Archive for Economics & Fundamentals – Page 97

05 Jul

Investors now have responsibility to consider ESG as global temps hit record high

By George Prior 

As global temperatures hit a record high, every investor now has a responsibility to consider environmental, social and governance (ESG) investments, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The comments from Nigel Green of deVere Group come as it is revealed that Monday was the world’s hottest day on record, exceeding an average of 17 degrees Celsius (62.6 degrees Fahrenheit) for the first time, according to official measurements taken on Tuesday by US meteorologists.

“This is not a milestone we should be celebrating, it’s a death sentence for people and ecosystems,” said Friederike Otto, a senior lecturer at the Grantham Institute for Climate Change and the Environment.

The deVere CEO says: “The new record high shines a spotlight on the extreme temperatures engulfing the northern hemisphere this summer, and underscores the lack of global progress on tackling climate change – which is the biggest critical issue of our time.

“Monday, 3 July 2023, the hottest day ever recorded globally, must act as a wake-up call that more must urgently be done to battle the worst effect of human-driven environmental issues.

“As such, I believe that every investor now has a responsibility to consider ESG investments.”

But the enormously positive environmental and social impact you can have with ESG investments is not the only reason why you should consider them as part of your portfolio.

“Numerous studies have demonstrated that companies with strong ESG practices tend to outperform their peers over the long term.

“By incorporating ESG investments, investors have the opportunity to participate in the growth of companies that are well-positioned to navigate risks, capitalise on emerging opportunities, and drive sustainable innovation,” notes Nigel Green.

ESG factors provide valuable insights into a company’s resilience and risk management practices.

He continues: “By considering environmental risks, such as climate change and resource scarcity, social risks related to labor practices and community engagement, and governance risks such as board diversity and transparency, you can better assess the long-term viability of investments and reduce exposure to potential risks.”

The deVere CEO goes on to add: “The global regulatory landscape is evolving. Investors who proactively integrate ESG investments into their portfolios can navigate regulatory changes more effectively and position themselves for future market shifts.

“Plus, as ESG considerations become mainstream, investments in companies with strong ESG profiles are likely to attract more attention from institutional and individual investors.

“All of the reasons and all the evidence suggest that ESG-focused investors can achieve both profitability and positive impact.”

deVere Group practices what it preaches. In 2021, it became one of 18 founding signatories of the UN-backed Net Zero initiative, the international alliance of finance powerhouses that will help accelerate the transition to a net-zero financial system.

As a global organisation, it recognises the transformative potential of ESG investments and is committed to helping investors integrate these strategies into their portfolios.

With a team of experienced professionals and a comprehensive suite of ESG-focused investment solutions, deVere provides clients with tailored advice and cutting-edge research to optimise their financial goals while aligning their investments with their values.

“The hottest day ever recorded globally tells investors now is the time to consider putting your money to work for both profits and positive change. If not now, when?” 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 more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Economics & Fundamentals Opinions
05 Jul

China’s economic recovery is slowing. OPEC+ countries to agree on new oil production quotas today

By JustMarkets

The US stock indices did not trade yesterday due to a bank holiday.

According to the OECD, inflation in advanced economies has slowed to its lowest since December 2021. Inflation has slowed in almost all countries except the Netherlands, Norway and the United Kingdom. In the G7 countries, inflation is now at 4.6%, the lowest level since September 2021. The figures show that core inflation remains steady, even though monetary officials make some progress in controlling consumer prices. Policymakers in advanced economies are still in a tightening mode, with both the US Federal Reserve and the European Central Bank signaling another increase in borrowing costs this month.

The June FOMC minutes will be released today. Investors will be looking for clues as to how far the US Fed can go in terms of raising rates. More than 85% of traders believe the US Fed will raise interest rates this month, and only 37% think the rate will be raised again in September.

Stock markets in Europe were mostly down on Tuesday. German DAX (DE30) was 0.26% lower, French CAC 40 (FR40) decreased by 0.23%, Spanish IBEX 35 (ES35) lost 0.63%, and British FTSE 100 (UK100) was 0.10% lower yesterday.

The Bank of England is considering plans to force more international banks to create subsidiaries in the UK. Analysts believe the move would make it easier for the Bank of England to seize control of subsidiaries such as SVB in London in the event of a collapse.

After the latest inflation figures, British Prime Minister Rishi Sunak announced his full support for the Bank of England but criticized Governor Andrew Bailey. In his January speech, the prime minister said that the promise to halve inflation was his personal responsibility, but if the UK Consumer Price Index remains stubbornly high for the rest of the year, many expect that the Bank of England may see a change in leadership.

Ahead of the OPEC+ meeting, key export giant Saudi Arabia announced Monday that production cuts of one million barrels a day would be extended for another month. Meanwhile, Russia said it would cut exports by 500,000 BPD in August. Normally news of production cuts by two such important players would provide additional support to oil prices. Nevertheless, the demand side still looks weak for the global oil market. This week’s key economic data from manufacturing sectors around the world was disappointing from China, Europe and the United States. As central banks are raising interest rates almost across the board to combat high inflation, lower economic activity is now effectively the goal of monetary policy.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) was down by 0.97%, China’s FTSE China A50 (CHA50) gained 0.33%, Hong Kong’s Hang Seng (HK50) added 0.57% on the day, and Australia’s S&P/ASX 200 (AU200) closed positive by 0.45% on Tuesday.

