InvestMacro

By JustForex

Rosenberg Research’s chief economist expects the US Central Bank to raise interest rates by 75 basis points when it meets later this month. However, he urged the Fed to temporarily suspend its hike program because the US economy is already under pressure. According to Rosenberg, the Fed’s current rate hike program will punish long-term bondholders whose fixed-income assets are particularly sensitive to interest rate changes. Rosenberg added that he expects the US economy to come out of the Fed-induced recession (which will be 100%) only after it has gone through a period of deflation, allowing policymakers to start lowering interest rates.

The US retail sales rose unexpectedly after falling the previous month. The value of total retail purchases increased by 0.3% last month after a downwardly revised drop of 0.4% in July. Excluding fuel prices, retail sales increased by 0.8%.

The S&P 500 Index fell Thursday as energy and technology stocks fell, with the latter under pressure from rising Treasury yields as investors expect the Federal Reserve to raise its interest rate further to curb inflation. At yesterday’s close of the stock market, the Dow Jones Index (US30) decreased by 0.56%, and the S&P 500 Index (US500) lost 1.13%. The NASDAQ Technology Index (US100) fell by 1.43%.

According to the Fed’s rate monitoring tool, a 75 basis point rate hike next week is already priced in. But rising inflation and continued strength in the labor market are forcing a bet on higher and longer rates.

Equity markets in Europe traded without a single dynamic yesterday. Germany’s DAX (DE30) decreased by 0.55%, France’s CAC 40 (FR40) lost 1.04%, Spain’s IBEX 35 (ES35) added 0.37%, Britain’s FTSE 100 (UK100) closed by 0.07%.

New inflation data will be published today in the Eurozone. Analysts forecast that the consumer price index will not change and will remain at the same level. But there may be surprises in the form of a new round of price acceleration, so investors should keep a close eye on the report.

European Union lawmakers voted Thursday overwhelmingly to condemn the damage to democracy in Hungary under Prime Minister Viktor Orban, increasing pressure on the bloc to cut funding for the former communist country. Citing corruption risks, the European Commission is expected to recommend later this week that billions of dollars earmarked for Budapest be suspended from the bloc’s total 1.1 trillion-euro budget. “The situation has deteriorated to the point where Hungary has become a ‘selective autocracy’ rather than a democracy,” the chamber said in a statement. The European Commission has already blocked about 6 billion euros owed to Budapest from the bloc’s separate economic stimulus package for COVID-19, citing insufficient measures against bribery in Hungarian public procurement.

Gold is approaching a 2.5-year low due to excessive investor panic over interest rates. Tighter monetary policy is taking its toll on precious metals, and until rates stop rising and US Treasury yields start to decline, gold and silver will continue to be under selling pressure.

Asian markets were trading higher yesterday. Japan’s Nikkei 225 (JP225) gained 0.21%, Hong Kong’s Hang Seng (HK50) added 0.44% on the day, while Australian S&P/ASX 200 (AU200) gained 0.21%.

Alarming signals are emerging for the Chinese economy. Last week’s trade data showed export growth well below expectations and slowed for the first time in four months. It is very likely that China’s exports will slow further or even contract in the coming months as leading economic indicators point to slower global growth or even recession. Other data showed that retail sales and industrial production in China beat expectations in August. Core investment in the first eight months of the year also exceeded expectations despite major problems in the real estate sector.

The Governor of the Reserve Bank of Australia, Philip Lowe, said that the number of cases of excessive increase in interest rates has decreased. Lowe also said the Central Bank would discuss the benefits of a quarter-point or half-point increase at its October 4 meeting.

A Reuters poll showed that core inflation in Japan would reach an eight-year high in August. The nationwide core Consumer Price Index (CPI), which excludes food and fuel prices, will reach an annualized rate of 2.7%.

