InvestMacro

By JustMarkets

As of Thursday’s stock market close, the Dow Jones Index (US30) was up by 0.54%, while the S&P 500 Index (US500) added 0.88% yesterday. The NASDAQ Technology Index (US100) closed positive by 1.35%, with the index setting a record high. Stocks found support on Thursday as political risks eased after the Senate passed a continuing resolution that will fund the government through March and avoid a shutdown on Saturday.

Economic news out of the US on Thursday was mixed. Weekly initial jobless claims unexpectedly fell by 16,000 to a 16-month low of 187,000, indicating a stronger labor market than expected at 205,000. In addition, December housing starts fell by 4.3% m/m to 1.460 million, stronger than expectations of 1.425 million. December building permits, an indicator of future construction, rose by 1.9% m/m to 1.495 million, stronger than expectations of 1.477 million. On the downside, the Philadelphia Fed’s January business outlook survey rose by 2.2 to negative 10.6, weaker than expectations of negative 6.5.

Atlanta Fed President Bostic said yesterday that he wants to see more evidence that inflation is moving toward the Fed’s 2% target and that he expects the first-rate cut in the third quarter of this year. Markets are pricing in a 3% chance of a 25 bps rate cut at the next FOMC meeting on January 30-31 and a 55% chance of such a 25 bps rate cut at the March 19-20 meeting.

Apple (AAPL) rose by more than 3% and topped the Dow Jones Industrials Index after Bank of America upgraded the stock to “buy” from “neutral” with a $225 price target. Advanced Micro Devices (AMD) shares are up more than 1% after Cowen raised its target price on the stock to $185 from $130. Marvel Technology (MRVL) shares are up more than 4% after Cowen raised its price target on the stock to $75 from $65. Boeing (BA) is up more than 4% after it received an order for 150 Max jets from Indian airline Akasa Air.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 1.35%, France’s CAC 40 (FR 40) gained 1.13% yesterday, Spain’s IBEX 35 (ES35) added 0.13% on Thursday, and the UK’s FTSE 100 (UK100) closed positive by 0.17%.

The report on the ECB’s December 13-14 meeting was somewhat hawkish as policymakers brushed off expectations of a rate cut and said they were concerned that market speculation over monetary easing could derail the disinflationary process. Swaps put the odds of an ECB rate cut at -25 bps at 3% at the next meeting on January 25 and 23% at the March 7 meeting.

On Thursday, the IEA again raised its forecast for global oil demand growth for 2024, although its forecast remains below OPEC expectations, and said the market looks well-supplied thanks to strong growth outside the producer group. The IEA expects global oil supply to grow by 1.5 mb/d to a new high of 103u5 mb/d in 2024, helped by record output from the US, Brazil, Guyana, and Canada. However, according to the report, there are concerns that the conflict between the US and China may regain attention as the US elections approach, which would negatively impact energy demand.

Attacks on ships by Houthi rebels continued on Thursday. Tanker traffic through the Bab-el-Mandab Strait is down 58% from 2023 at this time, according to consultancy Vortexa.

Asian markets were mixed yesterday. Japanese Nikkei 225 (JP225) was down by 0.03%, China’s FTSE China A50 (CHA50) was up by 1.59% on Thursday, Hong Kong’s Hang Seng (HK50) increased by 0.75% on the day, and Australia’s ASX 200 (AU200) was negative by 0.63% on Thursday.

Japan’s Core Machinery Orders for November fell by 4.9% m/m, weaker than expectations of 0.8% m/m and the biggest decline in 6 months. The nationwide core CPI fell from 2.5% to 2.3% y/y as expected. This situation pushes back the Bank of Japan’s plans for policy normalization. There is a high probability of no change until April as policymakers need to see stronger wage growth, which will only become evident after the spring wage negotiations.