China’s abrupt announcement on Monday that it will impose export controls on certain types of gallium and germanium, effective August 1, escalated a trade war with the US and could potentially lead to new disruptions in global supply chains. Analysts viewed the move, which the Chinese Commerce Ministry said was aimed at protecting national security, as a response to Washington’s escalating efforts to curb China’s technological advances. China is the world’s largest producer of rare earth elements, a group of metals used in electric vehicles and military technology.

A private survey showed Wednesday that China’s services sector grew less than expected in June, raising fears of a slowdown in the country’s economic recovery. The figure follows a weak reading on manufacturing activity and points to a slowdown in growth in the second quarter. Nevertheless, analysts believe China’s weak data could attract additional stimulus measures from Beijing after liquidity injections and interest rate cuts earlier this year.

S&P 500 (F) (US500) 4,455.59 0 (0%)

Dow Jones (US30)34,418.47 0 (0%)

DAX (DE40) 16,039.17 −41.87 (−0.26%)

FTSE 100 (UK100) 7,519.72 −7.54 (−0.10%)

USD Index 103.09 0 (0%)

Important events for today:
  • – Japan Services PMI (m/m) at 03:30 (GMT+3);
  • – Australia Retail Sales (m/m) at 04:30 (GMT+3);
  • – German Services PMI (m/m) at 10:55 (GMT+3);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
  • – UK Services PMI (m/m) at 11:30 (GMT+3);
  • – OPEC Meetings at 13:00 (GMT+3);
  • – US FOMC Meeting Minutes at 21:00 (GMT+3);
  • – US FOMC Member Williams Speaks at 23:00 (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
05 Jul

South Korea has the lowest fertility rate in the world – and that doesn’t bode well for its economy

By Dudley L. Poston Jr., Texas A&M University 

Around the world, nations are looking at the prospect of shrinking, aging populations – but none more so than South Korea.

Over the last 60 years, South Korea has undergone the most rapid fertility decline in recorded human history. In 1960, the nation’s total fertility rate – the number of children, on average, that a woman has during her reproductive years – stood at just under six children per woman. In 2022, that figure was 0.78. South Korea is the only country in the world to register a fertility rate of less than one child per woman, although others – Ukraine, China and Spain – are close.

As a demographer who over the past four decades has conducted extensive research on Asian populations, I know that this prolonged and steep decline will have huge impacts on South Korea. It may slow down economic growth, contributing to a shift that will see the country end up less rich and with a smaller population.

Older, poorer, more dependent

Countries need a total fertility rate of 2.1 children per woman to replace their population, when the effects of immigration and emigration aren’t considered. And South Korea’s fertility rate has been consistently below that number since 1984, when it dropped to 1.93, from 2.17 the year before.

What makes the South Korean fertility rate decline more astonishing is the relatively short period in which it has occurred.

Back in 1800, the U.S. total fertility rate was well over 6.0. But it took the U.S. around 170 years to consistently drop below the replacement level. Moreover, in the little over 60 years in which South Korea’s fertility rate fell from 6.0 to 0.8, the U.S. saw a more gradual decline from 3.0 to 1.7.

Fertility decline can have a positive effect in certain circumstances, via something demographers refer to as “the demographic dividend.” This dividend refers to accelerated increases in a country’s economy that follow a decline in birth rates and subsequent changes in its age composition that result in more working-age people and fewer dependent young children and elderly people.

And that is what happened in South Korea – a decline in fertility helped convert South Korea from a very poor country to a very rich one.

Behind the economic miracle

South Korea’s fertility decline began in the early 1960s when the government adopted an economic planning program and a population and family planning program.

By that time, South Korea was languishing, having seen its economy and society destroyed by the Korean War of 1950 to 1953. Indeed by the late-1950s, South Korea was one of the poorest countries in the world. In 1961, its annual per capita income was only about US$82.

But dramatic increases in economic growth began in 1962, when the South Korean government introduced a five-year economic development plan.

Crucially, the government also introduced a population planning program in a bid to bring down the nation’s fertility rate. This included a goal of getting 45% of married couples to use contraception – until then, very few Koreans used contraception.

This further contributed to the fertility reduction, as many couples realized that having fewer children would often lead to improvements in family living standards.

Both the economic and family planning programs were instrumental in moving South Korea from one with a high fertility rate to one with a low fertility rate.

As a result, the country’s dependent population – the young and the elderly – grew smaller in relation to its working-age population.

The demographic change kick-started economic growth that continued well into the mid-1990s. Increases in productivity, combined with an increasing labor force and a gradual reduction of unemployment, produced average annual growth rates in gross domestic product of between 6% and 10% for many years.

South Korea today is one of the richest countries
in the world with a per capita income of $35,000.

Losing people every year

Much of this transformation of South Korea from a poor country to a rich country has been due to the demographic dividend realized during the country’s fertility decline. But the demographic dividend only works in the short term. Long-term fertility declines are often disastrous for a nation’s economy.

