closed positive 1.05% on Monday. US indices closed higher on Monday as bank weakness was offset by renewed demand for technology amid a surge in Nvidia (NVDA) shares and ahead of a slew of economic data releases.
On Tuesday, the US will release retail sales data for July, which is expected to show a pickup in demand early in the third quarter after a smaller-than-expected increase in June. Other data likely indicates that the manufacturing sector is still struggling, with the Empire State manufacturing index expected to fall into negative territory, while the Federal Reserve Bank of Philadelphia’s manufacturing index is also expected to remain negative.
The Federal Reserve Bank of New York’s Microeconomic Data Center released its July 2023 Survey of Consumer Expectations yesterday, which showed that inflation expectations have declined in the short, medium, and long term. Expectations for year-ahead price increases for food, health care, and rent fell to the lowest level in early 2021. Labour market expectations have strengthened, and households’ perceptions of their current financial situation and expectations for the future have improved. These are signs that the Fed will succeed in giving the economy a “soft” landing.
Equity markets in Europe traded yesterday without single dynamics. German DAX (DE40) rose by 0.46%, French CAC 40 (FR40) increased by 0.12% on Monday, Spanish IBEX 35 (ES35) fell by 0.05%, and British FTSE 100 (UK100) closed negative by 0.23%.
Economists believe the European Central Bank (ECB) will pause its rate hike campaign in September, but a further increase by the end of the year is still expected. The ECB rate has been raised nine times in a row since July 2022. But ECB President Christine Lagarde has begun to pave the way for the pause. Faced with a slowdown in activity, especially in the bloc’s number one economy, Germany, Lagarde also said the incoming data would be critical to future decisions.
Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.27% yesterday, China’s FTSE China A50 (CHA50) lost 1.40%, Hong Kong’s Hang Seng (HK50) fell by 1.58% for the day, and Australia’s S&P/ASX 200 (AU200) was negative 0.86% on Monday. On Tuesday, Asian markets were once again pressured by another set of weak economic data from China. Data on Tuesday showed that China’s industrial production and retail sales growth slowed in July, adding to fears of a fragile post-pandemic recovery in the world’s second-largest economy. Less than an hour before the data was released, China unexpectedly cut key interest rates for the second time in three months, which analysts said opened the door for a potential cut in China’s benchmark lending rate (LPR) next week.
Japan’s second-quarter GDP beat forecasts due to higher exports. Japan’s 6.0% annualized growth rate led to a quarterly gain of 1.5%, well above the average estimate of 0.8%. The key GDP data provides some relief to policymakers seeking to balance economic growth with inflation.
In Australia, wage growth was unchanged in the June quarter, while the pace of annual wage increases slowed unexpectedly. This, and the release of dovish minutes from the central bank’s July meeting, has strengthened bets that the Reserve Bank of Australia (RBA) will keep rates unchanged at the next meeting.
Analysts believe the Central Bank of New Zealand (RBNZ) will leave interest rates unchanged at 5.5% for the second consecutive meeting on Wednesday, indicating the need for policy to remain restrictive for some time. After raising rates for 12 consecutive meetings, the RBNZ left rates unchanged in July, saying the weaker economy was beginning to ease price pressures. Since then, indicators have pointed to a further loss of economic momentum. Most economists believe the OCR has peaked in this cycle and that the next step will be a rate cut, possibly in the first half of next year. However, ANZ Bank New Zealand and Westpac Banking Corporation expect another quarter percentage point increase will be needed before the end of 2023.
S&P 500 (F)(US500) 4,489.72 +25.67 (+0.58%)
Dow Jones (US30) 35,307.63 +26.23 (+0.074%)
DAX (DE40) 15,904.25 +72.08 (+0.46%)
FTSE 100 (UK100) 7,507.15 −17.01 (−0.23%)
USD Index 103.17 +0.33 (+0.32%)
Important events for today:
– Japan GDP (q/q) at 02:50 (GMT+3);
– Australia RBA Meeting Minutes at 04:30 (GMT+3);
– Australia Wage Price Index (q/q) at 04:30 (GMT+3);
– China Industrial Production (m/m) at 05:00 (GMT+3);
– China Unemployment Rate (m/m) at 05:00 (GMT+3);
– China Retail Sales (m/m) at 05:00 (GMT+3);
– Japan Industrial Production (m/m) at 07:30 (GMT+3);
– UK Average Earnings Index (m/m) at 09:00 (GMT+3);
– UK Claimant Count Change (m/m) at 09:00 (GMT+3);
– UK Unemployment Rate (m/m) at 09:00 (GMT+3);
– Switzerland Producer Price Index (m/m) at 09:30 (GMT+3);
– German ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
– Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
– US Retail Sales (m/m) at 15:30 (GMT+3);
– US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
– Canada Consumer Price Index (m/m) at 15:30 (GMT+3);
– US FOMC member Kashkari Speaks at 18:00 (GMT+3).
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.
Article by ForexTime
