InvestMacro

By George Prior

As the US hurtles towards a potential high-stakes default on its debt, the compelling case for Bitcoin is further strengthened, asserts the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The assessment from deVere Group’s Nigel Green follows reports that US President Joe Biden has invited top congressional leaders for a May 9 meeting regarding the debt ceiling after The Treasury Department warned on Monday a default could come sooner than expected – possibly as soon as June 1.

The debt ceiling is the amount of money the US is able to borrow to pay its bills. Since the cost of running the government is far greater than federal tax revenues, the US must raise additional money by selling Treasury bonds – but it cannot do this after hitting the debt ceiling.

If the US is unable to pay its bills, it will default on its debt. This would be the first in US history.

Should this happen, it would “cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability,” Janet Yellen, the Treasury Secretary, wrote in a letter to the then new House Speaker Kevin McCarthy.

In a letter to members of Congress on Tuesday, Ms Yellen said that “We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”

Her announcement came on the same day as the Congressional Budget Office (CBO) reported that there is a “significantly greater risk that the Treasury will run out of funds in early June.”

Nigel Green says: “The emergency meeting called by Biden is a step in the right direction in a monumentally high-stakes game between lawmakers.

“Democrats have said they would not negotiate with Republicans over extending the debt ceiling, while House Speaker Kevin McCarthy has promised not to extend the limit without cuts to the federal budget.”

While the likelihood of a US default remains “unlikely” at this stage, according to the deVere Group CEO, he affirms the debt ceiling drama “further strengthens the compelling case for Bitcoin” for two main reasons.

“First, this saga underscores that the US dollar’s future trajectory is precarious and lies in the hands of opposing and increasingly divided politicians reaching difficult agreements.

“As the gridlock in Washington DC intensifies over the dollar debt ceiling, it seems inevitable that a growing number of retail and institutional investors will want to circumnavigate the shenanigans and look to alternatives which are outside of political controls, as well as having other advantages such as being digital, global and borderless.
“It’s a huge mess and it’s hitting the dollar’s credibility at a time when it already appears to be losing some of its global dominance – this is bullish for Bitcoin.

He continues: “And second, the debt ceiling is likely to be raised in the end, meaning it can issue more debt to generate more capital. However, the government might find it hard to attract buyers, forcing the Federal Reserve back into Quantitative Easing (QE) – or money printing.

“QE is typically good for riskier assets such as Bitcoin – as we saw during the last stimulus round – and it will also likely further hit the long-term value of the dollar, providing a boost for the cryptocurrency.”

Nigel Green concludes: “The debt ceiling drama underlines the flaws in the current fiat-dominated system.

“It strengthens my long-standing argument that the times ahead are destined to be radically different from what we have all experienced in our lifetimes so far.

“I believe that increasingly, there will be a mixed system. Some will be currencies from governments, including digital and non-digital, and some will be digital and decentralised, such as Bitcoin.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

By JustMarkets 

At the close of the stock exchange on Monday, the Dow Jones Index (US30) decreased by 0.14%, and the S&P 500 (US500) lost 0.04%. NASDAQ Technology Index (US100) fell by 0.11% yesterday.

The US manufacturing activity declined for the sixth straight month in April, the longest period since 2009 and a sign of trouble in the manufacturing sector. Order numbers improved slightly but remained in contractionary territory. The good news is that the numbers show that the manufacturing sector is contracting at a slower pace. At the same time, manufacturers face many challenges, including higher borrowing costs, tighter credit conditions, lower demand for goods and still higher prices. A senior portfolio manager at Northwestern Mutual Wealth Management Co. believes Monday’s PMI data bolstered expectations for a 25 basis point increase in Federal Reserve interest rates in May and the likelihood of a June increase.

First Republic Bank was sold to JPMorgan Chase (JPM), the second-largest bankruptcy in US history. First Republic has been struggling since the March collapse of Silicon Valley Bank and Signature Bank. Yesterday morning, the US regulators seized First Republic Bank and sold all of its deposits and most of its assets to JPMorgan Chase Bank. As of April 13, First Republic had about $229 billion in total assets and $104 billion in total deposits, according to the FDIC. The FDIC estimated that its deposit insurance fund would suffer a $13 billion loss because of the transfer to First Republic.

The World Bank on Monday unveiled a new methodology and improved safeguards for assessing the business climate in 180 countries. The bank retracted its Doing Business rating in September 2021, citing an internal audit and an independent investigation that found that top World Bank officials pressured staff to change the data to favor China. A pilot issue of a new annual series called “Business Ready” will be published in the spring of 2024.