With an extremely low fertility rate of 0.78, South Korea is losing population each year and experiencing more deaths than births. The once-vibrant nation is on the way to becoming a country with lots of elderly people and fewer workers.

The Korean Statistical Office reported recently that the country lost population in the past three years: It was down by 32,611 people in 2020, 57,118 in 2021 and 123,800 in 2022.

If this trend continues, and if the country doesn’t welcome millions of immigrants, South Korea’s present population of 51 million will drop to under 38 million in the next four or five decades.

And a growing proportion of the society will be over the age of 65.

South Korea’s population aged 65 and over comprised under 7% of the population in 2000. Today, nearly 17% of South Koreans are older people.

The older people population is projected to be 20% of the country by 2025 and could reach an unprecedented and astoundingly high 46% in 2067. South Korea’s working-age population will then be smaller in size than its population of people over the age of 65.

In a bid to avert a demographic nightmare, the South Korean government is providing financial incentives for couples to have children and is boosting the monthly allowance already in place for parents. President Yoon Suk Yeol has also established a new government team to establish policies to increase the birth rate.

But to date, programs to increase the low fertility rate have had little effect. Since 2006, the South Korean government has already spent over $200 billion in programs to increase the birth rate, with virtually no impact.

Opening the trapdoor

The South Korean fertility rate has not increased in the past 16 years. Rather, it has continued to decrease. This is due to what demographers refer to as the “low-fertility trap.” The principle, set forth by demographers in the early 2000s, states that once a country’s fertility rate drops below 1.5 or 1.4, it is difficult – if not impossible – to increase it significantly.

South Korea, along with many other countries – including France, Australia and Russia – have developed policies to encourage fertility rate increases, but with little to no success.

The only real way for South Korea to turn this around would be to rely heavily on immigration.

Migrants are typically young and productive and usually have more children than the native-born population. But South Korea has a very restrictive immigration policy with no path for immigrants to become citizens or permanent residents unless they marry South Koreans.

Indeed, the foreign-born population in 2022 was just over 1.6 million, which is around 3.1% of the population. In contrast, the U.S. has always relied on immigration to bolster its working population, with foreign-born residents now comprising over 14% of the population.

For immigration to offset South Korea’s declining fertility rate, the number of foreign workers would likely need to rise almost tenfold.

Without that, South Korea’s demographic destiny will have the nation continuing to lose population every year and becoming one of the oldest – if not the oldest – country in the world.The Conversation

About the Author:

Dudley L. Poston Jr., Professor of Sociology, Texas A&M University

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

 

Economics & Fundamentals Opinions
03 Jul
Naira Crypto

Africa needs its own credit rating agency: here’s how it could work

By Misheck Mutize, University of Cape Town 

The credit rating industry in Africa is dominated by the three international agencies: Moody’s, S&P and Fitch. Together they control an estimated 95% of the credit rating business globally.

Credit rating agencies are institutions that assess a borrower’s creditworthiness in general terms, or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money – an individual, a corporation, a state or provincial authority, or a sovereign government. Investors use a credit rating to make decisions about risk and return. So the rating is required if an institution wants to raise funds on financial markets.

South Africa was the first African country to receive a sovereign rating, in 1994. To date, 32 African countries have received a sovereign rating from at least one of the “big three” agencies.

But policy makers are increasingly dissatisfied with their approach and methodology. Some of the criticisms are that agencies are quick to downgrade African countries but slow when upgrades are due; that they fail to accurately account for risk perception; that they don’t consult adequately with stakeholders; and that they lack independence and objectivity.

A recent study by the UN showed that subjective biases in credit ratings had cost African countries a combined US$74.5 billion. This was through funding opportunities lost and excess interest paid on public debt.

Conditions are therefore ripe to advance the idea of establishing an African credit rating agency as a partial solution. China has its own state-owned rating agency, Dagong Global Credit Rating Company. The Arab countries are also calling for their own rating agency.

As a lead expert with the African Union on ratings agencies, I can explain the framework this agency would operate in and why it makes business sense.

African Union official decisions

In March 2019, African Union (AU) ministers of finance and economy officially adopted a declaration that such an institution was needed. The AU also developed a proposal for the legal, financial and structural aspects of the rating agency. What’s not yet agreed is how the sustainability, credibility and independence of the agency will be achieved. But there is a way this could be achieved as I set out below.

The need for an African Rating agency has been reiterated by the current Chair of the AU, President Macky Sall of Senegal, and the Champion of the AU financial institutions, President Nana Akufo-Addo of Ghana. They highlighted it as an important step towards intra-continental integration. It would also enable AU member states to access capital and integrate the continent with global financial markets.

Institutional model

When the AU establishes a new institution, it can be either:

  • an organ of the union funded by its member states’ contributions, or
  • a self-funded autonomous specialised agency of the union.

Because the credit rating business requires credibility and independence, the best option is the specialised agency. Examples already in operation are the African Export-Import Bank and Africa Risk Capacity agency.

As an independent specialised agency of the AU, the agency would have diverse classes of shareholders. African governments could own it either directly or through their designated public institutions. Shareholding could include other smaller African-owned rating agencies, multilateral finance institutions and African national financial institutions.

As a financing structure, the agency would adopt the “issuer-pay” business model. The issuers of debt will pay the agency for rating its entity and products.