Bank Negara Malaysia (BNM) is likely to leave the overnight policy rate (OPR) unchanged at 3.00% on Jan 24 and hold it at least until the end of 2024 as price pressures are expected to intensify and economic growth remains robust. This forecast was made even though inflation fell to 1.5% in November — the lowest level since March 2021 — and remains below the government’s 3%-4% forecast for 2023, partly due to BNM raising rates by 125 basis points between May 2022 and May 2023. With the Malaysian ringgit appreciating nearly 3% against the US dollar in 2024 and markets expecting the US Federal Reserve to cut rates aggressively this year, the need for BNM to ease policy in the near term will be limited.

S&P 500 (US500) 4,780.94 +41.73 (+0.88%)

Dow Jones (US30) 37,468.61 +201.94 (+0.54%)

DAX (DE40)  16,567.35 +135.66 (+0.83%)

FTSE 100 (UK100) 7,459.09 +12.80 (+0.17%)

USD Index  103.40 -0.05 (-0.05%)

• – Japan National Core Consumer Price Index at 01:30 (GMT+2);
• – UK Retail Sales (m/m) at 09:00 (GMT+2);
• – World Economic Forum Annual Meetings at 10:00 (GMT+2);
• – Eurozone ECB President Lagarde Speaks at 12:00 (GMT+2);
• – Canada Retail Sales (m/m) at 15:30 (GMT+2);
• – US Existing Home Sales (m/m) at 17:00 (GMT+2);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2);
• – US FOMC Member Daly Speaks at 23:15 (GMT+2).

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.

By John Quiggin, The University of Queensland 

Gathering for their annual World Economic Forum at Davos in Switzerland this week, the world’s business and political elite will be digesting some unpleasant reading courtesy of the aid agency Oxfam International.

Oxfam’s annual report on global inequality released this morning shows the wealth of the world’s five richest billionaires has more than doubled since the start of the decade, while 60% of humanity has grown poorer.

Among the findings of the report entitled Inequality Inc are that

• billionaires own US$3 trillion more than they did three years ago, meaning their wealth has grown at three times the rate of inflation
• even in Australia, the wealth of billionaires has climbed 70%
• five billion other people can’t afford what they could three years ago.

Progress in Africa, which seemed promising for much of this century, has stalled since COVID.

And large parts of the populations in wealthy countries, feeling left behind, have been lured by the appeal of rightwing populism – ironically, largely promoted by billionaires and their advocates.

Dreams of Davos past

This isn’t how things were supposed to turn out.

In its glory days in the 1990s, the Davos forum was the driving force promoting the idea of stakeholder capitalism in which corporations controlled by shareholders were supposed to advance the interests of everyone who had a stake in their activities: workers, consumers, communities and the environment.

The Forum still promotes the idea on its website.

Back then, as communism collapsed, everything seemed possible.

Pundits like Thomas Friedman spoke of a golden straitjacket in which universal prosperity could be achieved if only the world embraced liberal capitalism, overseen by an electronic herd of fund managers making investment decisions.

With appropriately-constrained policies, governments could ensure a rising economic tide lifted all boats.

In the UK and the US the so-called Third Way policies of Tony Blair and Bill Clinton were seen as delivering capitalism with a human face.

Three decades on, that vision is looking increasingly threadbare.

From the left, there is increasing pressure for radical alternatives; from the right, there is increasing pushback against the Forum’s brand of “woke capitalism”.

Financial managers remain as powerful as ever, but in the aftermath of the global financial crisis and multiple exposures of criminal wrongdoing by their firms, there is less and less faith in their beneficence and collective wisdom.

Billionaires are becoming the problem

Billionaires were not important enough to be seen as a major problem back in the early 1990s. In 1991, as communism collapsed, Forbes Magazine assessed the total wealth of the world’s five richest people at less than $US70 billion.

And the most prominent billionaires at the time were relatively appealing figures like Bill Gates and Warren Buffett.

But since then, while US prices have doubled, the wealth of the top five has climbed tenfold. And they have become less interested in the idea that others should benefit from the system that has benefited them.

