InvestMacro

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 ForexTime 

• UK100 now less than 0.2% away from all-time peak!
• 3 stock index “laggards” could find reasons to catch up next week
• MONDAY: US30 (+2% ytd) needs a boost from Goldman Sachs earnings
• TUESDAY: CN50 (+3.6% ytd) bulls require rosier Chinese economic data
• WEDNESDAY: UK100 (+3.7% ytd) needs slowing CPI to stay above 8k

REMINDER: 11 of FXTM’s 18 stock indices have reached their respective record highs so far in 2024.

However, we could see that tally reach 12 very soon (hint: the “answer” lies towards the end of this article).

In assessing the various stock indexes around the world, obviously not all are created equal.

Broadly speaking, there are the outperformers:

• US500: up 9% year-to-date
• EU50: +10.9%
• TWN: +11.9%
• NETH25: +13.4%
• JAP225: +18.1%

At the other end of the spectrum, there are others that are clearly lagging behind their peers, with more conservative year-to-date gains:

• US30: +2%
• UK100: +3.4%
• CN50: +3.6%

Over the coming week, these 3 events could either boost, or further dampen, the above-listed “laggards”:

1) US30 index: Goldman Sachs earnings (Monday, April 15th)

Wall Street banking giant, Goldman Sachs, is the 3rd-largest member of the US30 stock index.

NOTE: The US30 tracks the benchmark Dow Jones Industrial Average index a.k.a. the Dow

Goldman Sachs alone accounts for 6.8% of the Dow!

And at the time of writing, markets predict that Goldman Sachs’s share prices could move 3.4%, either up or down, once US stock markets reopen after the bank has released its earnings.

Hence, the market’s reaction to Goldman Sachs’s earnings could have a large impact on the US30’s performance.

• Better-than-expected earnings for Goldman Sachs could lift the US30 towards its 50-day simple moving average (SMA).
• Worse-than-expected earnings for Goldman Sachs could sink the US30 towards its 100-day SMA, where also lies the psychologically-important 38,000 line.

2) CN50 index: China’s key economic data releases (Tuesday, April 16th)

The world’s second-largest economy is due to release its 1Q GDP data, alongside last month’s performance for industrial production, retail sales, retail sales, and property investment.

Essentially, this coming Tuesday …

Investors and traders are about to be hit with a lot of information on how the Chinese economy is faring right now.

Note that the CN50 index’s performance is very much tied to the overall health of the Chinese economy.

After all, stocks within the financial, consumer staples, and industrials sectors combine to account for two-thirds (67.8%) of the entire CN50 index.

Hence, no surprise that the CN50 has lagged, given the economic challenges that China’s currently facing.

• If Tuesday’s data releases come in better-than-expected, this could send CN50 back above the psychologically-important 12,000 mark and past its 200-day SMA.
• However, evidence of a still-sluggish Chinese economy may keep the CN50 index subdued below its 50-day SMA, and potentially on a path towards that end-Feb/early-March low of 11,686.3.

3) UK100 index: UK March consumer price index (Wednesday, April 17th)

NOTE: The consumer price index (CPI) measures inflation in an economy.

Economists predict that the March UK CPI rose by:

• 2.9% year-on-year (March 2024 vs. March 2023)
• 0.4% month-on-month (March 2024 vs. February 2024)

Recall that the UK100 index has an inverse relationship with the British Pound (GBP).

NOTE: When GBP goes up, the UK100 tends to fall, and vice versa.

This inverse relationship has been particularly evident over the past month:

The primary reason for the price moves in the above chart (GBPUSD vs. UK100) is because …

Markets are now betting that the Bank of England’s (BOE) interest rate CUTS will be brought forward.

Such revised expectations have dragged GBPUSD to its year-to-date low closer to 1.2500, while the UK100 has made multiple breaches of the psychologically-important 8,000 mark.

• Higher-than-expected CPI figures, that force the BOE to delay its rate cuts, could strengthen Sterling and drag the UK100 back below the 8k mark.
• Lower-than-expected CPI figures, that allow the BOE to bring forward its rate cuts, could weaken GBP and help keep the UK100 above 8,000.

