InvestMacro

By George Prior

Investor focus is set to shift from inflation to earnings season, which starts on Friday, as it will give us more insight about a forthcoming recession, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The assessment from deVere Group’s Nigel Green comes ahead of earnings reports on Friday from major Wall Street banks including JPMorgan Chase, Citigroup, and Wells Fargo. Among other companies reporting next week are Tesla, IBM, and Johnson & Johnson.

He says: “For weeks it’s all been about the trajectory of inflation and subsequent interest rate hikes for investors.  But the focus is now shifting to earnings season.

“The big banks will be keenly watched as not only do they often set the mood music for the rest of the season, but also because they are more intricately linked to the rest of the economy than most other sectors.

“In addition, they’ll be more in focus than ever following the crisis triggered by Silicon Valley Bank last month.”

Should banks report lower earnings or revenue than expected, it could be a sign that they are experiencing issues with lending and other financial activities.

“If banks are struggling, it could make it more difficult for businesses and consumers to access credit, which could in turn further slow down economic growth and lead to a recession,” notes the deVere Group CEO.

“Plus, a fall in bank earnings could indicate a lack of confidence in the wider economy, which would cause investors to pull back on their investments and further exacerbate the likelihood of a forthcoming recession.”

With established economic indicators – such as the inverted yield curve – currently flashing up signs of a possible recession, investors will not only be analyzing the reports about last quarter’s earnings, they will be looking at the accompanying guidance for the months ahead.

“Guidance will be in the forefront of investors’ minds this earnings season. Last time around, there was a lot of negative guidance from corporates and I think we’ll have much of the same this time too,” says Nigel Green.

“Corporate guidance in earnings season is critical for the wider economy because it provides insight into the future expectations of companies, which will impact investor sentiment and overall economic activity.”

Earlier this week the CEO said that bond markets and stock markets are not singing the same tune currently. “Both cannot be right.  This gaping disconnect between bonds and stocks suggests that investors should brace themselves for significant volatility this quarter” in global financial markets.

“Should the US, the world’s largest economy, fall into a recession, it would clearly have a global impact. Investors will be doing a deep-dive into corporate guidance statements as earnings season kicks off, as recession fears have been increasing in recent weeks,” he concludes.

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 US stock market was mostly down yesterday. At the close of trading, the Dow Jones Index (US30) decreased by 0.11%, and the S&P 500 Index (US500) lost 0.41%. The NASDAQ Technology Index (US100) fell by 0.85%.

The US Consumer Price Index declined from 6% to 5% year-on-year. Core inflation (excluding food and energy prices) rose from 5.5% to 5.6% y/y, with the Index adding 0.4% for the month. This data disappointed investors as the key inflation indicator shows no signs of slowing down, which increases the likelihood of another interest rate hike by the Fed. CME FedWatch Tool shows a 68% probability that the Fed will raise the interest rate by 0.25% at the May meeting. Comments from FOMC officials diverge. San Francisco Fed President Mary Daly pointed out that the Fed needs to keep raising interest rates, with another Fed official, Harker, indicating that the Central Bank may no longer need to raise interest rates monthly as overall inflation in the US is falling. The factory inflation (PPI) report will be released today, which will give more information on inflationary pressures.

The minutes of the Federal Reserve’s March meeting showed that policymakers are concerned about a mild recession this year. Although the Central Bank is likely to pause the interest rate hike cycle in the near future, a subsequent slowdown in economic growth could be a bad omen.

The slowdown in US inflation is shifting investor focus to the reporting season. Investors believe a strong corporate reporting season may be needed for a decisive rise in equities. The upcoming reporting season begins on April 14 with the release of results from major Wall Street banks, including JPMorgan Chase (JPM), Citigroup Inc (C), and Wells Fargo (WFC), which investors will be scrutinizing to gauge the impact of last month’s banking crisis.

The Bank of Canada left interest rates unchanged for the second consecutive meeting. The central bank kept the interest rate at 4.5%, in line with economists’ expectations. But the door for further rises remains open and further policy will depend on the next inflation and GDP data. BoC chief Maclem indicated at a press conference that the governing council discussed the likelihood of rates remaining in restrictive territory for a longer period in order to curb inflation.