A case in point is Jeff Bezos who is number three on the rich list with net wealth of US$114 billion and runs Amazon whose brutal working conditions and anti-union stance are detailed in the Oxfam report.

Another is Elon Musk, number two on the rich list with US$180 billion, who could once have been seen as merely eccentric, but his recent embrace of neo-Nazis goes further.

And, appropriately for what Oxfam calls the gilded age of division, another is the very richest man in the world, Bernard Arnault, whose family owns luxury goods brands including Louis Vuitton and Sephora.

Arnault embodies the resurgence of what Thomas Piketty has called patrimonial society.

He took over the management of his father’s business and intends to pass his business on to his sons.

All have benefited from what is sometimes called neoliberalism: the mix of ideas including privatisation, financial deregulation and tax cuts that was meant to deliver stakeholder capitalism.

What neoliberalism has given us instead is greater division – something the billionaires gathered at Davos ought to consider this week as they reminisce about forums past.

A reasonable set of fresh ideas would be that put forward by Oxfam: direct government intervention to reduce inequality including but not limited to reasserting the roles of governments as regulators and service providers abdicated on the advice of gatherings such as the one in Davos.

About the Author:

John Quiggin, Professor, School of Economics, The University of Queensland

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

By JustMarkets

As of Wednesday’s stock market close, the Dow Jones Index (US30) lost 0.25% and fell to a one-month low, while the S&P 500 Index (US500) was down by 0.56% yesterday. The NASDAQ Technology Index (US100) closed negative by 0.59%.

Economic news from the US on Wednesday was hawkish for Fed policy and bullish for the US dollar, which pressured the indices. Retail sales for December rose by 0.6% m/m, beating expectations of 0.4% m/m. Manufacturing production for December rose by 0.1% m/m, stronger than expectations of no change. The Fed’s Beige Book also supported the dollar as it stated that most Fed districts reported little or no change in economic activity, and overall, their firms’ expectations for future growth remain positive.

PayPal Holdings (PYPL) closed higher by more than 2%, leading the Nasdaq 100 higher after CEO Criss said the company would now focus on profitability and prioritize growth as he sought to “get the business right.” Boeing (BA) is up by more than 1% and led the Dow Jones Industrials stocks higher after the FAA completed its first 40 inspections of Boeing’s 737-9 Max airplanes and found no problems.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 0.84%, France’s CAC 40 (FR40) lost 1.07%, Spain’s IBEX 35 (ES35) declined by 1.26% on Wednesday, and the UK’s FTSE 100 (UK100) closed negative by 1.48%. Geopolitical tensions in the Middle East are rising (Red Sea attacks), and markets are beginning to cool expectations for interest rate cuts in 2024, robbing risky equity markets of some bullish support.

ECB President Lagarde said yesterday that policymakers need more evidence before they can be confident that consumer prices are under control. Lagarde also indicated that the ECB’s first-rate cut is likely to come in the summer, not in the spring as economists had expected. Knot, a spokesman for the ECB’s governing council, said yesterday that markets are getting ahead of themselves and the ECB needs to see a turnaround in wages before the Bank will consider an interest rate cut.

The UK Consumer Price Index unexpectedly rose to 4.0% y/y in December from 3.9% y/y in November, beating expectations of 3.8% y/y. The core CPI for December was unchanged from November at 5.1% y/y, exceeding expectations of 4.9% y/y. The core and core inflation measures delivered an upward surprise, but temporary price pressures are unlikely to have an impact on the Bank of England as a more detailed report showed that the high inflation reading for December did not indicate an overall rise in the prices of the components that make up the core index, indicating continued progress in bringing inflation down to 2%.

Yesterday, Shell announced the cessation of all shipping through the Red Sea in response to recent Houthi attacks on marine vessels. Houthi rebels continue to attack ships in the Red Sea off the coast of Yemen. Geopolitical tensions in the region will contribute to higher energy prices, as well as inflation in general, as carriers are forced to divert ships through Africa, increasing transportation and insurance costs, which will ultimately lead to higher commodity prices for the end consumer.

Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) was down by 0.40%, China’s FTSE China A50 (CHA50) lost 2.34% on Wednesday, Hong Kong’s Hang Seng (HK50) decreased by 3.71% on the day, and Australia’s ASX 200 (AU200) was negative by 0.29% on Wednesday.

Australia’s labor market contracted slightly in December. Total employment fell by 65,100, weaker than expectations of a 17,600 increase and largely reversing the 61,500 increase seen in the previous month. The participation rate (the percentage of the working-age population in the labor force or looking for work) fell to 66.8% from a record high of 67.2% in the previous month. Despite this, the unemployment rate remained unchanged at 3.9%, its lowest level in 50 years. The Reserve Bank of Australia (RBA) predicts a possible cooling in the labor sector but has no plans to cut rates anytime soon. The RBA is almost 100% likely to keep rates unchanged at its February meeting.

ANZ economists are leaning towards the Reserve Bank of New Zealand (RBNZ) starting to cut the official money rate in August. Consecutive 25 basis point rate cuts are expected starting in August, bringing the rate down to 3.5% (from 5.5%) within 12 months. ANZ’s current forecasts are for inflation to return to the target range of 1% to 3% by the September quarter and for unemployment to pass the 5% mark and continue to rise.

S&P 500 (US500) 4,739.21 −26.77 (−0.56%)

Dow Jones (US30) 37,266.67 −94.45 (−0.25%)

DAX (DE40) 16,431.69 −139.99 (−0.84%)

FTSE 100 (UK100) 7,446.29 −112.05 (−1.48%)

USD Index 103.38 +0.02 (+0.02%)

• – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
• – Japan Industrial Production (m/m) at 06:30 (GMT+2);
• – World Economic Forum Annual Meetings at 10:00 (GMT+2);
• – Switzerland SNB Chairman Jordan Speaks at 12:30 (GMT+2);
• – Eurozone ECB Monetary Policy Meeting Accounts at 14:30 (GMT+2);
• – US Building Permits (m/m) at 15:30 (GMT+2);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
• – US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+2);
• – Eurozone ECB President Lagarde Speaks at 17:15 (GMT+2);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+2);
• – US Crude Oil Reserves (w/w) at 18:00 (GMT+2);
• – US FOMC Member Bostic Speaks at 18:30 (GMT+2).

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.

By JustMarkets

As of Tuesday’s stock market close, the Dow Jones Index (US30) was down by 0.62% and fell to a one-month low, while the S&P 500 Index (US500) fell by 0.37% yesterday. The NASDAQ Technology Index (US100) closed negative by 0.19%.

Fed Chief Waller’s hawkish comments on Tuesday supported the dollar and pressured the indices after he said that when the Fed starts to cut interest rates, it should be methodical and cautious, and there is no reason to move as quickly and cut rates as precipitously as in the past.

Economic news from the US on Tuesday was negative for the indices as well after the January Empire Index of overall business conditions in the manufacturing sector unexpectedly fell by 29.2 to a 3-year low of negative 43.7, weaker than expectations of a rise to negative 5.0.

Boeing (BA) shares fell more than 6% yesterday, topping the list of losers in the S&P500 (US500) and NASDAQ (US100) after Wells Fargo Securities downgraded the stock to neutral from upgraded, citing an increased risk that growing scrutiny of the company’s manufacturing quality will affect production or delivery rates. Morgan Stanley (MS) shares fell more than 4% yesterday after the bank reported fourth-quarter sales and trading revenue of $2.20 billion, below consensus of $2.26 billion. Apple (AAPL) is down more than 1% after the company cut prices on the iPhone 15 and other products in China in an attempt to spur weak demand for new models. Shares of Nvidia (NVDA) are up more than 3% after KeyBanc Capital Markets raised its price target on the company’s stock from $650 to $740.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 0.30%, France’s CAC 40 (FR40) lost 0.18%, Spain’s IBEX 35 (ES35) decreased by 0.82% on Tuesday, and the UK’s FTSE 100 (UK100) closed negative 0.48%.

