InvestMacro

By JustMarkets

At yesterday’s stock market close, the Dow Jones Index (US30) increased by 0.35%, while the S&P 500 Index (US500) added 0.59%. The NASDAQ Technology Index (US100) closed positive by 0.83% on Thursday.

Fed spokesman Neel Kashkari continued his aggressive stance on monetary policy yesterday, stating the potential need for another Fed interest rate hike. The US second quarter GDP was revised downward, and home sales fell more than expected in August. On the positive side, Thursday was a weaker dollar and dovish comments from Chicago Fed Chairman Goolsbee, who said policymakers risked raising interest rates too much.

The head of the largest US bank, Jamie Dimon, said yesterday that the world is not ready for a 7% rate along with stagflation and that going from 5% to 7% would be much more painful than 3% to 5%. In fact, even 5% is already a pain that no one has fully felt yet, as current actual US government debt service rates are only approaching 3%. The cost of servicing private sector debt is also far from rates consistent with 5%.

Recent data shows that Reverse Repo volumes are actively declining. This suggests that banks are no longer “parking” excess liquidity with the Fed and are beginning to actively buy short-term Treasury bills. In periods of such rotations, the capital flow of investors does not go into shares, and it leads to the weakness of stock indices.

US GDP in Q2 amounted to 2.1% (annualized q/q), which was weaker than expectations of a 2.2% increase. But overall, the US economy continues to show economic resilience. The second quarter personal consumption reading was revised downward to 0.8% from the previously announced 1.7%. US weekly initial jobless claims rose by 2,000 to 204,000, indicating a robust labor market. US home sales in August fell by 7.1% m/m, weaker than expectations of 1.0% m/m and the largest decline in 11 months.

Equity markets in Europe were mostly up on Thursday. Germany’s DAX (DE40) rose by 0.70%, France’s CAC 40 (FR40) gained 0.63% yesterday, Spain’s IBEX 35 (ES35) added 1.03%, and the UK’s FTSE 100 (UK100) closed positive by 0.11%.

The Eurozone Economic Confidence Index for September fell by 0.3 to 93.3, which was stronger than expectations of 92.4. The German Consumer Price Index (EU harmonized) fell from 6.1% to 4.5% y/y, the lowest level in two years. ECB Governing Council representative and Bundesbank President Nagel said that additional ECB interest rate hikes could be imminent “if the data show that further action is warranted.” Eurozone inflation data will be released today. Overall inflation is expected to fall from 5.2% to 4.5% y/y, while core inflation (excluding food and energy prices) is expected to fall from 5.3% to 4.8% y/y. Such data would be a dovish factor for ECB policy.

Natural gas prices rose to a 1-week high on Thursday and closed moderately higher. Forecasts of colder weather that will spur demand for natural gas for heating helped push prices higher after WSI Trader reported that below-normal temperatures could spread to the central US by the middle of next month. But natural gas price gains were capped yesterday after the EIA’s weekly natural gas inventories rose 90 bcf, exceeding expectations of 89 bcf. As of September 25, natural gas storage in Europe was 95% full, well above the 5-year seasonal average of 87% for this time of year. The US natural gas inventories as of September 22 were 6.0% above the 5-year seasonal average.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.54% for the day, China’s FTSE China A50 (CHA50) fell by 0.58%, Hong Kong’s Hang Seng (HK50) was down by 1.36% for the day, and Australia’s ASX 200 (AU200) was negative 0.05% for Thursday. Today is a bank holiday in China.

Core inflation in Japan’s capital slowed in September for the third consecutive month, mainly due to lower fuel costs. Tokyo’s core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, came in at 2.5% y/y in September, while the median market forecast called for a 2.6% y/y figure. Other data showed factory output was unchanged in August, suggesting that companies are feeling the pain from weaker global demand and weak signs in China’s economy. Despite slowing inflation, the continued rise in food and service prices is likely to force the Bank of Japan to phase out its massive stimulus, analysts said.

S&P 500 (F)(US500) 4,299.70 +25.19 (+0.59%)

Dow Jones (US30) 33,666.34 +116.07 (+0.35%)

DAX (DE40)  15,323.50 +106.05 (+0.70%)

FTSE 100 (UK100) 7,601.85 +8.63 (+0.11%)

USD Index  106.14 -0.53 (-0.50%)

• – Japan Tokyo Core CPI (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);
• – UK GDP (q/q) at 09:00 (GMT+3);
• – German Retail Sales (m/m) at 09:00 (GMT+3);
• – Switzerland KOF Leading Indicators (m/m) at 10:00 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 10:40 (GMT+3);
• – German Unemployment Rate (m/m) at 10:55 (GMT+3);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
• – Canada GDP (m/m) at 15:30 (GMT+3);
• – US PCE Price index (m/m) at 15:30 (GMT+3);
• – US Chicago PMI (m/m) at 16:45 (GMT+3);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3);
• – US FOMC Member Williams Speaks at 19:45 (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 yesterday’s stock market close, the Dow Jones Index (US30) decreased by 0.20%, while the S&P 500 Index (US500) added 0.02%. The NASDAQ Technology Index (US100) closed positive by 0.22% on Wednesday.