It would be fully funded by its shareholders and through loans from pan-African financial institutions. Multilateral development banks would either encourage or make it mandatory for their clients to have a rating from the African rating agency. Once this is done it should be able to sustain itself through revenue generated from its services.

As is the process in the AU, the African rating agency would be established through an agreement, signed by at least 10 member states.

The business case

There are still 22 African countries that have no credit ratings from the “big three” agencies. This will be a clear niche for the AU rating agency.

There is also tremendous value in the alternative rating sector, which cannot afford the cost of maintaining a rating from the “big three”. This includes small to medium enterprises, initial bond offerings and initial public offerings. The agency could also provide environmental, social and governance scores and foreign direct investment ratings. These rating services are urgently needed on the continent to complement governments’ efforts to support the development of domestic financial markets.

With the backing that comes from affiliation to the AU, the rating agency could secure substantial business in the ratings of domestic instruments that are aligned with the continent’s goals.

It would have the advantage of understanding the domestic context of Africa. So it could issue more informative and detailed ratings than those issued by the “big three”.

Way forward

The African Union is forging ahead with its plans to establish an African rating agency to complement the three dominant international agencies, and support the development of domestic financial markets in Africa. Although it will have to overcome challenges to gain investors’ support, there is a huge appetite for an alternative and complementary credit rating institution in Africa. Its success will be in developing a comprehensive methodology adapted to the African context, and resident analysts that understand the continent’s dynamics.The Conversation

About the Author:

Misheck Mutize, Post Doctoral Researcher, Graduate School of Business (GSB), University of Cape Town

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

 

Economics & Fundamentals Opinions
03 Jul

Lower US inflation boosts hopes for less hawkish Federal Reserve policy

By JustMarkets

On Friday, the PCE inflation rate, which is closely monitored by the US Central Bank, showed that price pressures are easing, fueling hopes that the Fed is nearing the end of its rate hike cycle. Investor optimism improved, leading to active buying of stocks. At the close of the stock market, the Dow Jones Index (US30) gained 0.84% (+2.01% for the week), and S&P 500 (US500) jumped by 1.23% (+2.43% for the week). On Friday, the NASDAQ Technology Index (US100) closed positive by 1.45% (+2.37% for the week).

The PCE price index, the Federal Reserve’s preferred measure of inflation, slowed slightly more than expected. But the figure is still growing, albeit at a slower rate. On an annualized basis, the index fell to 4.6%, the lowest level of core PCE inflation since October 2021. A more detailed report shows that services inflation appears to have peaked.

According to the final June data released Friday, the University of Michigan Consumer Sentiment Index rose to 64.4 (the previous 63.9). The rise reflects a recovery in sentiment caused by the resolution of the debt ceiling crisis early last month, as well as more positive sentiment about easing inflation.

The US Treasury Secretary Janet Yellen said Friday that the US economy is on track to maintain a strong labor market while lowering inflation. Yellen also added that solid household and corporate balance sheets would be a source of US economic strength, along with a continued surge in factory construction.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE30) gained 1.26% (+1.72% for the week), France’s CAC 40 (FR40) gained 1.19% (+3.12% for the week) on Friday, Spain’s IBEX 35 Index (ES35) gained 0.99% (+3.47% for the week), Britain’s FTSE 100 (UK100) closed up by 0.80% (+0.93% for the week).

The inflation rate in the Eurozone declined from 6.1% to 5.5% y/y (5.6% expected). Core inflation (which excludes food and energy prices) rose to 5.4% (5.5% expected) from 5.3% y/y. Inflation in the Eurozone is becoming more resilient, making it harder to decide when to stop raising interest rates, European Central Bank Governing Council spokesman Gabriel Makhlouf said Friday. According to analysts, until services inflation begins to decline in Europe, it is too early to talk about ending the tightening cycle.

In Switzerland, the KOF economic barometer was 90.8 points, down 0.6 points from May. This is the third consecutive drop in the barometer. Thus, the outlook for the Swiss economy in the second half of the year remained below average (100).

Gold prices failed to maintain the upward momentum of the first three months of the year in the second quarter and fell more than 3% by the close of June. The yellow metal came under pressure from rising yields and a reassessment of monetary policy expectations in both the US and Europe in response to tight inflation. But banking analysts are confident in gold and believe the second half of the year will be upward for gold as central banks begin winding down their tightening programs.

Asian markets mostly rallied last week. Japan’s Nikkei 225 (JP225) gained 1.66% over the week, China’s FTSE China A50 (CHA50) gained 0.33%, Hong Kong’s Hang Seng (HK50) ended the week down by 0.09%, and Australia’s S&P/ASX 200 (AU200) ended the week up by 1.47%. Most Asian stocks rose on Monday as lower US inflation boosted hopes for less hawkish Federal Reserve policy, and data showing improved sentiment toward the Japanese economy sent the Nikkei Index back to a 33-year-high.

A Bank of Japan survey showed the country’s business sentiment improved in the second quarter, indicating that the economy is recovering as more firms pledged to increase capital spending.

Home prices in Australia rose for the fourth straight month. Australian households are among the most indebted in the world, and housing affordability recently hit a record low. The report indicates that higher interest rates and lower sentiment negatively affect the number of active home buyers.