Equity markets in Europe mostly rose on Tuesday. By the end of the day, German DAX (DE30) gained 0.31%, French CAC 40 (FR40) added 0.09%, Spanish IBEX 35 (ES35) increased by 0.40%, and the British FTSE 100 (UK100) gained 0.50% yesterday.

ECB spokesman and head of the Austrian Central Bank, Robert Holzmann, believes that the ECB needs to raise the interest rate by 0.5% in May. However, other ECB policymakers are in favor of a 0.25% increase. Before the May meeting, the Eurozone will publish another inflation report, which is likely to tell which move Europe’s Central Bank will choose. If core inflation shows no signs of slowing, the ECB will be more decisive.

Gold strengthened its position in the $2000 territory on Wednesday, hitting another peak. Despite a mixed US inflation report, government bond yields fell yesterday. Gold and silver are inversely correlated to US bond yields.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up by 0.57%, China’s FTSE China A50 (CHA50) decreased by 0.58%, Hong Kong’s Hang Seng (HK50) was down by 0.86%, India’s NIFTY 50 (IND50) added 0.51%, Australia’s S&P/ASX 200 (AU200) closed positive by 0.47%.

Bank of Japan Governor Ueda indicated yesterday that he wants to take the first step towards closer relations with “peers.” By peers, he means the other global central banks. Thus, there is a growing probability that the BoJ will start to move toward monetary policy normalization in the near future. The Japanese yen is strengthening amid such rumors.

S&P 500 (F) (US500)4,091.95 −16.99 (−0.41%)

Dow Jones (US30) 33,646.50 −38.29 (−0.11%)

DAX (DE40) 15,703.60 +48.43 (+0.31%)

FTSE 100 (UK100) 7,824.84 +39.12 (+0.50%)

USD Index 101.57 -0.64 (-0.62%)

• – Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
• – China Trade Balance (m/m) at 06:00 (GMT+3);
• – 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);
• – UK Trade Balance (m/m) at 09:00 (GMT+3);
• – German Consumer Price Index (m/m) at 09:00 (GMT+3);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
• – US Producer Price Index (m/m) at 15:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – Canada BoC Gov Macklem Speaks at 16:00 (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 JustMarkets

The US stock market traded without a single trend yesterday. At the close of trading, Dow Jones Index (US30) increased by 0.29%, S&P 500 (US500) closed at opening levels. The Technology Index NASDAQ (US100) was down by 0.43%. At the moment, the situation in the US stock market is mixed. Investors are waiting for the US inflation report and the latest Federal Reserve meeting minutes. These two reports will explain the US Federal Reserve’s future policy. Rising core inflation and hawkish FOMC minutes could add confidence to the dollar as it increases the likelihood of another 0.25% interest rate hike at the May 3 meeting. Conversely, lower inflationary pressures, along with non-hawkish FOMC minutes, could trigger a sell-off in the dollar.

Fed officials are signaling disagreement over whether to raise rates again. New York Fed President John Williams said on Tuesday that Fed officials still have a lot of work to do to bring rates down and suggested they would stay the course. Meanwhile, Chicago Fed President Austan Goolsbee, who is voting on monetary policy decisions this year, instead called for “prudence and patience” in assessing the economic impact of tightening credit conditions. Williams, speaking earlier in the interview, said the average forecast by Fed officials in March suggests another interest rate hike this year, followed by a pause.

First-quarter earnings reports from major banks, including JPMorgan (JPM ), Citigroup (C), and Wells Fargo (WFC), will also be released this week. Analysts expect S&P 500 companies to report a 5.2% year-on-year decline in first-quarter earnings as they lower expectations.

The International Monetary Fund on Tuesday cut its global growth forecast for 2023 as higher interest rates dampened activity and warned that a severe worsening of turmoil in the financial system could reduce output almost to recessionary levels. The IMF currently forecasts global real GDP growth of 2.8% in 2023 and 3.0% in 2024, a sharp slowdown from 3.4% in 2022 due to monetary tightening. The IMF forecast for the US has slightly improved: Growth in 2023 is forecast at 1.6% compared with a forecast of 1.4% in January. But the Fund has lowered forecasts for some major economies, including Germany, which is forecast to contract by 0.1% in 2023, and Japan, where growth is forecast at 1.3% instead of the 1.8% forecast in January.