Stock markets in Europe did not trade yesterday due to the holiday. There is no doubt that Europe’s central bank will raise borrowing costs for the seventh consecutive time Thursday as inflation shows resilience. Many analysts are currently betting on a quarter-point hike. But if today’s consumer price data, especially the core indicator, shows signs of growth, the ECB could stay on an aggressive path to raise rates.

Weaker Chinese production data outweighed support for OPEC+ supply cuts, and oil is down again. Typically, from April through fall, oil prices rise because of increased demand during the summer months. But this year, economic conditions are outweighing demand. This could lead to OPEC+ countries having to cut production again to keep prices above $80 a barrel.

Asian markets rose strongly yesterday. Japan’s Nikkei 225 (JP225) gained 0.92% over the day, China’s FTSE China A50 (CHA50) added 0.77% yesterday, Hong Kong’s Hang Seng (HK50) increased by 0.27% over the day, India’s NIFTY 50 (IND50) jumped by 0.84%, and Australia’s S&P/ASX 200 (AU200) closed positive 0.35%.

Japan’s economy is recovering moderately from the downturn caused by COVID-19, but bankruptcies are rising, according to the Japanese government’s monthly economic report. The report echoes the warning of global financial volatility in response to the recent collapse of Western banks.

The Reserve Bank of Australia (RBA) unexpectedly raised its rate by 25 basis points, saying that further monetary tightening is still needed as it takes steps to rein in the country’s stubborn inflation. The RBA said in a statement that recent data showed a welcome decline in inflation, but the main forecast is still that it will be a couple of years before inflation returns to the upper end of the target range.

S&P 500 (F) (US500) 4,167.87 −1.61 (−0.04%)

Dow Jones (US30)34,051.70 −46.46 (−0.14%)

DAX (DE40) 15,922.38 0 (0%)

FTSE 100 (UK100) 7,870.57 0 (0%)

USD Index 102.17 +0.51 (+0.50%)

• – Australia RBA Interest Rate Decision (m/m) at 07:30 (GMT+3);
• – Australia RBA Rate Statement (m/m) at 07:30 (GMT+3);
• – German Retail Sales (m/m) at 09:00 (GMT+3);
• – Switzerland Manufacturing PMI (m/m) at 10:30 (GMT+3);
• – German Manufacturing PMI (m/m) at 10:55 (GMT+3);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
• – Australia RBA Gov Lowe Speaks at 14:20 (GMT+3);
• – US JOLTs Job Openings (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.

By JustMarkets

At the closing of the stock market on Friday, the Dow Jones (US30) gained 0.80% (+0.87% for the week), and S&P 500 (US500) increased by 0.83% (+0.91% for the week). The NASDAQ Technology Index (US100) gained 0.69% (+1.44% for the week).

The Personal Consumption Price (PCE) Index, excluding food and energy, the Fed’s preferred measure of core inflation, was up 0.3% in March from the previous month. The PCE price data, especially with rising labor costs, support projections that Fed policymakers will raise the benchmark interest rate by another quarter percentage point at this week’s meeting. Fed officials and markets remain at odds over the future trajectory of interest rates, with the Central Bank expecting interest rates to remain at current levels through 2023, while investors are betting on lower rates by the end of the year. Given renewed signs of stress in the banking sector in recent days, as well as problems at First Republic Bank (FRC), Fed officials may signal a pause in June.

Equity markets in Europe traded flat on Friday. German DAX (DE30) gained 0.74% (+0.44% for the week), French CAC 40 (FR40) added 0.10% (-0.72% for the week), Spanish IBEX 35 (ES35) decreased by 0.79% (-1.52% for the week), British FTSE 100 (UK100) closed on Friday in the plus 0.50% (-0.55% for the week).

According to current prices, there is a 78% chance the ECB will raise interest rates by 25 bps this week. But much will depend on the inflation data coming out on Tuesday (CPI) and Wednesday (PPI). The main focus is on core CPI inflation. If this indicator shows signs of growth, the ECB might go back to the 0.5% step at the May meeting. But it should be noted that Eurozone GDP fell by 0.1% for the last quarter, indicating that high-interest rates are already starting to slow economic growth.

On Friday, the International Monetary Fund urged the ECB to keep raising interest rates until mid-2024 and European Union finance ministers to tighten fiscal policy as part of a concerted effort to reduce high inflation.

The Swiss National Bank (SNB) is demanding an overhaul of banking regulations after the collapse of Credit Suisse. Future regulations will force banks to hold sufficient assets that can be pledged as collateral so that existing liquidity facilities can be used. This would allow the central bank to provide the necessary liquidity without having to pass emergency legislation.