At the time of writing (Friday, April 12th) …

The UK100 index is less than 0.2% below its all-time intraday high of 8051.7, registered on February 16th, 2023.

READ MORE: UK100 index teases record high (April 2nd, 2024)

If things go the UK100’s way either later today, or in the Week Ahead …

Then we’d see 12 of FXTM’s stock indices having notched fresh record highs so far this year!

For further consideration, here’s a more comprehensive list of scheduled events that could move various asset classes over the coming week:

Monday, April 15

• CNH: PBoC rate decision
• EUR: Eurozone February industrial production
• USD index: US March retail sales; speeches by Dallas Fed President Lorie Logan, San Francisco Fed President Mary Daly
• US30 index: Goldman Sachs earnings

Tuesday, April 16

• CN50 index: China 1Q GDP; March industrial production, retail sales, unemployment, property investment
• EU50 index: Eurozone April ZEW survey; February trade balance
• GBP: UK February unemployment
• RUS2000 index: US March industrial production
• CAD: Canada March CPI
• US500 index: Morgan Stanley, Bank of America earnings

Wednesday, April 17

• NZD: New Zealand 1Q CPI
• JP225 index: Japan March trade balance
• SG20 index: Singapore March exports
• NETH25 index: Eurozone March CPI (final)
• UK100 index: UK March CPI; speech by BOE Governor Andrew Bailey
• US400 index: Fed Beige Book; speeches by Cleveland Fed President Loretta Mester, Fed Governor Michelle Bowman

Thursday, April 18

• AUD: Australia March unemployment; 1Q business confidence
• TWN index: TSMC earnings
• USD: US weekly initial jobless claims; speeches by Fed Governor Michelle Bowman, New York Fed President John Williams, Atlanta Fed President Raphael Bostic

Friday, April 19

• JPY: Japan March national CPI
• GER40 index: Germany March PPI
• GBP: UK March retail sales
• USD: Speech by Chicago Fed President Austan Goolsbee

Article by ForexTime

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

By Bart MacCarthy, University of Nottingham 

The woes of Boeing show no sign of abating. CEO Dave Calhoun has announced he will step down at the end of the year. Board chair, Larry Kellner and the firm’s head of commercial planes, Stan Deal, are also quitting the aviation giant.

This follows an array of technical failures with Boeing aircraft, including the mid-air blowout of a door plug on an Alaska Airlines Boeing 737 Max 9 in January. It was recently confirmed that the manufacturer has paid US$160 million (£127 million) to the airline in compensation.

The diversity of issues indicates systemic failures in the management of quality in Boeing and its supply base. The Alaska Airlines incident represented a quality tipping point – the point at which fundamental changes in Boeing’s management of quality became imperative and unavoidable.

There were no serious injuries in the Alaska Airlines blowout incident – unlike the two crashes of Boeing’s 737 Max in 2018 and 2019, which killed a total of 346 people. But the aircraft was forced to make an emergency landing.

Among previous failures in design, manufacture and assembly were problems with an automated stabilising system on a new Southwest Airlines Boeing 737 Max in February 2023; a mid-air engine failure on a United 737 Max in November 2023; and Boeing having to ask all operators of the 737-Max a few weeks later to examine installation of a rudder following a loose bolt being reported on one aircraft.

In recent days a Southwest Airlines Boeing 737-800 needed to do an emergency landing shortly after takeoff from Denver because an engine cover came off. The blame here appears to lie with either the engine manufacturers or the airline rather than Boeing.

But the January failure has had severe, if not existential, consequences for Boeing. It has affected the company’s share price, harmed its competitive position with Airbus, and put the firm under intense scrutiny by media, regulators and airlines. Passengers are publicly wondering whether they should avoid flying on a 737 (or indeed any Boeing aircraft), while major airlines including Ryanair and United Airlines are facing uncertainty from delayed aircraft orders that were supposed to be due in time for summer.

The problem for Ryanair

The civil aircraft market in Europe is effectively a duopoly between Airbus and Boeing. For airlines, the costs of switching to another manufacturer are high and lead times from order to delivery are long. As such, there is mutual lock-in in the relationship between Boeing and Ryanair, one of the manufacturer’s largest customers.

