InvestMacro

By George Prior 

Month-on-month inflation reports and the Federal Reserve’s responses won’t fixate investors, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

Nigel Green of deVere Group’s warning comes as a new report on U.S. inflation reveals the annual rate of price increases was 6.4% in January following a decline to 6.5% in December. More broadly, inflation has cooled from a 40-year high of 9.1% in June 2022.

He says: “It’s slightly higher than most analysts had expected, but it’s nothing too dramatic. All other reports were in line with expectations.

“It should also be noted that different calculation metrics were used this month.

“There has been a shift as markets are now betting on a longer period of higher interest rates as they begin to take heed of the message from U.S. Federal Reserve officials that there’s still a way to cool inflation in the face of a robust labour market.

“The tight labour market is a headache for the Fed, as it contributes to strong wage growth. However, Fed Chair Powell made clear last week that embedded inflation, caused by wage growth, is not yet a problem.”

The deVere CEO continues: “Despite the higher-than-expected inflation print, it’s clear to investors that we’re far closer to the ‘home run’ now.

“I think investors will, sensibly, be prepared to look through any near-term squalls on inflation and interest rate news.

“Instead, rightly, they will be focused more on earnings. Fourth-quarter 2022 earnings have fallen from a year ago, now a decline in the first quarter of 2023 would push the S&P 500 into an earnings recession.”

This, says Nigel Green, will be more front and center in investors’ minds.

“They are less fixated on the month-on-month inflation reports and the Federal Reserve’s response.

“Inflation seems to have peaked and investors are looking to the future, not in the rear-view mirror.”

As we move past peak-inflation, it’s critical that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies and regions, so as to make the most of the considerable opportunities that will inevitably present themselves.

“As the economic cycle moves ahead, and economies readjust, there will be big winners and big losers – it’s about being invested in the right companies, those which can consistently maintain or steadily grow margin, as well as diversification across sectors, asset classes and regions.

“A good fund manager will be critical in identifying these winners and losers as the economic cycle moves on,” affirms the deVere CEO.

He concludes: “As we’re seeing, some companies are struggling to maintain margin and are failing to report as had been expected.

“This is now a bigger deal for investors looking to build wealth than individual inflation reports.”

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 Federal Reserve may have to keep raising interest rates to curb price increases, which could slow economic growth and affect the labor market, FOMC spokeswoman Michelle Bowman said yesterday. Bowman noted that continued labor market tightness is putting upward pressure on inflation, even if some components of inflation are declining because of improved supply factors. Officials in December projected that rates would peak at 5.1% this year, according to their average forecast. But they will update those estimates next month. Such comments did not affect investor sentiment to buy stocks. As the stock market closed yesterday, the Dow Jones Index (US30) increased by 1.11, and the S&P 500 Index (US500) added 1.14%. The NASDAQ Technology Index (US100) jumped by 1.48%.

Meta (META) jumped about 3% after the Financial Times reported that the company is preparing to announce a new round of job cuts.

Today, investors are focused on January inflation data (CPI) to revise their bets on the central bank’s monetary policy trajectory. The consumer price index is expected to fall from 6.5% to 6.3% year-over-year, with core inflation (which excludes food and energy prices) also falling from 5.7% to 5.4%. If the actual data is in line or at least not worse, the dollar index will probably start to lose ground, giving confidence to stock indices, and conversely, rising inflation will return panic sentiment to the market, causing indices to fall and investors to return to the dollar.

Equity markets in Europe were mostly up yesterday. German DAX (DE30) gained 0.58%, French CAC 40 (FR40) added 1.11%, Spanish IBEX 35 (ES35) jumped by 1.02%, British FTSE 100 (UK100) was up by 0.83% on Monday.

With inflation slowing faster than expected in Europe, the new quarterly forecast is likely to signal a slowdown in price growth, the head of Portugal’s central bank said Monday. He said the quarterly GDP data would be “very important” in determining the course of monetary policy, especially the peak in borrowing costs. While record Eurozone inflation is receding, the ECB is set to raise rates by another 50 basis points at next month’s meeting. Officials are worried about price pressure caused by rising salaries, which are not yet weakening.

Concerns about another hot US inflation figure have led to speculation that the Federal Reserve may have to be more hawkish than previously thought. Any rally in the US currency puts pressure on commodities, led by oil and gold. The dollar index will get fundamental support if today’s inflation data are worse than forecast.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.88% yesterday, China’s FTSE China A50 (CHA50) gained 1.08%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.12%, India’s NIFTY 50 (IND50) decreased by 0.48%, and Australia’s S&P/ASX 200 (AU200) lost 0.21%.

BlackRock downgraded Japanese stocks on expectations of a monetary policy reversal. According to analysts, inflation in the country is starting to take root, and the Bank of Japan continues to maintain its ultra-soft monetary policy, including limiting bond yields, which requires significant bond purchases. Therefore, a policy change could occur at any moment. Meanwhile, there is growing speculation about what a change in BOJ leadership in April would mean for policy. Kuroda’s last meeting as governor will be on March 10. BlackRock believes that regardless of who takes over, wage and inflation dynamics mean that the current policy stance is likely exhausted, and a change in monetary policy is inevitable.

