By JustMarkets

At Wednesday’s stock market close, the Dow Jones Index (US30) decreased by 0.22%, while the S&P 500 Index (US500) lost 0.94%. The NASDAQ Technology Index (US100) closed yesterday negative by 1.46%. Stocks declined after the US Federal Reserve took another pause but signaled that interest rates will still be rising. Policymakers said another 25 bps rate hike is likely this year, and the FOMC dot plot showed that the target for the federal funds rate in 2024 and 2025 will be 50 bps higher than forecast in June. The Fed’s hawkish stance drove the 10-year T bond yield to a 16-year high and sent stocks and stock indexes tumbling.

Yesterday, the FOMC voted unanimously to keep the target range for the federal funds rate unchanged at 5.50%, with 12 of 19 policymakers expecting another 25 bps rate hike this year. At the press conference, Fed Chairman Jerome Powell said the following: “The FOMC is prepared to raise rates further if necessary, and we intend to keep policy at a restrictive level until we are confident that inflation is moving steadily downward toward our objectives.”

The FOMC’s median forecast for US economic growth in 2023 was raised to 2.1% from 1.0% in June. In addition, the unemployment rate forecast for 2023 was lowered to 3.8% from June’s forecast of 4.1%. The core PCE price deflator (the US Federal Reserve’s inflation indicator) for 2023 was lowered to 3.7% from the June forecast of 3.9%. Markets are now pricing in a 31% probability that the FOMC will raise the lending rate by 25 bps at its next meeting on November 1 and a 54% probability that the rate will be raised by 25 bps at the December 13 meeting.

Bank of America raised its year-end price target for the S&P 500 (US500) to 4,600 from a previous forecast of 4,300, saying macrocycle indicators, including valuations and positioning, are giving bullish signals.

Alphabet’s (GOOGL) stock price is down by more than 3% on news that the company has managed to recover only 40% of the mobile traffic it previously received through its mapping service after Apple replaced Google Maps on its iPhones in favor of its own app.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) increased by 0.75%, France’s CAC 40 (FR40) gained 0.67% yesterday, Spain’s IBEX 35 (ES35) added 1.30%, and the UK’s FTSE 100 (UK100) closed up by 0.93%. European equities were supported yesterday amid signs of slowing price pressures in Europe and the UK after producer prices in Germany fell in August, and consumer prices in the UK showed a sharp decline. In the UK, the overall inflation rate fell from 6.9% to 6.2% y/y, while core inflation (which excludes food and energy prices) fell from 6.8% to 6.7% y/y. The more detailed report also showed a decline in services inflation, which had been a major concern for the MPC amid soaring wage growth.

New car registrations in the Eurozone rose by 21.0% y/y in August to 788,000 units, the largest increase in 5 months. The Eurozone’s construction output rose by 0.8% m/m in July, the largest increase in the last five months.

WTI crude oil prices suffered moderate losses on Wednesday after the US Federal Reserve raised its interest rate forecast for next year, which helped the dollar recover and could curb economic growth and energy demand. Tensions in the oil market are expected to continue as OPEC+ production cuts are extended.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 declined by 0.66%, China’s FTSE China A50 (CHA50) fell by 0.36%, Hong Kong’s Hang Seng (HK50) lost 0.62% on the day, and Australia’s ASX 200 (AU200) was negative by 0.46% on Wednesday.

Japan’s exports declined by 0.8% y/y in August, which was less than expectations of 2.1% y/y. In addition, imports fell by 17.8% y/y in August, the largest decline in three years but less than the expected 20.0% y/y.

New Zealand’s GDP for the quarter grew by 0.9%, better than expectations of 0.4%. Stronger-than-expected economic growth could be a challenge for the RBNZ, which has said it needs to see a slowdown in economic growth to lower inflation and inflation expectations. New Zealand’s central bank forecast in August that the country would enter recession in the third quarter of 2023, while in updated forecasts released last week, the Treasury said it expects the country to avoid recession.