Ryanair uses the 737 class across its extensive European fleet. This strategy brings many benefits in the lean business model Ryanair favours: operational flexibility, reduced maintenance costs and faster airport turnarounds. It gives Ryanair substantial leverage with Boeing, though as in many buyer-supplier relationships, there is strong interdependence.

Ryanair’s very vocal CEO, Michael O’Leary, has been outspoken in reporting increased quality issues in the airline’s inspections of Boeing aircraft delivered since the pandemic, including finding spanners under floor panels and missing seat handles. He has still expressed confidence in Boeing, but says it has to get quality right in future.

Reliable aircraft supply from Boeing is critical for Ryanair to take advantage of a resurgent post-pandemic passenger market. Delays to the 737 Max were already hampering Ryanair’s growth, to the extent that the airline offered back in January to take aircraft cancelled by other airlines. O’Leary warned in February that passengers could see a 10% hike in fares in 2024 due to gaps in the Ryanair fleet. Meanwhile, Chicago-based United Airlines has also reportedly asked pilots to take unpaid leave because of delayed aircraft deliveries from Boeing.

So why might ensuring quality be so challenging for an industrial giant such as Boeing?

Ensuring quality

A commercial aircraft is massively complex, with almost infinite potential for variations in component parts. Boeing has the resources and capabilities to tackle these issues. But the reported issue with the January blowout of missing bolts points to a basic quality failure that should never have occurred in a quality-focused organisation.

Many techniques can be deployed to improve quality in manufacturing and assembly operations. For instance, a well proven and commonly used approach is known as “six sigma”. This statistics-based methodology provides a set of steps to identify, investigate and resolve sources of variation to ensure a product or process conforms to specification. It strives for almost zero defects and can be applied with contemporary data science methods to identify root causes, target improvements, and ensure such an issue never recurs.

But viewing quality as just a set of technical, statistical problems misses the major challenges confronting Boeing. As statistician and pioneering business theorist W Edwards Deming argued, quality management has behavioural, organisational and cultural dimensions. Deming laid the responsibility for quality squarely in the hands of top management.

Reported issues in Boeing’s assembly operations include failure to follow procedures, workarounds and inexperienced staff recruited post-pandemic. Flaws in fuselages delivered from a major supplier were tolerated, to be corrected later, in order to maintain a production schedule. This all speaks to deep-seated organisational and cultural issues at Boeing.

Targeted improvement initiatives will help, but are not a panacea. Instilling a culture of quality excellence will need root-and-branch rethinking across the organisation and its massively complex supply base.

Crucially, Boeing needs to ensure that quality procedures are followed every time. In line with one of Deming’s key principles, this will require transformational quality leadership across the organisation, starting from the very top.

Organisations, whether product or service-based, ignore persistent quality issues at their peril. As Boeing demonstrates, if not addressed, they can have severe impacts at every level of an organisation.

A Boeing spokesperson said:

We are squarely focused on implementing changes to strengthen quality across our production system and taking the necessary time to deliver high quality airplanes that meet all regulatory requirements. We continue to stay in close contact with our customers about these issues and our actions to address them.

About the Author:

Bart MacCarthy, Professor of Operations Management, University of Nottingham

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

By ForexTime 

• UK100 index broke above 8k mark today
• This stock index came to within 150 pips of its all-time high
• Falling UK house prices fostered bets for UK interest rate cuts
• “Dovish” Bank of England weakened GBP, cheered UK stocks
• Could this be the 12th FXTM stock index to reach record high this year?

The UK100 index came to less than 0.2% away from its record high!

This stock index broke above the psychological 8,000 level, before easing back lower at the time of writing.

What is a stock index?

Imagine a stock index being a basket of many different stocks.

The index measures the overall performance of all those stocks inside that “basket”.

So, rising stock prices inside that “basket” tends to push the index’s prices higher, and vice versa.

What does the UK100 stock index track?

FXTMs UK100 stock index tracks the performance of the benchmark FTSE 100 index.