S&P 500 (F) (US500) 4,450.38 +53.94 (+1.23%)

Dow Jones (US30)34,407.60 +285.18 (+0.84%)

DAX (DE40) 16,147.90 +201.18 (+1.26%)

FTSE 100 (UK100) 7,531.53 +59.84 (+0.80%)

USD Index 102.92 -0.42 (-0.41%)

Important events for today:
  • – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+3);
  • – German Manufacturing PMI (m/m) at 10:55 (GMT+3);
  • – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
  • – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3).

By JustMarkets

 

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

Economics & Fundamentals Financial News
03 Jul

Markets to welcome Yellen’s trip to Beijing to calm US-China tensions

By George Prior

The US Treasury Secretary’s trip to China this week will be a hit with investors around the world, affirms the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The comments from Nigel Green of deVere Group come as Janet Yellen heads to Beijing between July 3 and 6 as part of continuing efforts by the Biden administration to strengthen communication between the US and China after a series of spates and instability between the two nations.

He says: “Yellen’s trip to Beijing this week is important to global markets for two main reasons.

“First, she is the top US economic policymaker, meaning that the US government appears serious about rebuilding economic ties between the world’s two largest economies.

“Also, Yellen’s visit to meet counterparts in China comes just three weeks after Secretary of State Antony Blinken visited the country, highlighting the attempts by the Biden administration to revive a more cordial relationship with the emerging superpower.”

The deVere CEO continues: “Second – and perhaps more importantly – it shows a commitment to globalisation.

“Investors are looking for global leaders to dismiss the prevailing protectionist narrative of the last few years as many countries have looked increasingly inwards, becoming more and more nationalistic.

“Globalization opens-up a wider array of investment opportunities beyond domestic markets. Investors can access a diverse range of industries, sectors, and geographies, allowing them to build well-diversified portfolios.

“History teaches us that by investing globally, investors can gain exposure to companies at the forefront of technological advancements, disruptive business models, and emerging trends. This exposure to innovation can drive portfolio growth and potentially generate above-average returns.”

Yellen’s forthcoming trip also comes a week after China’s premier Li Qiang condemned recent Western efforts to limit trade and business ties with the country, and encouraged international economic co-operation.

In the keynote address at a World Economic Forum event in which he criticised “the politicization of economic issues”, Li said: “Governments should not over-reach themselves, still less stretch the concept of risk or turn it into an ideological tool.”

This denouncing of economic “politicization” and defence of globalization in his speech at the so-called ‘Summer Davos’ address, was, says Nigel Green, “music to the ears of investors around the world.”

Yellen is expected to meet with senior Chinese officials as well as leading US firms with operations in China.

The Treasury says she will discuss “areas of concern” to cool tensions between the two largest economies in the world, ways to work competition between the two powers, as well as subjects where they can cooperate on international issues, such as climate change.

“Financial markets around the world will be cheered by the efforts being made by the superpower economies to foster policies of globalization,” 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 more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

 

Economics & Fundamentals Opinions
30 Jun

China’s business activity continues to decline. Inflationary pressures are rising in Europe

By JustMarkets

The US indices mostly rose yesterday. The Federal Reserve stress test showed that the 23 largest US banks could withstand a severe recession scenario. At yesterday’s stock market close, the Dow Jones Index (US30) increased by 0.80%, and the S&P 500 (US500) added 0.45%. The NASDAQ Technology Index (US100) closed yesterday at opening level.

Wells Fargo & Company (WFC), JPMorgan Chase & Co (JPM), and Goldman Sachs Group Inc (GS) led the rally in the banking sector amid growing optimism after passing the stress tests. But analysts don’t share that optimism, as there are big doubts that the nation’s regional banks will be able to withstand the recession.

Atlanta Fed President Rafael Bostic continued to signal yesterday that the Fed should take a pause, saying it would be wise to keep rates at current levels in future meetings, as inflation is likely to slow without additional tightening.

Nike (NKE) posted mixed results for the fourth quarter as earnings came in below Wall Street estimates, but revenue exceeded forecasts on the back of the ongoing recovery in China. Sales in North America rose by 5% year-over-year in the fourth quarter, while sales in China, an important market for the sportswear giant, jumped by 16%.

The US Gross Domestic Product (GDP) for the second quarter was 2%, exceeding economists’ forecasts of 1.4%. Because of the Fed’s hawkish stance and strong economic data, the inversion of the US yield curve is deepening. This is a sign that investors are increasingly worried about slowing economic growth. An inverted yield curve occurs when short-term Treasury bond yields exceed long-term yields, reflecting bets that the Central Bank will have to cut rates in the future to support an economy hit by higher borrowing costs.

Equity markets in Europe traded flat yesterday. German DAX (DE30) closed at the opening level, French CAC 40 (FR40) gained 0.36%, Spanish IBEX 35 (ES35) added 0.36%, and British FTSE 100 (UK100) was negative by 0.38%.

Inflationary pressure is growing again in Germany. The consumer price level in the country rose from 6.1% to 6.4% in annual terms. Eurozone’s inflation data will be released today. General inflation is expected to fall from 6.1% to 5.6% y/y, but core inflation is expected to rise from 5.3% to 5.5% y/y. This will be a hawkish signal for the ECB.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) gained 0.12% yesterday, China’s FTSE China A50 (CHA50) lost 0.94%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.80%, and Australia’s S&P/ASX 200 (AU200) ended Thursday negative by 0.02%.