S&P 500 (F)(US500) 4,402.20 −41.75 (−0.94%)

Dow Jones (US30) 34,440.88  −76.85 (−0.22%)

DAX (DE40)  15,781.59 +117.11 (+0.75%)

FTSE 100 (UK100) 7,731.65 +71.45 (+0.93%)

USD Index  105.36 +0.16 (+0.15%)

• – New Zealand GDP (q/q) at 01:45 (GMT+3);
• – Switzerland SNB Monetary Policy Statement at 10:30 (GMT+3);
• – Switzerland SNB Interest Rate Decision at 10:30 (GMT+3);
• Switzerland SNB Press Conference at 11:00 (GMT+3);
• – Norwegian Interest Rate Decision at 11:30 (GMT+3);
• – UK BoE Interest Rate Decision at 14:00 (GMT+3);
• – UK BoE MPC Meeting Minutes at 14:00 (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 Existing Home Sales (m/m) at 17:00 (GMT+3);
• – Eurozone ECB President Lagarde Speaks (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.

By George Prior 

The Federal Reserve has kept interest rates steady but are prepared to raise rates again in November – and this will be “an error of judgement,” predicts the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The prediction from deVere Group’s Nigel Green comes as the US central bank confirms the lower bound at 5.25% and the upper bound at 5.50%.

He comments: “The Fed has kept interest rates unchanged this time around, as was widely predicted by analysts and which was priced-in by the markets.

“As such, investors were less interested in this decision, but much more so on what Chair Jerome Powell and Fed policymakers hinted at for the future path.”

The deVere CEO continues: “He was, unsurprisingly, keen to stress that the war on inflation isn’t yet won.

“This lack of obvious decisiveness was deliberate to avoid a major market reaction, which would make their task of cooling the world’s largest economy harder.

“The US central bank, still a long way from its 2% target, will be concerned about the resilience of the economy and the markets, despite its efforts to cool them by making borrowing costs more expensive with the most aggressive policy tightening agenda in decades.”

This scenario leads Nigel Green to expect that the Federal Reserve will hike rates again this year.

“We believe the Fed isn’t done yet.

“We expect it will resume its hiking programme in November. But this, we believe, would be an error of judgement and could leave scars on the US economy,” he notes.

“The time lag for monetary policies is incredibly lengthy. It takes around two years for the full effect of rate hikes to make their way into the economy.

“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 recession.”

Further stifling growth through the cost of capital becoming prohibitive for companies and consumers leads to a decline in capital formation, reduced entrepreneurial activity, investment and innovation. “These effects hinder future growth potential and undermine an economy’s competitiveness on the global stage.”

The deVere CEO concludes: “Should more interest rate hikes further squeeze economic growth, the longer-term consequences will be far worse than higher for a bit longer inflation, which is already coming down – we’re in the end game already.

“The Fed would be making a huge mistake to resume hikes in November.”

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.

By JustMarkets

As of Tuesday’s stock market close, the Dow Jones Index (US30) decreased by 0.40%, while the S&P 500 Index (US500) lost 0.22%. The NASDAQ Technology Index (US100) closed negative 0.23% on Tuesday. Stock indices declined amid a weak US housing report and a rise in 10-year bond yields to a 15-year high. US housing starts fell by 11.3% to 1.283 million units in August, much weaker than expectations of a decline of around 1%. In addition, the likelihood of an expanded UAW union strike and the resumption of student loan payments on October 1 also put downward pressure on stocks. Stocks also traded on a cautious note ahead of the two-day FOMC meeting. Markets fully expect the FOMC to leave the lending rate target unchanged at 5.25/5.50%. However, markets expect the FOMC to maintain its hawkish attitude and leave open the possibility of another rate hike later this year. This would be negative for stock indices.