The FTSE 100 is a blue-chip index, measuring the performance of the 100 biggest companies listed on the London Stock Exchange.

This includes well-known companies such as Shell, AstraZeneca, HSBC, Unilever, and BP, among others.

How far away is the UK100 from its current record high?

The current ATH (all-time high) for this stock index, using intraday prices, stands at 8051.4 posted on 16th February 2023.

Note that this UK100 index tends to move by an average of 0.9% on any given trading day over the past two years.

In other words, this UK100 stock index remains well within reach of its current record high.

If the UK100 stock index can set a new record high soon, that would raise the tally to …

12 of the 18 different stock indices offered across FXTM’s platforms that have posted their respective record highs so far in 2024!

UK100 playing catch up with global peers

Note that the UK100 stock index is up “just” about 3% so far in 2024.

That pales in contrast to the year-to-date gains shown in these stock indexes:

• JAP225: +19%
• NETH25: +13%
• EU50: +12.7%
• TWN: +11.7%
• US500: +9.9%

Why is the UK100 stock index rising today (Tuesday, April 2nd)?

Today (April 2nd, 2024), it was revealed that UK house prices in March 2024 fell 0.2% compared to February 2024.

This was the first month-on-month decline for UK house prices since December 2023.

While falling UK house prices may ease inflationary pressures, it could also mean stagnating economic growth.

Either way, the data points to a greater likelihood that the Bank of England may cut its Bank Rate sooner rather than later.

How does the BOE’s rate outlook impact the FTSE 100 stock index?

The prospects of UK interest rates moving lower tends to weaken the British Pound, which in turn lifts up the FTSE 100.

At the time of writing, markets are pricing in a 72% chance that the Bank of England will lower its benchmark rate at its June 2024 policy meeting.

Those 72% odds are significantly higher compared to the 42% chance accorded just a month ago (early March 2024) for the same event (BOE rate cut in June).

As a general rule, markets tend to weaken the currency belonging to the central bank that’s about to lower its interest rates.

Also note that the FTSE 100 index and Sterling tend to go in opposite directions (inverse relationship).

In fact, using Bloomberg data, over any given 5-day rolling period over the past 30 years …

the FTSE 100 has moved in the opposite direction as the British Pound, 95% of the time!

Hence, the thought of lower BOE rates = weaker Pound = higher UK100 stock index.

How high could the UK100 stock index go?

Wall Street analysts predict that this UK100 stock index could flirt with the 9,000 mark, 12 months from now.

That suggests potential gains of over 12% over the next 12 months!

If investors can become even more optimistic about the UK and global economic outlook, supported by lower interest rates in the UK, that should help this UK100 stock index realise its upside potential.

Beware of technical pullback

However, on the daily timeframe, note that the UK100’s 14-day relative strength index (RSI) has broken the 70 line and into “overbought” territory.

History suggests that such a technical event may lead to a price pullback in the near future.

Still, once the froth has been cleared from this technical pullback, the UK100 stock index may resume its uptrend that began in late-October 2023, provided the fundamental reasonings remain sound.

Article by ForexTime

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

By Josh Lepawsky, Memorial University of Newfoundland 

Semiconductors are the basic building blocks of microchips. These technological marvels are in everything from lightbulbs and toothbrushes to cars, trains and planes, not to mention the vast array of electronics that have become integral to many people’s daily lives.

The 21st century chip manufacturing industry has been described as “at least as significant geopolitically as oil was in the 20th.” But semiconductor manufacturing requires vast quantities of water to keep machinery cool and wafer sheets free of debris, and the unfolding climate emergency puts the industry at risk.

Despite the industry’s dependence on water, little attention has been paid to how changing environmental conditions may impact it. Reporting by journalists and think tanks tend to overlook climate as a risk factor for the future of the industry.

Yet, globally and regionally there are signs of trouble. Taiwan, for example, produces about 90 per cent of the world’s most advanced semiconductors and has been experiencing a significant drought since 2021.