Bank of Japan Deputy Governor Ryozo Himino said the country’s banking sector remains resilient and has enough reserves to withstand any stress caused by future interest rate hikes. The least favorable condition for domestic financial institutions would be for Japan to keep interest rates ultra-low for too long amid a weak economy, Himino said. Analysts believe the Bank of Japan has been slow to prepare for monetary policy normalization.

Tokyo’s core consumer price index rose to 3.2% from 3.1% (forecast 3.4%). This Index is seen as a leading indicator of inflation across the country. Despite the fact that the inflation value was below the forecast, consumer prices are showing steady growth, which is exactly what the Bank of Japan wants to see before it changes its monetary policy.

China’s manufacturing activity declined for the third month in a row in June, while weakness in other sectors intensified. The official manufacturing purchasing managers’ index (PMI) rose to 49.0 from 48.8 in May, remaining below the 50-point mark that separates growth from contraction. The non-manufacturing PMI fell to 53.2 from 54.50 in May, indicating slowing activity in the services and construction sectors. New orders and new export orders declined for the third straight month, with export orders declining at a faster pace. This situation adds to the pressure on the authorities to do more to support growth as demand falls both at home and abroad.

S&P 500 (F) (US500) 4,396.44 +19.58 (+0.45%)

Dow Jones (US30)34,122.42 +269.76 (+0.80%)

DAX (DE40) 15,949.00 −2.28 (−0.014%)

FTSE 100 (UK100) 7,471.69 −28.80 (−0.38%)

USD Index 103.35 +0.45 (+0.43%)

Important events for today:
  • – Japan Tokyo Core CPI (m/m) at 02:30 (GMT+3);
  • – Japan Unemployment Rate (m/m) at 02:30 (GMT+3);
  • – Japan Industrial Production (m/m) at 02:50 (GMT+3);
  • – China Manufacturing PMI (m/m) at 04:30 (GMT+3);
  • – China Non-Manufacturing PMI (m/m) at 04:30 (GMT+3);
  • – UK GDP (q/q) at 09:00 (GMT+3);
  • – German Retail Sales (m/m) at 09:00 (GMT+3);
  • – Switzerland Retail Sales (m/m) at 09:30 (GMT+3);
  • – German Unemployment Rate (m/m) at 10:55 (GMT+3);
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
  • – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
  • – US PCE Price index (m/m) at 15:30 (GMT+3);
  • – Canada GDP (q/q) at 15:30 (GMT+3);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3);
  • – Canada BoC Business Outlook Survey at 17:30 (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
29 Jun

Investment headwinds and tailwinds for the second half of 2023: navigating uncertainty

By George Prior

Inflation, a slowing global economy, and high stock valuations present the three major challenges for investors in the second half of 2023. They must be prepared to navigate through ‘significant headwinds’ while capitalizing on the tailwinds that offer promising prospects.

This is the analysis of Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations, as we approach the year’s second half, when investors are typically analysing the market outlook, macro risks, and forecasts.

He says: “2023 has been a better year to date for economies than many had expected, but we expect three significant investment headwinds for the second half of the year that investors need to consider.

“First, the persisting challenge of inflation remains a top concern for investors in the second half of 2023. Core and headline inflation are edging down, slowly, but core still remains comparatively high in major developed economies.

“Therefore, central banks will argue they need to continue with, or resume, interest rate rises to bring inflation back to target.”

Stock markets typically experience declines or volatility when interest rates are raised.

Borrowing becomes more expensive for individuals and businesses, affecting corporate profitability as companies face higher costs of borrowing to finance their operations, expansion, or investment projects. Rates hikes typically lead to a decrease in corporate earnings, which negatively impacts stock prices.

The jumped-up borrowing costs also discourage consumers from taking on new loans, such as mortgages or car loans, which can impact sectors such as real estate and automotive industries. Reduced consumer spending will likely then have a ripple effect on businesses’ revenues and earnings.

In addition, investors may reallocate their portfolios to take advantage of the relatively safer returns offered by bonds, reducing demand for stocks and putting downward pressure on markets.

The deVere CEO continues: “Most developed markets will experience the lag effect of monetary policy tightening during the second-half 2023. 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 – which is what we expect to see in H2 of this year.

“As the impact of monetary policy agendas kick in, we expect economies around the world to slow.

“Investors should closely monitor key indicators and adjust their investment strategies accordingly.

“And third, the current market environment is characterised by elevated valuations across various asset classes.

“This poses a serious challenge for investors seeking attractive entry points. The risk of overpaying for investments is amplified, increasing the importance of thorough analysis and due diligence. Investors should exercise caution and focus on identifying quality investments with solid fundamentals and reasonable valuations.”

However, the second half of 2023 will also present several tailwinds that can guide investment decisions and unlock opportunities.

“Amidst the challenges, there are attractive opportunities in both value and growth sectors,” affirms Nigel Green.