S&P 500 (F) (US500)  3,901.35  −44.66  (−1.13%)

Dow Jones (US30) 30,961.82 −173.27 (−0.56%)

DAX (DE40) 12,956.66 −71.34 (−0.55%)

FTSE 100 (UK100)  7,282.07 +4.77 (+0.066%)

USD Index 109.71 +0.05 (+0.04%)

• – China Industrial Production (m/m) at 05:00 (GMT+3);
• – China Retail Sales (m/m) at 05:00 (GMT+3);
• – China Unemployment Rate (m/m) at 05:00 (GMT+3);
• – UK Retail Sales (m/m) at 09:00 (GMT+3);
• – Eurozone Italian Consumer Price Index (m/m) at 12:00 (GMT+3);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

By JustForex

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

The coming week will feature central bank decisions galore!

Take your pick: the US Federal Reserve, the Bank of England (meeting delayed from last week), the Bank of Japan, and Norges Bank (the central bank of Norway) are all set to hold their respective policy meetings.

Though of course, the Fed surely takes centre stage considering that it’s the most powerful central bank in the world and holds so much sway across global financial markets.

Here’s what to expect for the coming week:

Monday, September 19

• UK markets closed for funeral of Queen Elizabeth II

Tuesday, September 20

• JPY: Japan August CPI
• CNH: China loan prime rates
• AUD: RBA September meeting minutes
• CAD: Canada August CPI

Wednesday, September 21

• USD: Fed rate decision
• US crude: EIA weekly oil inventory report

Thursday, September 22

• NZD: New Zealand 3Q consumer confidence, August external trade
• JPY: Bank of Japan policy decision
• NOK: Central Bank of Norway rate decision
• GBP: Bank of England rate decision
• USD: US weekly initial jobless claims
• EUR: Eurozone September consumer confidence

Friday, September 23

• AUD: Australia September PMIs
• EUR: Eurozone September PMIs
• GBP: UK September PMIs and consumer confidence
• CAD: Canada July retail sales

Here’s what markets are forecasting for the upcoming Fed decision due mid-week:

• 75 basis point hike fully priced in.
• 25% chance of a 100bps hike.
• US interest rates to peak around 4.5% by March 2023 (from the current 2.5%, before the September FOMC meeting next week).
  That’s an extra 50 basis points on top of the 4% peak forecasted just this time last week (before the latest US CPI was released – more on that in a bit).

Such hawkish expectations (that the Fed would have to trigger more of these outsized rate hikes to combat stubbornly elevated inflation) has restored this equally-weighted US dollar index back to its recent peak, trading around levels not seen since the onset of the global pandemic.

The ramp-up in expectations for a more aggressive Fed came in the wake of the US August consumer price index (CPI) released on September 13th.

We learned that inflation rose by a higher-than-expected 8.3% in August, compared to the 8.1% figure forecasted by economists.

The core CPI print (excluding more volatile items such as food and energy prices) also came in 0.2 percentage points above the forecasted 6.1% figure.

In other words, US inflation remains stubbornly elevated, despite the Fed having already hiked by 225 basis points since March.

Recall how before this week’s US CPI release, some segments of the markets believed that the Fed may just be contented with a 50bps hike at the September FOMC meeting.

Such expectations have been dashed by the hotter-than-expected August CPI that was unveiled earlier this week.

The higher-than-expected inflation numbers are set to frame the Fed’s upcoming pivotal decision.

• Should the Fed indeed trigger that gargantuan 100bps hike, that may send this equally-weighted USD index up to 1.23, a fresh 2-year high.

  That 1.23 region may offer initial resistance for this USD index, as it did back in May 2020. Stronger resistance is set to arrive around 1.25, as was the case back in early April 2020.

• However, should the Fed unexpectedly deliver a dovish shocker, perhaps by triggering only a 50bps hike or suggesting that most of its intended rate hikes are already in the past, that could see this USD index swiftly unwinding recent gains.

  A moderating greenback would in turn allow the rest of the FX space room to breath a massive sigh of relief.