The Dow Jones Industrials (US30) fell to a 3-month low. The broad market moved to the downside yesterday after bond yields resumed their upward trend, with the 10-year German bond yield rising to a new 12-year high. Stocks initially headed higher after bond yields fell amid dovish comments from Minneapolis Fed President Kashkari, who said the government shutdown and a prolonged strike by automakers may require less action from the Fed. Stocks also gained support after Democratic and Republican leaders in the Senate on Tuesday night agreed on a plan to keep the government open through mid-November and provide $6 billion in aid to Ukraine.

According to the Mortgage Bankers Association (MBA), US mortgage applications fell by 1.3% for the week ended September 22 from the previous week. The subindex of home purchase applications fell by 1.5%, and the subindex of refinance applications fell by 0.9%. The average 30-year fixed-rate mortgage rose by 10 bps to 7.1%, the highest rate in 22 years. US new capital goods orders rose by 0.9% m/m in August, beating expectations of 0.1% m/m and the most substantial increase in 7 months.

Markets factor in a 24% probability that the FOMC will raise the interest rate by 25 bps at the next FOMC meeting on November 1 and a 47% probability that the rate will be raised by 25 bps at the meeting ending December 13. Markets then expect the FOMC to start cutting rates in the second half of 2024 in response to an anticipated slowdown in the US economy.

Equity markets in Europe were mostly down on Wednesday. Germany’s DAX (DE40) was down by 0.25%, France’s CAC 40 (FR40) fell by 0.03% yesterday, Spain’s IBEX 35 (ES35) lost 0.42%, and the UK’s FTSE 100 (UK100) closed negative by 0.43%.

Germany’s GfK Consumer Confidence Index for October fell to a 6-month low of 26.5, weaker than expectations of 26.0. The French consumer confidence indicator for September fell to a 4-month low of 83, weaker than expectations of 84. Five German economic institutions downgraded their forecasts for German GDP for 2023 to a contraction of -0.6% from a previous forecast of 0.3% growth. Eurozone M3 money supply contracted by a record 1.3% y/y in August, weaker than expectations of 1.0% y/y.

Oil prices rose to a 13-month-high yesterday. Crude oil prices continue to rise amid concerns that global oil supplies will remain tight for the foreseeable future. The weekly EIA report released on Wednesday showed crude oil inventories fell to a 9-month low, and crude inventories at Cushing, the delivery point for WTI crude futures, fell to a 14-month low.

Asian markets traded flat on Wednesday. Japan’s Nikkei 225 (JP225) gained 0.18% for the day, China’s FTSE China A50 (CHA50) fell by 0.05%, Hong Kong’s Hang Seng (HK50) ended the day up by 0.83%, and Australia’s ASX 200 (AU200) ended Wednesday positive 0.05%.

In China, Evergrande’s suspension has dampened sentiment in Chinese markets ahead of the week-long Autumn Festival holiday. Nevertheless, the holiday is expected to support the Chinese economy by boosting consumer spending.

Uncertainty over China caused Australia’s ASX 200 Index (AU200) to lose most of its gains for the day. Data also showed that Australian retail sales rose less than expected in August amid continued pressure from high-interest rates and inflation.

S&P 500 (F)(US500) 4,274.51 +0.98 (+0.02%)

Dow Jones (US30) 33,550.27 −68.61 (−0.20%)

DAX (DE40)  15,217.45 −38.42 (−0.25%)

FTSE 100 (UK100) 7,593.22 −32.50 (−0.43%)

USD Index  106.73 +0.50 (+0.47%)

• – Australia Retail Sales (m/m) at 04:30 (GMT+3);
• – German Consumer Price Index (m/m) at 15:00 (GMT+3);
• – US GDP (q/q) at 15:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – US Pending Home Sales (m/m) at 17:00 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+3);
• – US Fed Chair Powell Speaks at 23:00 (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

• US government shutdown may further slow economic momentum
• Fed could be prevented from one last rate hike
• Market reaction from 2018 shutdown may repeat itself
• US dollar may weaken, but not much
• Gold, US stock indexes could recover

The US government is set to be shut down temporarily, starting this Sunday, October 1st.

The Democrats and Republicans in the world’s largest economy are at loggerheads, yet again, over how to deploy fiscal funds.

A blast from the past …

Since 1981, the US government has suspended operations (though not entirely) 14 different times.