The World Bank yesterday published its latest Commodity Market Outlook report for 2023. Energy prices are projected to average $84 per barrel this year. Also, over the weekend, it became known that OPEC+ countries plan to reduce production levels further ahead of the summer to support black gold prices.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) gained 0.78% over the week, China’s FTSE China A50 (CHA50) gained 2.22%, Hong Kong’s Hang Seng (HK50) ended the week down by 0.77%, India’s NIFTY 50 (IND50) jumped by 2.31%, and Australia’s S&P/ASX 200 (AU200) decreased by 0.73%.

The Bank of Japan forecasts a slowdown in inflation to 1.6% in fiscal year 2025 and said the risks to that price outlook have been shifted downward. The Bank of Japan (BOJ) kept interest rates ultra-low on Friday but announced a plan to review its past monetary policy moves.

China’s manufacturing activity unexpectedly declined in April, adding to problems for the economy in the midst of a mixed recovery from COVID-19 with sluggish global demand and a still fragile domestic real estate sector. The official manufacturing purchasing managers’ index (PMI) was 49.2, down from 51.9 in March. Taiwan’s economy plunged into recession after contracting at its fastest pace since the global financial crisis. The 3.02% drop is the sharpest since the end of the quarter in June 2009, highlighting the difficult outlook for the trade-dependent economy. Singapore’s core inflation, a key indicator tracked by the central bank, slowed for the first time since October.

In the commodities market, futures on sugar (+8.34%) and natural gas (+7.39%) showed the biggest gains last week. Futures on palladium (-6.49%), wheat (-5.87%), corn (-5.04%), platinum (-4.41%), lumber (-4.04%), and coffee (-2.98%) showed the biggest drops.

S&P 500 (F) (US500) 4,169.48 +34.13 (+0.83%)

Dow Jones (US30)34,098.16 +272.00 (+0.80%)

DAX (DE40) 15,922.38  +121.93 (+0.77%)

FTSE 100 (UK100) 7,870.57 +38.99 (+0.50%)

USD Index 101.67 +0.17 +0.17%

• – Japan Manufacturing PMI (m/m) at 01:00 (GMT+3);
• – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
• – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3).

By JustMarkets

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

By Christopher Decker, University of Nebraska Omaha 

With inflation easing and the U.S. economy cooling, is the Federal Reserve done raising interest rates? After all, gently bringing down the trajectory of prices without crashing the economy was the central bank’s objective when it began jacking up rates over a year ago.

Gross domestic product, the broadest measure of an economy’s output, expanded at an annual pace of a mere 1.1% in the first quarter, according to data released April 27, 2023 – down from 2.6% recorded in the final three months of 2022. And the latest consumer price data, from March, shows inflation slowing to 5% on an annualized basis, the least in about a year.

Unfortunately for consumers and businesses weary of soaring borrowing costs, the Fed’s not likely done hiking rates quite yet. Financial markets are predicting another quarter-point hike when the Fed meets for a two-day meeting that ends May 3, 2023. And there could be several more increases to come.

But this does raise another important question: With all the recent, often conflicting, data and narratives regarding inflation, bank failures and layoffs in the tech sector, is the Fed close to engineering the “soft landing” it’s been hoping for?

The economy zigs then zags

The GDP data is a mixed bag and provides some clues to the answer.

Overall, the recent GDP figures suggest a likely economic slowdown going forward, due largely to a drawdown in inventories – that is, rather than ordering new goods, companies are relying more on stuff currently in storage. Businesses seems more inclined to sell what is on hand rather than order up new products, likely in anticipation of a slowdown in consumption. And business investment declined 12.5% in the quarter.

At the same time, consumer spending, which represents about two-thirds of GDP, grew at a healthy 3.7% pace, and investment in equipment such as computers and robotics increased by 11.2% – though this category is quite volatile and could easily turn in subsequent quarters.

Other data also points to a slowdown, such as a decline in new orders for manufactured goods. This, combined with the drawdown in inventories in the GDP report, might suggest that businesses are anticipating a slowdown in demand for goods and services.

When we look at the labor market, while job increases have been strong – 334,000 over the past six months – job openings have been declining. After peaking at about 12 million in March 2022, openings dropped to about 9.9 million as of February, according to the Bureau of Labor Statistics.

Inflation: Is it high or low?

In terms of inflation, we can also see conflicting numbers.