“Value investors can identify undervalued companies with strong fundamentals and the potential for future growth. Meanwhile, growth investors can capitalise on sectors that continue to demonstrate robust performance, such as technology, healthcare, and renewable energy.

“In an uncertain market environment, quality stocks tend to provide stability and resilience. Companies with solid financials, strong management teams, and competitive advantages are more likely to weather market volatility.

“Investors should focus on identifying companies with sustainable business models and a track record of delivering consistent returns to shareholders.

“Diversification remains a time-tested strategy for mitigating risks and maximizing returns.

“By spreading investments across different asset classes, sectors, and geographies, investors can reduce their exposure to any single risk factor. Diversification helps to smooth out volatility and provides a cushion against potential downturns in specific areas of the market.”

He concludes: “The second half of 2023 presents a mixed bag of headwinds and tailwinds for investors.

“While challenges like inflation, an economic slowdown, and high valuations persist, there are also opportunities in both value and growth sectors.

“By focusing on quality stocks and implementing a diversified investment strategy, investors can position themselves to navigate through uncertainty and capitalize on the inevitable rewards that lie ahead.”

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 more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Economics & Fundamentals Financial News
29 Jun

All major central banks except the Bank of Japan remain on track to tighten monetary policy

By JustMarkets

The US indices traded yesterday without a single trend. By the close of trading yesterday, the Dow Jones Index (US30) decreased by 0.22%, while the S&P 500 Index (US500) was down by 0.04%. The Technology Index NASDAQ (US100) closed yesterday positive by 0.27%.

The US trade deficit narrowed by 6.1% to $91.1 billion from $97.1 billion in April. But even with the reduction in May, the trade deficit is up more than 10% since March. According to analysts, trade is likely to be a drag on US economic growth in the second quarter.

Tesla (TSLA) shares jumped more than 2% on optimism that lower prices supported demand and pushed sales to record levels in the April-June quarter. Analysts estimate Tesla could sell 155,000 vehicles in China in Q2, up 13% from the first quarter.

Stock markets in Europe mostly rose Wednesday. German DAX (DE30) gained 0.64%, French CAC 40 (FR40) added 0.98% yesterday, Spanish IBEX 35 (ES35) jumped by 0.99%, and British FTSE 100 (UK100) closed positive by 0.52%.

ECB President Christine Lagarde said yesterday that if the base case scenario holds, the European Central Bank will continue to raise rates in July. She added that core inflation is not declining as expected and did not comment on the September meeting. At the same time, Fed Chairman Powell indicated that monetary policy was not restrictive enough and said he did not rule out the possibility of raising rates at the next meetings. The Fed chief added that the strong labor market continues to fuel consumer spending, which accounts for about two-thirds of economic growth. The policymaker’s comments increased the likelihood of a Fed rate hike in July to about 82%, up from 74% the day before.

Governor Bailey told the European Central Bank Forum that last week’s decision to raise the bank rate from 4.5% to 5% was the best way the Bank of England could have responded to the latest economic data. Market indicators imply further bank rate hikes to 6.00% by the end of the year as service sector price-fixing boosted core inflation for the second month in a row. That said, markets are predicting no rate cuts this year and for most of 2024 through September.

Inflation in Italy was softer than expected and down significantly from the previous month, which bodes well for the broader EU inflation figure to be released Friday. Italy’s inflation rate fell to 6.4% from 7.6% y/y. Germany will release the inflation data today.

Asian markets were mostly bullish yesterday. Japan’s Nikkei 225 (JP225) gained 2.02%, China’s FTSE China A50 (CHA50) gained 0.36%, Hong Kong’s Hang Seng (HK50) added 0.12% on the day, while Australia’s S&P/ASX 200 (AU200) closed up by 1.10% on Wednesday.

Bank of Japan (BOJ) Governor Kazuo Ueda said Wednesday that the Central Bank would see a good reason to change monetary policy if it is “reasonably confident” that the country’s inflation rate will accelerate in 2024 after a period of slowdown. The Bank of Japan expects inflation to slow due to the waning effects of past import price hikes before rising again in 2024, Ueda said at the Central Bank forum. Asked whether Japan could intervene in the currency market to support the yen, Ueda said that the decision fell under the jurisdiction of the Finance Ministry.

S&P 500 (F) (US500) 4,376.86 −1.55 (−0.035%)

Dow Jones (US30)33,852.66 −74.08 (−0.22%)

DAX (DE40) 15,949.00 +102.14 (+0.64%)

FTSE 100 (UK100) 7,500.49 +39.03 (+0.52%)

USD Index 103.01 +0.52 (+0.50%)

Important events for today:
  • – Japan Retail Sales (m/m) at 02:50 (GMT+3);
  • – Australia Retail Sales (m/m) at 04:30 (GMT+3);
  • – US Fed Chair Powell Speaks (m/m) at 09:30 (GMT+3);
  • – German Consumer Price Index (m/m) at 15:00 (GMT+3);
  • – US GDP (q/q) at 15:30 (GMT+3);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
  • – US Pending Home Sales (m/m) at 17:00 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (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
29 Jun

2023 Predictions: Mid-year Scorecard

By ForexTime 

What an eventful first half it’s been.

Coming into 2023, no one would’ve expected a banking crisis on either side of the Atlantic (recall how SVB and Credit Suisse collapsed), nor being a whisker away from a civil war in Russia.