Canadian inflation accelerated more than expected for the second consecutive month. The Consumer Price Index rose from 3.3% to 4% y/y in August, the fastest pace since April. Core inflation (excluding food and energy prices) rose slightly to 3.3% from 3.2%. The three-month moving average of indicators the Bank of Canada cited as key to its team rose a full percentage point to 4.49% on an annualized basis, according to Bloomberg calculations. Investors raised bets that Canada’s Central Bank will resume policy tightening and hold another rate hike at its October meeting.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) fell by 0.40%, France’s CAC 40 (FR40) gained 0.08%, Spain’s IBEX 35 (ES35) added 0.40%, and the UK’s FTSE 100 (UK100) closed up by 0.09%. The August Eurozone Consumer Price Index was revised slightly from 5.3% to 5.2% y/y. Core CPI remained unchanged at 5.3% y/y. Lower inflationary pressures are dovish for ECB policy.

OECD economists cut the UK’s economic growth forecast for next year due to pressure on households and businesses from high interest rates. The analysts added that economic activity in the UK has “already weakened” due to the “lagged effect on household incomes from a large energy price shock in 2022.” The think tank forecast economic growth of 0.3% in 2023, which would be the second weakest among G7 countries.

WTI crude oil prices rose to a new 10-month high on Tuesday, extending the rally seen over the past three months, driven by expectations of a strong supply outlook for the rest of the year. However, crude oil prices declined later in the session, pressured by liquidations of long positions and some concerns about the global economy. Yesterday, the OECD lowered its 2024 global GDP forecast to 2.7% from 3.0%.

Asian markets traded yesterday without any unified dynamics. Japanese Nikkei 225 declined yesterday by 0.87%, Chinese FTSE China A50 (CHA50) rose by 0.02%, Hong Kong Hang Seng (HK50) increased by 0.37% on the day, and Australian ASX 200 (AU200) was negative 0.47% on Tuesday.

On Wednesday, the People’s Bank of China kept the one-year LPR rate unchanged at 3.45%, while the five-year LPR rate, which is used to determine mortgage rates, was left unchanged at 4.20%. Both rates are at historic lows after three cuts over the past year. Key comments from the People’s Bank of China (PBOC) official following the meeting:

• The PBOC will pay more attention to changes in the RMB exchange rate against a basket of currencies;
• There is a solid basis for keeping the RMB exchange rate basically stable;
• The PBOC will resolutely correct the unilateral pro-cyclical behavior of the RMB exchange rate;
• The PBOC will resolutely crack down on market disruption, resolutely guard against the risks of exchange rate overvaluation;
• China’s monetary policy still has ample room to respond to unexpected challenges and changes.

On Friday, the Bank of Japan will hold its monetary policy meeting. While no changes are expected at this meeting, swap market indicators are now showing stronger expectations for a soon-to-be abandonment of negative interest rates by March 2024 than a further widening of the range around the BoJ’s 10-year bond yield target. Against this backdrop, Bank of Japan Governor Kazuo Ueda is expected to take a somewhat hawkish stance, primarily to manage the yen’s depreciation.

S&P 500 (F)(US500) 4,443.95 −9.58 (−0.22%)

Dow Jones (US30) 34,517.73 −106.57 (−0.31%)

DAX (DE40)  15,664.48 −62.64 (−0.40%)

FTSE 100 (UK100) 7,660.20 +7.26 (+0.095%)

USD Index  105.15 −0.06 (−0.05%)

• – Japan Trade Balance (m/m) at 02:50 (GMT+3);
• – China PBoC Loan Prime Rate (m/m) at 04:15 (GMT+3);
• – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
• – UK Producer Price Index (m/m) at 09:00 (GMT+3);
• – German Producer Price Index (m/m) at 09:00 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – US Fed Interest Rate Decision at 21:00 (GMT+3);
• – US FOMC Statement at 21:00 (GMT+3);
• – US FOMC Economic Projections at 21:00 (GMT+3);
• – US FOMC Press Conference at 21:30 (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.

