Archive for Economics & Fundamentals – Page 98

17 Aug

US stock indices under pressure from hawkish FOMC minutes. Eurozone countries are slipping into recession.

By JustMarkets

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);
  • – 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
17 Aug

Turkey: are we witnessing the end of Erdoğanomics?

By Cem Soner, Bangor University 

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

Graph showing inflation and TRYUSD
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

Graph showing the difference between base and commercial rates in Turkey
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.The Conversation

About the Author:

Cem Soner, Doctoral Researcher in Finance, Bangor University

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

Economics & Fundamentals Opinions
16 Aug

New data reveal US space economy’s output is shrinking – an economist explains in 3 charts

By Jay L. Zagorsky, Boston University 

The space industry has changed dramatically since the Apollo program put men on the moon in the late 1960s.

Today, over 50 years later, private companies are sending tourists to the edge of space and building lunar landers. NASA is bringing together 27 countries to peacefully explore the Moon and beyond, and it is using the James Webb Space Telescope to peer back in time. Private companies are playing a much larger role in space than they ever have before, though NASA and other government interests continue to drive scientific advances.

I’m a macroeconomist who’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.

Companies like SpaceX, Blue Origin and Virgin Galactic made up over 80% of the U.S. space economy in 2021. The government held a 19% share of space spending, up from 16% in 2012 – mostly thanks to an increase in military spending.

Ways to measure the space economy

There are many ways to measure economic success in space.

One way is the economic impact. The U.S. Bureau of Economic Analysis, which tracks the nation’s gross domestic product and other indicators, recently began to monitor the space economy and published figures from 2012 to 2021. The Bureau of Economic Analysis calculated the impact of space using both broad and narrow definitions.

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.

Space’s share of the economy

A closer look at the data shows that space’s share of the U.S. economy is shrinking.

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. also published more than twice the amount of space research in 2017 as its next nearest rival – China.

But China is catching up and has narrowed the gap in recent years as top Chinese officials decided success in space is a national priority. Their goal is reportedly to surpass the U.S. as the dominant space power by 2045. China recently put a large space station called the Tiangong into orbit and aims to put people on the Moon.

China’s not the only one joining the 21st century space race. India is expanding its space economy rapidly, with 140 space-tech startups. India launched a rocket on July 14, 2023, designed to put a lander and rover on the Moon. And the European Space Agency’s Euclid spacecraft plans to map parts of the universe to study dark matter. The ESA released the craft’s first test images at the end of July 2023.

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.The Conversation

About the Author:

Jay L. Zagorsky, Clinical Associate Professor of Markets, Public Policy and Law, Boston University

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

 

Economics & Fundamentals Opinions
16 Aug

The RBNZ kept the interest rate at 5.5%. Hedge funds sell Chinese stocks

By JustMarkets

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).
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – US FOMC Meeting Minutes (m/m) at 21:00 (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
16 Aug

Is inflation to fall faster than expected?

By George Prior 

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.

Economics & Fundamentals Opinions
15 Aug

The RBA and RBNZ are likely to maintain interest rates at their next meetings. China’s economic data disappoints again

By JustMarkets

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).

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
15 Aug

China surprises with rate cut, US retail sales in focus

By ForexTime

China’s central bank hijacked the headlines on Tuesday morning after unexpectedly reducing a key rate by the most since 2020 to shore up its weak economy. However, Asian markets displayed a mixed reaction with sentiment whacked by a barrage of disappointing China data published after the rate decision.

European futures are pointing to a positive open ahead of the German August ZEW survey. In the currency space, the yuan slipped to its weakest level since November while the British Pound received a boost after reports showed wages grew at a record pace in the second quarter of 2023.

Looking at commodities, gold is wobbling above the $1900 support level while oil prices remain vulnerable as China growth fears hit the demand outlook.

USD and retail sales in focus

As we move deeper into the second half of 2023, dollar weakness could become a major theme if the Fed signals that it has truly concluded its rate hiking cycle.

Despite US inflation edging up in July after 12 straight months of decline, the core figures were encouraging and signal that the Fed’s aggressive hikes are starting to tame the inflation beast. Should price pressures continue to ease and US economic data show signs of weakness, this may eliminate the odds of another hike, especially when factoring in the Fed’s current data dependence stance.

All eyes will be on the US retail sales figures later today which could add another piece to the puzzle that determines whether the Fed hikes one more time in 2023 or not. On Wednesday, the Fed minutes might also offer key clues on the central bank’s next policy move. Traders are currently pricing in only an 11% probability of a 25-basis point hike at September’s FOMC meeting, with this rising to 40% by November, according to Fed funds futures. The dollar is likely to weaken if the data is softer or the minutes strike a dovish tone. Any hint from the hawks or signals of more hikes down the road could boost the dollar.