The Fund also envisaged a severe deterioration scenario with a much broader exposure to bank balance sheet risks, leading to a sharp credit contraction in the US and other advanced economies, a significant reduction in household spending, and an exodus of investment funds into dollar-denominated safe haven assets. Emerging market countries would be hit hard by lower export demand, currency depreciation, and a sharp rise in inflation. That said, central banks should not stop fighting inflation because of financial stability risks that look “largely subdued.”

Equity markets in Europe mostly rallied on Tuesday. Germany’s DAX (DE30) ended the day up 0.37%, France’s CAC 40 (FR40) added 0.89% over yesterday, Spain’s IBEX 35 Index (ES35) lost 0.80%, Britain’s FTSE 100 (UK100) gained 0.57% over yesterday.

The IMF forecasts released yesterday do not take into account the impact of the recent OPEC+ oil production cuts, which caused a jump in oil prices. The IMF assumes an average world oil price of $73 a barrel in 2023, well below the price of current oil prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 1.05%, China’s FTSE China A50 (CHA50) decreased by 0.59%, Hong Kong’s Hang Seng (HK50) added 0.76%, India’s NIFTY 50 (IND50) gained 0.56%, Australia’s S&P/ASX 200 (AU200) closed positive by 1.26%.

The head of Japan’s leading banking group MUFG believes that the Bank of Japan may end its control of the yield curve by September. On Monday, Ueda said at his first press conference as governor of the Bank of Japan that it would be “appropriate” to maintain control of the yield curve. Ueda added that the bank could explore a “more sustainable structure that takes into account spillover effects,” hinting at changes in the future. According to analysts, if the Bank of Japan is confident that inflation will reach a stable level, it could possibly abolish its negative interest rate policy in the fiscal year 2024.

S&P 500 (F) (US500)4,108.94 −0.17 (−0.0041%)

Dow Jones (US30) 33,684.79 +98.27 (+0.29%)

DAX (DE40) 15,655.17 +57.28 (+0.37%)

FTSE 100 (UK100) 7,785.72 +44.16 (+0.57%)

USD Index 102.15 -0.43 (-0.41%)

• – US FOMC Harker Speaks at 01:00 (GMT+3);
• – US FOMC Kashkari Speaks at 02:30 (GMT+3);
• – Japan Producer Price Index (m/m) at 02:50 (GMT+3);
• – Indian Consumer Price Index (m/m) at 15:00 (GMT+3);
• – US Consumer Price Index (m/m) at 15:30 (GMT+3);
• – UK BoE Gov Bailey Speaks at 16:00 (GMT+3);
• – Canada BoC Interest Rate Decision at 17:00 (GMT+3);
• – Canada BoC Monetary Policy Report at 17:00 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – Canada BoC Press Conference at 18:00 (GMT+3);
• – US FOMC Meeting Minutes at 21:00 (GMT+3);
• – UK BoE Gov Bailey Speaks at 22:15 (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

By George Prior 

US CPI data is likely to show on Wednesday that inflation has peaked and the Federal Reserve must stop interest rate hikes from next month, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The warning from deVere Group’s Nigel Green comes as global financial markets await the latest US inflation report for March due out at 8.30 am Eastern Time. Economists forecast it rose 5.6% from a year earlier, excluding food and energy prices, which is approximately the same as the previous month.

He says: “Monetary policy is heavily driven by this data. Investors around the world will be treading water until it’s published as the CPI will give signals about how the Federal Reserve will set interest rates in the world’s largest economy at their next meeting on May 3.

“March’s headline inflation is expected to come in at 5.2%, a slowdown from February’s 6% annual gain. Core inflation, which strips out energy and food, is forecast to ease slightly month-over-month.

“This would suggest that inflation has peaked, being the slowest annual increase in consumer prices since May 2021.

“However, it is not going to be enough for the Fed and we fully expect the FOMC (Federal Open Market Committee) – the branch of the Federal Reserve responsible for implementing monetary policy – will set a quarter point interest rate hike in May.”

But the deVere CEO says he is worried about further rate hikes, citing two main reasons.

“Investors are increasingly concerned that the Fed’s overtightening now – when monetary policy time lags are notoriously long – could steer the US economy into a recession,” he notes.

“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.