The headline consumer price index has indeed slowed steadily since peaking in June 2022 at 9.1%. But the core preferred consumption index, the Fed’s favored measure of inflation, has remained stubbornly elevated. The latest data, released on April 28, 2023, showed the index, which excludes volatile food and energy prices, was up 4.6% in March from a year earlier and has barely budged in months.

Meanwhile, wages, which when rising can have a strong upward push on prices, climbed at an annualized 5.1% in the first quarter, also according to data released on April 28. That’s down from the peak of 5.7% in the second quarter of 2022 but is still about the fastest pace of wage gains in at least two decades.

More hikes to come

So what might all this suggest about Fed actions on interest rates?

The next meeting is scheduled to end on May 3, with the market odds greatly favoring another 0.25 percentage point increase – which would be the 10th straight hike since March 2022.

With the inflation rate still well above the Fed’s target of about 2%, combined with continued job growth and a low unemployment rate, the central bank is likely not done ratcheting up rates. I agree with the market odds pricing in a quarter-point hike for the May meeting. Future data will guide any future rate increases beyond that.

The good news is that, I believe, the larger rate increases are well in the past.

Landing softly – or at least mildly

That brings us back to the big question: How close is the Fed to sticking a soft landing, in which the U.S. economy manages to tame inflation without a recession?

Sadly, it’s too early to tell. Labor markets can be very volatile and political and international events – such as potential gridlock on debt ceiling talks or further escalations in the Ukraine War – can turn things upside down. That said, we are either looking at a mild recession or a growth recession.

What’s the difference? A growth recession signals a weak economy but not enough to significantly drive up unemployment – and that’s preferable to even a mild recession of multiple quarterly drops in GDP and much higher unemployment.

We just don’t know which is more likely. What I think is true now, though, is that, barring any catastrophic and unpredictable events, a severe recession has been avoided.

About the Author:

Christopher Decker, Professor of Economics, University of Nebraska Omaha

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

By George Prior 

US banks continuing to increase emergency loans from the Federal Reserve will hinder attempts to cool inflation, giving the central bank more reason to continue interest rate hikes.

This is the stark warning from Nigel Green, the CEO of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations, as new data shows that banks’ demand for loans from the Fed increased for the second consecutive week.

The US central bank now has provided more than $155.2 billion in loans to financial institutions through two backstop lending programs since the string of bank collapses in March.

The deVere chief executive says: “The $25 billion Bank Term Funding Program, which offers banks loans of up to one year, is surely going to turn out to be inflationary.

“It’s increasing the balance sheet of the Federal Reserve at a time when it’s supposedly intent on trying to reduce it.

“The emergency borrowing program is, essentially, another form of quantitative easing, which, as we know, adds to inflationary pressures.”

He continues: “The increase in demand for loans from financial institutions demonstrates ongoing stress in the US financial system, and this together with the inflationary consequences of the emergency program, are likely to give the Fed more reason to continue with its tightening campaign, despite weaker-than-expected GDP data, which has some investors betting that the central bank could soon wrap up its current agenda.”

Earlier this week, Nigel Green said in a statement that he expects the Federal Reserve will raise interest rates once again at its upcoming May meeting and that this is likely to cause jitters in the market as some investors, concerned about short-term profits, will move into panic-selling mode.

“Furthermore, they will have legitimate concerns that further rate hikes now – when monetary policy time lags are notoriously long – could steer economies into a recession.”

The time lag in monetary policies is very high. Economists estimate interest rate changes take up to 18 months to have the full effect. This means monetary policymakers need to try and predict the state of the economy for up to 18 months ahead.

Nigel Green concludes: “The latest data showing banks increasing their emergency borrowings will give the Fed more excuse to continue with their tightening next week.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

By JustMarkets

The Nasdaq Technology Index led a rally on Wall Street Thursday as a strong report from parent company Facebook (META) outweighed concerns about slowing US economic growth. As the stock market closed yesterday, the Dow Jones Index (US30) increased by 1.57%, and the S&P 500 Index (US500) added 1.96%. The NASDAQ Technology Index (US100) jumped by 2.43%.

Meta stock soared more than 13% yesterday, hitting its highest in more than a year after the company reported quarterly earnings above estimates and CEO Mark Zuckerberg said artificial intelligence is driving traffic to Facebook and Instagram and boosting ad sales. First-quarter earnings expectations have improved sharply, with analysts forecasting a 2.4% year-over-year drop in S&P 500 companies’ earnings, compared with a 5.1% decline forecast at the start of the reporting season.

The US economic growth slowed more than expected in the first quarter of 2023. GDP data for the quarter showed growth of 1.1% compared to the forecast of 2.0%. The slowdown in GDP growth largely reflected weak inventory investment. Housing investment recorded its eighth consecutive quarterly decline, although the rate of decline slowed considerably from October through December. But the labor market remains resilient. Jobless claims came in at 230,000, less than the projected 247,000.