The drought is bad enough that Taiwanese farmers are being paid to keep their fields fallow so water that would otherwise go to agriculture can be fed into semiconductor manufacturing plants. Taiwanese manufacturing plants have even had to resort to trucking water from one watershed to another to overcome shortages.

Publicly available data on climate change-induced water stress, combined with data on the location of existing, planned and announced semiconductor manufacturing facilities around the world, all point to global patterns of concern for the future of semiconductor manufacturing.

Looming water shortages ahead

No matter the climate change scenario considered — whether optimistic, business-as-usual or pessimistic — a minimum of 40 per cent of all existing semiconductor manufacturing plants are located in watersheds that are anticipated to experience high or extremely high water stress risk by 2030.

High-risk watersheds are those in which 40 to 80 per cent of the total renewable surface and ground water available for all purposes (e.g., irrigation, industrial, domestic use) are in use. Extremely high-risk watersheds are those in which greater than 80 per cent of the total renewable surface and ground water are in use.

Much of the recent concern expressed over semiconductor manufacturing paints the issue in geopolitical terms about interstate rivalry, especially between China and the United States.

Both the U.S. and Europe have announced major government funding for the semiconductor manufacturing industry, especially to bring back the facilities of companies that spent decades setting up manufacturing capacity outside of those regions. However, the manufacturing facilities being announced or under construction in the U.S. and Europe are all located in regions that are already facing significant water stress.

Intel, Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung are all building new facilities in the southwestern U.S. — a region that has been under official drought conditions since 1994. In 2021, the U.S. Bureau of reclamation made its first ever shortage declaration for the Colorado River basin.

Future climate change scenarios suggest more than 40 per cent of all new semiconductor manufacturing facilities announced since 2021 will be in watersheds likely to experience high- or extremely high-risk water stress scenarios.

Put simply, climate change and water shortages is creating risks for semiconductor manufacture in both the short- and long-term.

The state of the industry

Semiconductor manufacturing facilities are multi-billion dollar investments. One does not simply pick a facility up from one location and plunk it down elsewhere if local water conditions become problematic.

As worrying as the future might be for the sector, aggregate water stress risks only tell part of the story. The importance of particular nodes in global production networks for semiconductors is another key factor.

For example, TSMC is widely acknowledged as a world leader in manufacturing advanced semiconductors for companies like Apple, Nvidia and Cerebras. Yet, the facilities where TSMC manufactures for those companies are located in just three sites in Taiwan. This makes the global production networks that manufacture these technologies quite fragile. Semiconductors, especially the most advanced ones, rely on a network of only a handful of facilities like TSMC’s.

Customers of those facilities cannot easily switch to another supplier in the face of a disruption, so issues that arise at a single facility can cascade through global supply chains. This can impact a wide variety of commodities that make use of semiconductors, as was experienced during the COVID-19 pandemic.

Major semiconductor manufacturers like Intel and TSMC claim to take water stewardship seriously. Yet, their own company reports suggest there may be trouble ahead. Despite TSMC’s investments in water reclamation and recycling, the company anticipates being able to provide only two-thirds of the daily water consumption needed at its Taiwan-based facilities.

Intel, meanwhile, claims to achieve net positive water use across its manufacturing network as a whole. But, it manages this achievement only by counting surplus water at locations in one part of the world against water deficits at its facilities elsewhere.

A concerning future ahead

It is not going to be easy — or cheap — to overcome the chronic water stress risks for the semiconductor industry arising from the unfolding climate emergency. Conflicts already exist between the sector and other water users.

Even as individual companies make impressive water use efficiency improvements, these efforts do not automatically result in systemic efficiencies across semiconductor production networks. And no amount of efficiency will ever overcome the problem of the water that is needed for semiconductor manufacturing also being needed by other users.

It may still be possible to avoid some of the worst consequences of locking in future water stress for the sector by rethinking the location of future facilities that have been announced, but are not yet under construction.

Without secure access to large volumes of water there are no semiconductors, and without semiconductors there are no electronics. The climate emergency is a major driver of water stress both now and in the future. Can the tech sector cope? It remains to be seen.

About the Author:

Josh Lepawsky, Full Professor of Geography, Memorial University of Newfoundland

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