“With inflation seemingly having peaked, the Fed is slowing winning the battle and officials now need to take their foot of the brake.”

He continues: “The Fed must also heed the warnings of the inverted US Treasury yield curve, which is now in day 193. I cannot stress this enough.

“The inverted yield curve suggests a recession is looming because it’s a sign of a tight credit market and weak economic growth.

“The inversion of the yield curve has preceded most US recessions since 1950.”

Should the US, the world’s biggest economy, fall into a recession, it would “clearly have a global impact” says Nigel Green. “At a time when the IMF is saying that five years from now, global growth is expected to be around 3%, which is the lowest medium-term forecast in a World Economic Outlook for over 30 years.”

The world economy is “not currently expected to return over the medium term to the rates of growth that prevailed before the pandemic,” the fund said in its latest economic outlook on Tuesday.

The slower growth prospects come from the increasing living standards in economies such as China and South Korea, weaker global labor force growth and geopolitical issues, such as Brexit and Russia’s invasion of Ukraine, the IMF said.

The deVere CEO concludes: “It’s time for the Fed to pivot. Will it? I doubt it.”

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 US stock market traded yesterday without a single trend. At the close of trading, Dow Jones Index (US30) increased by 0.30%, S&P 500 (US500) added 0.10%. But NASDAQ Technology Index (US100) was down by 0.03%.

The minutes of the Fed’s March meeting are due on Wednesday and are expected to provide more information on the Central Bank’s plans to raise interest rates in the face of a potential banking crisis. While the collapse of several US banks in March has spurred bets that the Fed will slow the pace of interest rate hikes, markets are now preparing for at least one more increase in May (80% probability).

According to research firm IDC, Apple’s personal computer shipments decreased by 40.5% in the first quarter due to weak demand and high inventory. Rising Treasury yields also hit sentiment towards the technology sector amid a strong March Nonfarm Payrolls report, which indicated that a robust jobs market could prompt the Federal Reserve to tighten monetary policy further.

Equity markets in Europe did not trade yesterday due to the Catholic Easter holiday.

Oil prices declined on Monday after rising for three consecutive weeks as fears of further interest rate hikes, which could curb demand, counterbalanced the prospect of a market tightening due to supply cuts by OPEC+ producers. Technically, in the higher time frames, oil is trading in a price range. It’s a liquidity accumulation. And any accumulation sooner or later ends with an impulse move. Analysts expect oil prices to continue rising ahead of summer.

Gold prices are trading just below recent highs, remaining relatively resilient as markets await further signals on the US economy from inflation data and the minutes of the Federal Reserve’s March meeting on Wednesday. The yellow metal was supported by demand for a safe haven as investor sentiment remained weak amid fears of slowing economic growth and monetary policy uncertainty.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) increased by 0.42%, China’s FTSE China A50 (CHA50) lost 0.19%, Hong Kong’s Hang Seng (HK50) was not trading, India’s NIFTY 50 (IND50) added 0.14%, and Australia’s S&P/ASX 200 (AU200) was also closed yesterday.

Warren Buffett said he had increased his stake in the top 5 companies in Japan’s Nikkei 225 index. Buffett also stated that he intends to continue investing in Japanese stocks. The Nikkei 225 has outperformed its regional peers this year because the Bank of Japan will keep its soft monetary policy for a longer period.

Chinese consumer inflation rose less than expected in March (+0.7% y/y vs +1.0% y/y expected), while producer price inflation continued to decline (-2.5% y/y) amid weak local consumption and slowing manufacturing activity.

In Australia, consumer confidence rose by 1.3% as the Reserve Bank of Australia (RBA) suspended its rate hike cycle.

S&P 500 (F) (US500) 4,109.11 +4.09 (+0.10%)

Dow Jones (US30)33,586.52 +101.23 (+0.30%)

DAX (DE40) 15,597.89 +77.72 (+0.50%)

FTSE 100 (UK100) 7,741.56 +78.62 (+1.03%)

USD Index 102.55 +0.46 (+0.45%)

• – China Consumer Price Index (q/q) at 04:30 (GMT+3);
• – China Producer Price Index (q/q) at 04:30 (GMT+3);
• – Eurozone Retail Sales (m/m) at 12:00 (GMT+3);
• – US EIA Short-Term Energy Outlook at 19:00 (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.