The economic growth expectations index from Germany’s ZEW survey for January unexpectedly rose by 2.4 to an 11-month high of 15.2, stronger than expectations for a decline to 11.7. ECB 1-year Eurozone inflation expectations fell to 3.2% from 4.0% in October, the lowest in 21 months. 3-year inflation expectations fell to a 22-month low of 2.2% from 2.5% in October, better than expectations of 2.4%. The decline in Eurozone inflation expectations is dovish for ECB policy. Swaps estimate the odds of a 25 bps ECB rate cut to 2% at the next meeting on January 25 and 25% at the March 7 meeting. Yesterday, there were also speeches from several ECB officials. ECB Governing Council representative Simkus said he was optimistic about an ECB rate cut this year but much less optimistic than the markets about a rate cut in March or April. His colleague Centeno noted that the inflationary trajectory in the Eurozone is good and that Eurozone GDP still looks rather stagnant in the first quarter. ECB Governing Council representative Villeroy de Gallo indicated that the question of the ECB cutting interest rates this year is premature as the ECB is likely to be more patient.

Brent crude rose slightly on Tuesday, while WTI fell as investors saw fundamentals weakening in the US, but ongoing naval and air conflicts in the Red Sea heightened fears that tankers would have to reroute to avoid the area, increasing costs and delivery times.

Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) retreated from highs and decreased by 0.79%, China’s FTSE China A50 (CHA50) was up by 0.62% on Tuesday, Hong Kong’s Hang Seng (HK50) lost 2.16% on the day, and Australia’s ASX 200 (AU200) was negative 1.09% on Tuesday.

China’s economy grew to 5.2% in the fourth quarter, surpassing Beijing’s target of 5% for 2023. But much of that growth was driven by a lower base compared to 2022. Other data showed that Asia’s largest economy is still struggling to regain growth (output rose from 6.6% to 6.8% y/y, retail sales fell sharply from 10.1% to 7.3% y/y, the unemployment rate rose from 5.0% to 5.1% y/y) after the lull of the COVID period amid continued pressure from weak consumer spending, sluggish private investment and the ongoing real estate crisis.

Soft Japan PPI data released earlier this week indicated that the BOJ is under little pressure to tighten policy, a view that is expected to be confirmed by CPI data due out this Friday.

S&P 500 (US500) 4,783.83 +3.59 (+0.08%)

Dow Jones (US30) 37,592.98 −118.04 (−0.31%)

DAX (DE40)  16,704.56 +157.53 (+0.95%)

FTSE 100 (UK100) 7,624.93 +48.34 (+0.64%)

USD Index  102.44 +0.15 (+0.15%)

• – World Economic Forum Annual Meetings at 10:00 (GMT+2);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+2);
• – Eurozone Trade Balance (m/m) at 12:00 (GMT+2);
• – Canada Business Outlook Survey at 17:30 (GMT+2).

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.

By JustMarkets

The US stock market did not trade yesterday due to the bank holiday.

Bank of Canada, business and consumer surveys showed that the economy has suffered from the Bank’s aggressive rate hike campaign, reinforcing the view that the tightening cycle is likely over and setting the stage for policymakers to start considering rate cuts as early as the first half of this year. Canada will release inflation data today. Economists forecast core inflation to remain at 2.8% in annualized terms, while overall inflation is forecast to jump from 3.1% to 3.4% y/y. However, the Bank of Canada prefers to focus more on median values. The median CPI is expected to fall from 3.4% to 3.3% y/y. Lower inflation will put pressure on the Canadian currency, but a lot will also depend on oil prices, as CAD is a commodity currency, and higher oil prices tend to strengthen the Canadian currency.

Equity markets in Europe were mostly down on Monday. Germany’s DAX (DE40) fell by 0.49%, France’s CAC 40 (FR40) lost 0.72% yesterday, Spain’s IBEX 35 (ES35) decreased by 0.18%, and the UK’s FTSE 100 (UK100) closed negative by 0.39%.