Talking technical, the US Dollar Index is lingering below the 200-day Simple Moving Average on the daily charts. If bulls are unable to conquer this resistance, prices may slip back below 103.00. Should the current upside momentum hold, the next key level of interest can be found at 104.00.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
14 Aug

Energy anxiety has returned to Europe. Drag metals are under pressure again because of the rising government bond yields

By JustMarkets

At Friday’s close, the Dow Jones (US30) index increased by 0.30% (+0.44% for the week), while the S&P 500 (US500) index was down 0.11% (-0.61% for the week). The NASDAQ Technology Index (US100) closed Friday negative 0.36% (-2.99% for the week).

Friday’s Producer Price Index (PPI) data released on Friday came in slightly higher at 0.3% in July, up from the previously revised reading of 0%. This was likely another reason why the dollar held on to its high ground at the end of the week, as the PPI index is usually a precursor to a rising CPI index as price pressures trickle down from manufacturing to the final consumer. Friday also saw the release of the University of Michigan’s consumer sentiment data. The report showed a slight improvement in one-year inflation expectations, which fell to 3.3% from the previous reading of 3.4%. Current conditions improved, but the expectations index fell to 67.3 from 68.3.

Bankruptcy filings are on the rise in the US, and the index has already reached the peak area of 2008. What does this mean? There is the following procedure in the United States: first, a company files a petition to the court, and only then the court decides on the company’s bankruptcy. So this is a leading indicator of the bankruptcy rate. In the previous severe recession of 2008, it was the same thing – bankruptcies started rising before the recession, and during the recession, the bankruptcy rate rose even more.

This week, the July Federal Open Market Committee (FOMC) meeting protocols will be released. Analysts expect the FOMC minutes to show a hawkish sentiment as policymakers all continue to say in one voice that there is more work to be done. The Fed’s next major event will be the Jackson Hole Symposium on August 24-26, and analysts expect to hear more hints and guidance from Fed Chairman Jerome Powell on potential near-term interest rate developments.

Equity markets in Europe were mostly down on Friday. Germany’s DAX (DE40) decreased by 1.03% (-0.29% for the week), France’s CAC 40 (FR40) was down 1.26% (+0.68% for the week) on Friday, Spain’s IBEX 35 (ES35) lost 0.77% (+0.89% for the week), and the UK’s FTSE 100 (UK100) closed negative 1.24% (-0.53% for the week).

Energy worries are returning to Europe. Europe’s dependence on imports of liquefied natural gas has intensified since Russia invaded Ukraine last year. The withdrawal of energy supplies from Russia is fueling inflation and risks, adding to future price pressures as the region remains highly vulnerable to any disruption in global energy markets. Spot natural gas prices jumped nearly 30% in one single day after investors became alarmed by threats of a strike in Australia. ING Groep NV, Rabobank, and Saxo Bank A/S recommend preparing for a rise in hawkish sentiment from the European Central Bank as energy prices rise again and officials will seek to keep long-term inflation expectations from rising further.

Precious metals came under pressure from higher real yields amid a growing view that interest rates will remain high for a long time given stubbornly high inflation. As long as the risk of further tightening by the US Federal Reserve remains, gold and silver will be pressured by rising government bond yields. Investors should wait for the US Fed to complete the current tightening cycle. And that will happen either in September or November this year.

Thanks to forecasts of record global oil demand this month and supply cuts, oil prices rose for the seventh straight week. This is the longest winning streak for oil bulls since June 2022. The IEA estimates that global oil demand hit a record 103 million bpd in June and could reach another peak this month. Analysts say growth shows no signs of depletion. But technical traders expect a pause in growth and a temporary correction in oil prices.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) gained 1.42% for the week, China’s FTSE China A50 (CHA50) fell by 2.49%, Hong Kong’s Hang Seng (HK50) ended the week down 2.05%, and Australia’s S&P/ASX 200 (AU200) ended the week positive on 0.20%. Most Asian stock markets opened lower on Monday, with Chinese indices leading the way due to lingering concerns over slowing economic growth. Also, another default in China’s real estate market portends new headwinds for the country’s key economic engines. Government officials have not provided details on how additional economic support will be provided.

S&P 500 (F)(US500) 4,464.05 −4.78 (−0.11%)

Dow Jones (US30) 35,281.40 +105.25 (+0.30%)

DAX (DE40)  15,832.17 −164.35 (−1.03%)

FTSE 100 (UK100) 7,524.16 −94.44 (−1.24%)

USD Index  102.85 +0.33 (+0.32%)

There are no important events for today.

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
11 Aug

The latest US inflation data added more uncertainty. Investors are awaiting UK GDP data

By JustMarkets

At yesterday’s stock market close, the Dow Jones Index (US30) increased by 0.15%, while the S&P 500 Index (US500) added 0.03%. The NASDAQ Technology Index (US100) closed positive by 0.12% on Thursday.

US inflation data came out better than expected. The overall annualized inflation rate rose from 3% to 3.2% (forecast 3.3%), while core inflation (excluding food and energy prices) fell from 4.8% to 4.7% (forecast 4.8%). Year-on-year inflation rose for the first time since July 2022, and oil prices, which have risen 27% in a month and a half, will do nothing to further reduce inflation. There is a lot of uncertainty on the economic front right now, but what is clear is that the Fed plans to keep rates high. Before the September meeting of the Fed, the market will see another publication of macro statistics on the labor market and inflation, so investors are in no hurry to make bets and open new positions. Therefore, the end of August is likely to pass on lower volatility.