Article by ForexTime

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

By JustForex

Inflationary pressures in the United States failed to decline significantly last month, despite falling gas prices. This is a sign that the Federal Reserve still has much work to do to restore price stability and provide long-term relief to US households. According to the US Bureau of Labor Statistics, the Consumer Price Index increased by 0.1% on a seasonally adjusted basis after stabilizing in July, exceeding consensus forecasts. On an annualized basis, the consumer price index fell to 8.3% from 8.5%. Economists polled by Bloomberg had expected inflation to fall to 8.1%. Core inflation (excluding food and energy prices) rose by 0.6% last month. On an annualized basis, core inflation rose from 5.9% to 6.3%.

Treasury bond yields jumped sharply after the CPI data, with the two-year rate soaring 21 basis points to about 3.78%, the highest level since October 2007. The yield on the benchmark 10-year bond increased by 10 basis points to 3.46%, while the dollar strengthened against major currencies and US stocks fell. S&P 500 stocks fell the hardest as high-priced stocks suffered from a sharp rise in US Treasury yields.

As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 3.94%, and the S&P 500 Index (US500) lost 4.32%. The NASDAQ Technology Index (US100) decreased by 3.53% on Tuesday.

According to analysts, the Fed is going to raise rates another 75 basis points next week, and the question is, will the Fed eventually raise rates to 4.5% or higher? This is keeping the whole market in suspense since rates are still low with this inflation.

Despite the widespread market expectation of a further 75 basis point hike, Prince – a global economist and advocate of economic reform – said the Fed would likely deviate from its hawkish trajectory in three steps as the gap between wealthy investors and institutions and the “real economy” widens. By first reducing the rate hikes to 50 basis points and then neutralizing policy, Prins expects the Fed to begin to reverse course as the US has posted two consecutive quarters of negative GDP growth.

Equity markets in Europe also fell yesterday. German DAX (DE30) fell by 1.59%, French CAC 40 (FR40) decreased by 1.39%, Spanish IBEX 35 (ES35) lost 1.59%, British FTSE 100 (UK100) closed down by 1.17%.

The Dutch Cabinet plans aid for energy bills. One million households in the Netherlands are facing financial problems due to rising energy prices. About 600,000 of these households have never experienced financial difficulties before. Now, these households have had to deal with debt counseling to get rid of these debts, which will cost the government dearly.

Germany’s Consumer Price Index was 7.9% annually, after 7.5% in July. The inflation rate has been above 7% for over six months. The main reason for the high inflation is still an increase in energy and food prices. The German economy minister Habek said yesterday that Germany would have to go into recession next year. Spain’s annual inflation rate has fallen from 10.7% to 10.5%.

The European Union wants to cap revenues from cheaper power producers; impose an excess profits tax on fossil fuel companies, and impose mandatory consumption cuts. Commission President Ursula von der Leyen’s plans have yet to be finalized and eventually approved by other states, and there are deep divisions over how to deal with the crisis. Already, the most controversial idea – limiting the price of imported Russian gas – has been postponed until further negotiations.

Oil prices fell nearly 1% on Tuesday, reversing earlier gains. US Consumer Prices unexpectedly rose in August, giving the US Federal Reserve another chance to raise interest rates sharply next week.

Asian markets were trading higher yesterday. Japan’s Nikkei 225 (JP225) gained 0.25%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.18%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday up to 0.65%.

S&P 500 (F) (US500)  3,932.69 −177.72  (−4.32%)

Dow Jones (US30) 31,104.97 −1,276.37 (−3.94%)

DAX (DE40) 13,188.95  −213.32 (−1.59%)

FTSE 100 (UK100) 7,385.86 −87.17 (−1.17%)

USD Index 109.89 +1.57 (+1.45%)

• – Japan Industrial Production (m/m) at 07:30 (GMT+3);
• – UK 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 Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustForex

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.