But traders and investors have taken things in stride, weathering bouts of volatility and uncertainty.

 

Back on January 4th, I wrote this article: “3 potential winners in 2023”.

Here’s a mid-year report card on those 3 assets:

 

1) Gold to hit $2000?

Yes. $2k target hit on March 20th.

Of course, spot gold needed the help of an unexpected banking crisis in the US and Europe to send investors scurrying towards the safe haven asset.

But after coming to within 0.57% or about $12 away from its record high ($2074.87 on 7th August 2020), gold has crumbled since May.

Why has gold fallen since May?

This is because markets have pushed back expectations for a Fed rate CUT.

  • Back in early May, markets had expected the Fed to LOWER its benchmark rates by September 2023.
  • However, US inflation has since proven stubborn and the Fed appears willing to trigger more rate hikes than previously expected.
  • Today (June 29th), markets expect a 70% chance that the Fed will CUT rates only in May 2024!

Hence, given that investors are not paid to hold on to gold (a zero-yielding asset), markets have since dumped the precious metal in favour of other asset classes.

As written back in January, the “What could go wrong” section on gold has indeed been playing out in recent months.

 

Though to be clear, despite recent declines …

Gold remains the second best-performing traditional asset class so far this year.

(excluding cryptos such as Bitcoin which has soared by more than 85% over the same period).
  • First place in 1H23 goes to global stocks (measured by MSCI ACWI Index) which climbed by 11.4%.
  • Second-placed bullion has a year-to-date gain of about 4.4% at the time of writing.

 

 

2) USDJPY back down to 125?

No, but it came close.

USDJPY initially appeared destined to claim the 125 target, reaching as low as 127.224 by mid-January.

Since then, USDJPY broke out of its downtrend to recently form a golden cross (when 50-day moving average crosses above 200-day moving average – a technical signal that often implies further gains ahead).

This major FX pair is now trading around its highest levels since November 2022.

What went wrong?

As stated in the USDJPY section of my January 4th article:

Still-dovish BoJ: the incoming BoJ Governor keeps Japan’s benchmark rate mired in negative territory on signs that inflation is not as sticky as hoped.

This scenario would be made worse if the Fed stays hawkish and keeps sending US interest rates much higher than the currently forecasted peak of around 5%.

The “wrong” scenario cited above has instead been the case so far this year.

The Bank of Japan (BoJ) apparently isn’t yet budging from its negative interest rates regime, while the Fed now projects US rates to peak around 5.6%.

Hence, Yen bulls (those hoping the Yen will strengthen) have given up for now.

However, note that markets are still predicting a greater-than-even chance (55%) of a BoJ rate hike by Dec 2023.

Should those odds firm up, that may yet restore hope for a Yen recovery and a lower USDJPY eventually.

 

 

3) FTSE China A50 Index back above 14,000?

Yes. 14k line was breached on January 14th.

To be honest, when I saw that the psychologically-important 14,000 mark had been surpassed a mere 10 days after my January 4th article, I initially chided myself, thinking I should have been more bullish in my predictions.

Instead, this turned out to be a rather PRUDENT forecast.

Since peaking at 14,420 in late January, which was a further 3% beyond the 14k mark, this stocks index (which tracks the 50 largest A-share Chinese companies) has embarked on a downtrend (a series of lower highs and lower lows).

In other words …

The 14k mark was just about as good as it got for the CHNA50_m index so far in 2023.

This is because China’s much-hyped recovery has fizzled out.

The economic momentum has clearly struggled post lockdowns, to the point that the People’s Bank of China (PBOC – China’s central bank) has pivoted to a supportive policy stance.

The PBOC’s support policy stance is in stark contrast to that at other major central banks (Fed, ECB, BOE, etc.) who are still busy hiking interest rates.

Until China’s economic recovery can find a more solid footing, Chinese assets ranging from its stock markets to the Yuan are set to find it difficult to stage a meaningful recovery.

Same goes for other assets that are reliant on the Chinese economy, including the likes of the Australian dollar (AUDUSD) as well as oil prices.

 

 

So there you have it.

Surely, it has been an eventful first half.

If the 2nd half of 2023 proves to be as eventful, that may herald more trading opportunities across global financial markets.

And we’ll be keeping you up-to-date via our Daily Market Analysis.

 

 

And in case you missed it …

Here are our top-5 most-read articles (out of the 128 articles, excluding this one) that have been published on the FXTM website so far this year:

  1. (MAY 1st) Trade of the Week: The return of $2k gold?
  2. (JUNE 5th) Trade Of The Week: Time For USDCAD To Breakout?
  3. (APRIL 3rd) Trade Of The Week: More Volatility For AUDNZD After OPEC+ Shocker?
  4. (JANUARY 3rd) 2023 Outlook: Is the worst behind us?
  5. (MARCH 3rd) Week Ahead: Watch these 3 major FX pairs

NOTE:

  • FXTM’s “Trade of the Week” articles are published on the website and emailed every Monday (except holidays)
  • FXTM’s “Week Ahead” articles are published on the website and emailed to clients every Friday (except holidays)

 

Forex-Time-LogoArticle by ForexTime

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

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