Fed San Francisco President Mary Daly expressed a cautious tone, saying that while the latest inflation data is moving in the right direction, more progress is needed before it is clear that the central bank has done enough.

Wynn Resorts Limited (WYNN) reported quarterly results that beat Wall Street estimates for both top-line and net income, helped by the continued strength of its Macau business. Alibaba Group Holdings (BABA) shares rose more than 4% after reporting quarterly earnings that notably beat analysts’ estimates.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 0.91%, France’s CAC 40 (FR40) gained 1.52% on Thursday, Spain’s IBEX 35 (ES35) jumped by 1.52%, and the UK’s FTSE 100 (UK100) closed up by 0.41%.

UK GDP data will be released today. The economy is expected to grow by 0.2% for the quarter, while on an annualized basis, the economy is expected to remain at 0.5%. This data could have an impact on the outlook for the Pound and the UK100 Index. UK inflation data is expected next week, which should give a clearer picture of the Bank of England’s (BoE) stance on monetary policy. The latest market estimates put the probability of a 25 basis point rate hike on September 21 at nearly 70%, with the final rate expected to be 5.75% next March.

The US Treasury yields initially fell on the release of CPI below the fixed line and then recovered as a deeper analysis of the inflation report noted rising services inflation. Gold has an inverse correlation to government bond yields, so it was sold off at the end of the trading session yesterday.

Oil prices declined on Thursday, with Brent crude holding close to January highs. Speculation of another US interest rate hike subsided after inflation data and OPEC maintained positive oil demand forecasts.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.84%, China’s FTSE China A50 (CHA50) fell by 0.13%, Hong Kong’s Hang Seng (HK50) gained 0.01% on the day, and Australia’s S&P/ASX 200 (AU200) was positive by 0.26% on Thursday.

Fears of a collapse in China’s real estate market are renewed amid reports that the country’s largest real estate developers are having trouble meeting their debt obligations. Shares in China’s major real estate companies faced a fresh wave of selling on Friday after Country Garden Holdings, one of the country’s largest real estate companies, warned of huge losses in the first half of 2023.

S&P 500 (F)(US500) 4,468.83 +1.12 (+0.03%)

Dow Jones (US30) 35,176.15 +52.79  (+0.15%)

DAX (DE40)  15,996.52 +143.94 (+0.91%)

FTSE 100 (UK100) 7,618.60 +31.30 (+0.41%)

USD Index  102.64 +0.15 (+0.15%)

Important events for today:
  • – UK GDP (m/m) at 09:00 (GMT+3);
  • – UK Industrial Production (m/m) at 09:00 (GMT+3);
  • – UK Manufacturing Production (m/m) at 09:00 (GMT+3);
  • – US Producer Price Index (m/m) at 15:30 (GMT+3);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

By JustMarkets

 

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

Economics & Fundamentals Financial News
10 Aug

US CPI: The two takeaways for investors

By George Prior

The US Consumer Price Index (CPI) is out today but it is the core inflation data, not the headline, that investors will be pouring over, affirms the CEO and founder of one of the world’s largest independent financial advisory organizations.

The comments from deVere Group’s Nigel Green come as the latest CPI shows a monthly increase of 0.2% for July and a 12-month rate of just 3.3%. A year ago, the annual rate was a staggering 8.5%, which was short of the highest level in more than 40 years.

Core CPI, a measure which strips out the volatile food and energy sectors, is at 4.7%.

The deVere CEO says: “Overall, the CPI data is pretty good news, with inflationary pressures substantially easing from their 2022 levels.

“But there are two main takeaways from today’s inflation report for investors.

“First, core inflation remains sticky – and this is critical to investors.

“High core inflation increases costs for businesses, including wages and raw material costs. If businesses struggle to pass these increased costs onto consumers through higher prices, their profit margins become squeezed. This then leads to reduced earnings expectations and consequently impact stock prices.”

He continues: “Second, even though the battle to tame inflation is being won, it’s not over yet.

“The Fed will want to be completely sure that inflation is fully under control and heading back to target before it even thinks about cutting interest rates – and we’re not there currently.”

On today’s CPI data, Nigel Green now predicts a pause in the Federal Reserve’s interest rate hike agenda following the next meeting of the central bank’s FOMC.

“The officials won’t and can’t say we’re completely done, but they also cannot ignore that the data clearly shows that things are going in the right direction. Therefore, we now expect there to be a pause in September.”

However, the deVere CEO goes on to add that he believes this is the time for the Fed to stop, not pause, rate hikes.

“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.

“We’re now starting to see the drag effects on the US economy with households and businesses becoming considerably more prudent. In addition, investors are becoming more and more concerned that additional hikes could steer the US economy into a major recession.”

He concludes: “Despite marginally good news from the data, it is core inflation that remains the major concern for investors.”

About:

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

Economics & Fundamentals Opinions
← Previous Page
Next Page →