Reserve Bank of Australia (RBA) Governor Philip Lowe will appear before Parliament on Wednesday and Friday for hearings on his anti-inflationary campaign, which has raised interest rates by 325 basis points in just 10 months. Disputes in the press have increased speculation that Lowe may not be appointed to a second term as governor because of the government’s independent investigation into central bank management and policy. Consumer price inflation in Australia is now at a 32-year high of 7.8% and is projected to return to the upper limit of the bank’s target range of 2-3% by mid-2025.

S&P 500 (F) (US500) 4,137.29 +46.83 (+1.14%)

Dow Jones (US30)34,245.93 +376.66 (+1.11%)

DAX (DE40) 15,397.34 +89.36 (+0.58%)

FTSE 100 (UK100) 7,947.60 +65.15 (+0.83%)

USD Index 103.28 -0.35 (-0.34%)

• – Australia Westpac Consumer Confidence Index (m/m) at 01:30 (GMT+2);
• – Japan GDP (q/q) at 01:50 (GMT+2);
• – New Zealand Inflation Expectations (m/m) at 04:00 (GMT+2);
• – Japan Industrial Production (m/m) at 06:30 (GMT+2);
• – 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);
• – Switzerland Producer Price Index (m/m) at 09:30 (GMT+2);
• – Eurozone GDP (q/q) at 12:00 (GMT+2);
• – US Consumer Price Index (m/m) at 15:30 (GMT+2);
• – US FOMC Member Williams Speaks at 21:05 (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

Last week, the Nasdaq recorded its first weekly decline of the year. After a strong report on nonfarm payrolls and data from ISM in service sectors, investors concluded that the US economy remains resilient, and interest rates are pricing in a “higher for the longer term” scenario. Such market conditions create an environment of uncertainty for investors, which limits growth potential. As the stock market closed on Friday, the Dow Jones Index (US30) increased by 0.50 (-0.02% for the week), and the S&P 500 Index (US500) added 0.22% (-0.71% for the week). The NASDAQ Technology Index (US100) fell by 0.61% on Friday (-1.56% for the week).

2-year and 10-year bond yields soared to more than four-week highs last week as traders reassessed the trajectory of monetary policy higher, with the final rate now at 5.17% compared to 4.92% earlier this month.

According to Refinitiv, more than half of the firms in the S&P 500 reported earnings, with 69% beating earnings estimates for the quarter. Coca-Cola (KO), Barrick Gold (GOLD), Kraft Heinz (KHC), Airbnb (ABNB), and Biogen (BIIB) are reporting this week.

Equity markets in Europe were mostly down on Friday. German DAX (DE30) fell by 1.39% (-0.38% on the week), French CAC 40 (FR40) lost 0.82% (-0.73% on the week), Spanish IBEX 35 (ES35) fell by 1.36% (-0.63% on the week), British FTSE 100 (UK100) decreased by 0.36% (-0.24% on the week).

After the Bank of England’s latest rate hike and Friday’s GDP data, markets believe the central bank may soon hit the pause button. According to business surveys, the UK economy faces serious recession risks. The deciding factor this week will be the labor market figures and new inflation data. Inflation is projected to remain above 10%, while the labor market will show signs of weakness. In that case, the Bank of England will have no choice but to stop raising rates.

The selloff in precious metals stabilized somewhat late last week as markets await important inflation data this week. With the new economic data, there is a constant reassessment of forward-looking expectations. A soft landing and a resilient US economy will help push gold prices higher. New signals of policy tightening will be negative for gold, as the precious metals have an inverse correlation to the dollar index and government bond yields.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) declined 0.34% over the week, China’s FTSE China A50 (CHA50) fell by 0.63% over the week, Hong Kong’s Hang Seng (HK50) lost 0.74% over the week, India’s NIFTY 50 (IND50) added 0.60%, and Australia’s S&P/ASX 200 (AU200) was down by 1.65% over the week.

This week, the Japanese government will officially elect a new Governor of the Bank of Japan to replace Haruhiko Kuroda, whose decade as the Central Bank will end in April. Whether the Bank of Japan will adjust its policy is one of the main questions facing markets around the world this year. BoJ observers suspect that the current ultra-soft monetary policy is likely to change as inflation rises. Also, on Friday, it was reported that the Japanese government decided to nominate Kazuo Ueda as governor of the Bank of Japan after Deputy Governor Masayoshi Amamiya reportedly refused the role. It was thought that Amamiya would provide some continuity to Kuroda’s policies. Although Ueda’s political views are not yet clear, traders are betting that he is unlikely to be as cautious as Amamiya about tightening policy. He is not currently a member of the Bank of Japan and has not been involved in extreme stimulus policies in the last decade, so it is thought that he might be more open to raising interest rates.

In the commodities market, futures on WTI crude oil (+8.68%), Brent oil (+8.23%), gasoline (+7.65%), natural gas (+7.05%), orange juice (+4.47%) and wheat (+4.26%) showed the biggest gains last week. Futures on lumber (-15.23%), palladium (-5.8%), and platinum (-2.96%) showed the biggest drop.

S&P 500 (F) (US500) 4,090.46 +8.96 (+0.22%)

Dow Jones (US30) 33,869.27 +169.39 (+0.50%)

DAX (DE40) 15,307.98  −215.44 (−1.39%)

FTSE 100 (UK100) 7,882.45 −28.70 (−0.36%)

USD Index 102.99 +1.24 (+1.22%)

• – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+2);
• – Indian Consumer Price Index (m/m) at 14:00 (GMT+2);
• – US FOMC Member Bowman Speaks at 15:00 (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.