Equity markets in Europe were mostly up on Thursday. German DAX (DE30) gained 0.03%, French CAC 40 (FR40) added 0.23%, Spanish IBEX 35 (ES35) increased by 0.16%, and British FTSE 100 (UK100) closed yesterday down by 0.27%.

The ECB meeting will be held next week, and the main question is which rate hike the Central Bank of Europe will choose. At the moment, analysts are leaning towards 0.25%. However, it is worth realizing that the probability may change due to the new incoming data. A number of GDP and inflation statistics will be released in Europe today, and the Eurozone core inflation report will be released two days before the meeting next week. Any signs of solid inflation, especially the core indicator, will raise the odds of a 0.5% rate hike at the May meeting.

European commercial real estate investment has fallen to its lowest level in 11 years. Higher interest rates and the economic outlook spook investors. A recent JP Morgan investor survey cited commercial real estate as the most likely cause of the next financial crisis.

Oil prices stabilized Thursday, offsetting some losses from the previous session after OPEC+ indicated it saw no need to cut production further.

Asian markets were also mostly on the rise yesterday. Japan’s Nikkei 225 (JP225) gained 0.15%, China’s FTSE China A50 (CHA50) increased by 1.09%, Hong Kong’s Hang Seng (HK50) gained 0.42%, India’s NIFTY 50 (IND50) added 0.57%, and Australia’s S&P/ASX 200 (AU200) closed negative 0.32%.

Argentina is planning a sharp rate hike to 91% to stop the peso’s decline. Since Argentina’s inflation rate is above 100%, its Central Bank raised its rate last week by 300 basis points to 81%. Argentina, a major global supplier of grain and beef, is struggling with inflation, which topped 104% in March, with analysts predicting that prices will rise about 110-130% this year.

The Chinese yuan is slowly but surely being accepted for more international payments, which analysts say could set the stage for a trading system that runs parallel to the dominant US dollar. In March, there were more cross-border transactions with China in yuan than in dollars, and Argentina said it aims to pay for Chinese goods in yuan rather than dollars regularly.

The Bank of Japan left the interest rate unchanged and also did not change its yield curve control policy and is considering a comprehensive review of past monetary policy easing decisions. The policy report indicates that the abrupt move to roll back quantitative easing could create huge problems for Japan’s regional banks and exacerbate global market conditions. Tokyo’s consumer price index inflation rose more than expected in April, returning to 40-year highs. On an annualized basis, the core CPI rose to 3.5% from 3.2%. Japan’s unemployment rate rose from 2.6% to 2.8%.

S&P 500 (F) (US500) 4,135.35 +79.36 (+1.96%)

Dow Jones (US30)33,826.16 +524.29 (+1.57%)

DAX (DE40) 15,800.45 +4.72 (+0.03%)

FTSE 100 (UK100) 7,831.58 −21.06 (−0.27%)

USD Index 101.52 +0.05 +0.05%

• – Japan Tokyo Core CPI (m/m) at 02:30 (GMT+3);
• – Japan Unemployment Rate (m/m) at 02:30 (GMT+3);
• – Japan Industrial Production (m/m) at 02:50 (GMT+3);
• – Japan Retail Sales (m/m) at 02:50 (GMT+3);
• – Australia Producer Price Index (q/q) at 04:30 (GMT+3);
• – Japan BoJ Monetary Policy Statement at 06:00 (GMT+3);
• – Japan BoJ Interest Rate Decision at 06:00 (GMT+3);
• – Japan BoJ Outlook Report at 06:00 (GMT+3);
• – Japan BoJ Press Conference at 08:00 (GMT+3);
• – French GDP (q/q) at 08:30 (GMT+3);
• – French Consumer Price Index (m/m) at 09:45 (GMT+3);
• – Spanish GDP (q/q) at 10:00 (GMT+3);
• – Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
• – German Unemployment Rate (m/m) at 10:55 (GMT+3);
• – German GDP (q/q) at 11:00 (GMT+3);
• – Switzerland SNB Chairman Thomas Jordan speaks at 11:00 (GMT+3);
• – Eurozone GDP (q/q) at 11:00 (GMT+3);
• – German Consumer Price Index (m/m) at 15:00 (GMT+3);
• – US PCE Price Index (m/m) at 15:30 (GMT+3);
• – Canada GDP (q/q) at 15:30 (GMT+3);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

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 ForexTime 

Article by ForexTime

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