By JustMarkets

As of Friday’s stock market close, the Dow Jones Index (US30) decreased by 0.83% (-0.09% for the week), while the S&P 500 Index (US500) fell by 1.22% (-0.68% for the week). The NASDAQ Technology Index (US100) closed Friday negative by 1.56% (-1.27% for the week).

The US dollar came under pressure on Friday after reports from the University of Michigan on consumer sentiment and inflation expectations fell more than expected, a dovish factor for Fed policy. The University of Michigan’s inflation expectations for September unexpectedly fell to a .5-year low of 3.1%, better than expectations of 3.5%. The University of Michigan’s US Consumer Sentiment Index for September fell by 1.8 to 67.7, weaker than expectations of 69.0. Other data showed that US manufacturing output for August rose by 0.1% m/m, in line with expectations. Industrial production rose by 0.4% m/m in August, stronger than expectations of 0.1% m/m.

The Fed will hold its monetary policy meeting this week. Economists believe that economic instability in the US (as indicated in past FOMC minutes) could go too far and increase the likelihood of a recession. Given this risk, as well as the positive trend in inflation and labor costs, analysts predict that the Fed will hold the rate for several months, and the data flow will gradually weaken the case for a rate hike in November or December. Markets rate the odds of a 25 bps rate hike at the September 20 FOMC meeting at 4% and a 25 bps rate hike at the November 1 FOMC meeting at 33%.

In Canada, the government has begun to tackle the housing crisis. In an effort to boost supply, the Canadian government announced Friday that it will eliminate the federal 5% consumption tax on the construction of new rental apartments and urged cities to be more proactive in addressing the problem.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE40) increased by 0.56% (+0.60% for the week), France’s CAC 40 (FR40) gained 0.96% (+1.42% for the week), Spain’s IBEX 35 (ES35) added 0.01% (+1.55% for the week), and the UK’s FTSE 100 (UK100) closed up by 0.50% (+3.12% for the week). The ECB’s hawkish comments on Friday provided a boost for the euro, with European indices also reacting positively. ECB President Lagarde said that the ECB is not discussing cutting interest rates. Meanwhile, ECB Governing Council representative Vasle said that core inflation remains relatively high and did not rule out further interest rate hikes.

Silver (XAGUSD) gained support on Friday after stronger-than-expected reports on Chinese industrial production for August and US industrial production for August were stronger than expected, which is favorable for demand for industrial metals.

A weaker dollar on Friday provided support for energy prices. In addition, stronger-than-expected economic reports from China, the world’s second-largest oil consumer, supported energy demand. Crude oil has been supported since last Tuesday when the International Energy Agency (IEA) and OPEC said the global oil market will be in deficit for the rest of the year. On the bearish side was Friday’s drop in stocks, which undermined confidence in the outlook for the economy and energy demand.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) gained 2.58% for the week, China’s FTSE China A50 (CHA50) fell by 1.33%, Hong Kong’s Hang Seng (HK50) ended the week up by 1.34%, and Australia’s S&P/ASX 200 (AU200) ended the week positive by 1.71%.

The only data to focus on for China this week will be the PBoC’s decision on 1-year and 5-year loans on Wednesday. After commercial banks left the 1-year medium-term lending rate unchanged at 2.50% on Friday following a 25 basis point cut in the commercial banks’ reserve requirement ratio, it is likely that the 1-year and 5-year lending rates will remain unchanged at 3.45% and 4.2%, respectively. China’s economic data has recently started to improve. Retail sales rose by 4.6% y/y in August, beating the consensus forecast of 3% as well as July’s 2.5%, the highest growth rate since May. The August industrial production figure also beat expectations of 3.9% and rose 4.5% y/y, the highest rate since April.

S&P 500 (F)(US500) 4,450.32  −54.78 (−1.22%)

Dow Jones (US30) 34,618.24 −288.87 (−0.83%)

DAX (DE40)  15,893.53 +88.24 (+0.56%)

FTSE 100 (UK100) 7,711.38 +38.30 (+0.50%)

USD Index  105.33 −0.07 (−0.07%)

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.