EU manufacturing output continued to fall in November on both a monthly and annualized basis. EU manufacturing output fell by 6.3% year-on-year in November 2022, the seventh consecutive year-on-year decline. As in the EU as a whole, November was the weakest month for German industrial production since September 2021. Germany’s annualized price-adjusted GDP in 2023 was 0.3% lower than the previous year as Germany’s overall economic development slowed in 2023.

With most central bank governors agreeing that interest rates have probably peaked, the world is entering a period where markets will be watching to see which of the major banks will be the first to cut rates. Interest rate expectations now suggest around 6-7 cuts for the dollar and euro, while expectations for sterling have risen significantly and now predict around 5-6 cuts in 2024.

The Middle East is critical to global oil supplies, with major producers, including Saudi Arabia, Iraq, and the UAE, relying on transportation routes, including the strategic Bab el-Mandeb Strait near Yemen. About 4.8 million barrels of crude oil and petroleum products pass through this narrow strait daily. That’s why Yemen’s attacks on shipping in the region have led to a response from the US and allies. Yesterday, the US Consulate in Erbil in northern Iraq was heavily damaged in an attack by ballistic missiles and drones fired by Iran. Thus, the degree of war in the region is starting to be prohibitive and could escalate into a serious armed conflict between Yemen and Iran vs. the US and its allies.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) continues to break records, up by 0.91%, China’s FTSE China A50 (CHA50) was down by 0.08% on Monday, Hong Kong’s Hang Seng (HK50) decreased by 0.17% on the day, and Australia’s ASX 200 (AU200) was negative by 0.03%.

The latest Chinese data suggests the economy is starting 2024 on shaky legs: persistent deflationary pressures and a modest rebound in exports are unlikely to turn around weak domestic activity quickly. December bank lending was also weak. China’s economic outlook in 2024 will be shaped by the outlook for the real estate sector. The government’s goal is to reduce the oversupply that has built up in the sector in recent years and bring supply in line with real demand. The People’s Bank of China (PBoC) has pledged to step up policy support for the economy this year and help prices recover. However, the PBoC faces a dilemma as more credit is directed toward productive forces than consumption, which could increase deflationary pressures and reduce the effectiveness of monetary policy tools.

A former Bank of Japan (BoJ) executive believes the BoJ is likely to be encouraged by better results from annual wage talks, which will pave the way for an end to negative interest rates this spring. That’s one of the main reasons most BoJ watchers predict the Central Bank will wait until April before raising rates for the first time since 2007. However, recent economic data showed persistent weakness in Japan’s producer price index inflation, indicating additional pressure on the BOJ to continue its ultra-soft stance.

The Australian and New Zealand dollars hit one-month lows on Tuesday, breaking through key support levels as risk appetite eased and domestic data reinforced signs that interest rates in Australia have peaked.

S&P 500 (US500) 4,783.83 0 (0%)

Dow Jones (US30) 37,592.98 0 (0%)

DAX (DE40)  16,622.22 −82.34 (−0.49%)

FTSE 100 (UK100) 7,594.91 −30.02 (−0.39%)

USD Index  102.59 +0.19 (+0.18%)

• – UK Average Earnings Index (m/m) at 09:00 (GMT+2);
• – UK Claimant Count Change (m/m) at 09:00 (GMT+2);
• – UK Unemployment Rate (m/m) at 09:00 (GMT+2);
• – German Consumer Price Index (m/m) at 09:00 (GMT+2);
• – World Economic Forum Annual Meetings at 10:00 (GMT+2);
• – German ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• – Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• – Canada Consumer Price Index (m/m) at 15:30 (GMT+2);
• – US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+2);
• – UK BoE Gov Bailey Speaks at 17:00 (GMT+2);
• – US FOMC Member Waller Speaks at 18:00 (GMT+2).

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.