The last time we saw a US government shutdown was for a 35-day stretch between December 2018 till January 2019 – the longest shutdown in US history.

And during that last shutdown:

• The US dollar (as measured by USDInd) fell by 1.2%
• Gold climbed by 3.8%
• SPX500_m soared by 10.3%

Perhaps the more notable takeaway from that prior episode is this:

The previous US government shutdown also coincided with the Fed’s last interest rate hike for that cycle.

• December 2015: Fed raises US interest rates for the first time since the global financial crisis
• December 2018: US government shuts down for 35 days; Fed’s last rate hike of that cycle that began in Dec 2015
• July 2019: Fed turns tail and begins CUTTING rates, eventually sending it all the way back down to near-zero at the onset of the global pandemic in 2020.

Would Fed adopt same playbook at imminent US government shutdown?

Probably not, given that core US inflation, at 4.1% in August, remains more than double the Fed’s 2% inflation target.

Sticky inflation suggests that one more Fed rate hike could be in the pipeline, or at least US rates staying higher for longer.

Still, markets remain obsessed with trying to figure out:

• Whether the Fed can trigger one last 25-basis point hike by year-end?
  Currently, markets predict a 53% chance of it happening.
• How long will the Fed keep interest rates at this peak?

And we know that these rate hikes are intended to slow down inflation by destroying demand in the economy.

Even prior to the threat of this imminent government shutdown, economists and market watchers had already been bracing for a US economic slowdown, possibly even a recession.

Goldman Sachs predicted that the shutdown may result in a 0.2 percentage point drag on US GDP per week.

How would a government shutdown slow the US economy?

A US government shutdown means that:

• many public employees, including staff at national parks to museums, will see their paycheques halted.
• private companies that get paid from government contracts, stand to lose almost US$ 2 billion a day from this shutdown.
• The highly-anticipated releases of the US nonfarm payrolls report (due Friday, October 6th) and the US consumer price index (due October 12th), as well as other major economic data, may be delayed.

All the above suggests that, the longer the US government stays shut, the more it deprives the world’s largest economy of crucial fiscal spending.

Hence, an extended US government shutdown could yet raise the prospects of a US recession.

And that could prevent one more Fed hike, or even hasten a rate cut.

And such an outlook would have a major impact across global financial markets.

POTENTIAL SCENARIOS

If the US government is shut down, as expected, beginning October 1st, with signs of staying offline for an extended period, we’d expect a similar market reaction from 2018:

• The USD Index may find it tougher to climb higher, and even moderate lower as the shutdown goes on.

However, the US dollar may not fall by much, perhaps only to around the 105.0 region, as long as US yields remain notably higher than its major peers, such as Europe, the UK, and Japan.

• Spot gold may return above $1900

An easing US dollar would make it an easier task ahead for gold bulls (those hoping prices will move higher) as markets wind down bets for one final Fed rate hike.

After all, gold tends to have an inverse relationship with US interest rates/yields/dollar (gold tends to go up when US rates/yields/dollar does down, and vice versa).

Demand for traditional safe havens, which include gold, may also help the precious metal recover.

• US stock indexes (SPX500_m, NQ100_m, WSt30_m) may find some relief

The declines of late for US stock markets have been largely attributed to the fact that the Federal Reserve intends to keep its benchmark rates higher for longer.

However, an extended US government shutdown could alter that narrative, i.e. prevent one last Fed rate hike, or potentially even bring forward the Fed’s rate CUT.

Hopes for a sooner-than-expected Fed rate cut should help US stock indexes pare back recent declines.

Article by ForexTime

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

By JustMarkets

At yesterday’s stock market close, the Dow Jones Index (US30) decreased by 1.14%, while the S&P 500 Index (US500) lost 1.47%. The NASDAQ Technology Index (US100) closed negative 1.57% on Tuesday.

The S&P 500 (US500) and Dow Jones Industrials (US30) fell to 3-month lows, while the NASDAQ (US100) index fell to a 5-week low. Concerns about the health of the US economy pressured stocks yesterday. US new home sales in August fell by 8.7% m/m to a 5-month low of 675,000, weaker than expectations of 698,000. The Conference Board Consumer Confidence Index for September fell by 5.7 to a 4-month low of 103.0, which was weaker than expectations of 105.5.

In addition, falling tech stocks are weighing on the overall market on fears that global central banks will be forced to raise interest rates longer to fight inflation. Also weighing negatively are hawkish comments from the Federal Reserve after Minneapolis FRB President Kashkari said he believes the Fed will have to raise interest rates one more time this year due to a strengthening US economy.

Equity markets in Europe were mostly down on Tuesday. Germany’s DAX (DE40) decreased by 0.97%, France’s CAC 40 (FR40) fell by 0.70% yesterday, Spain’s IBEX 35 (ES35) was down by 0.14%, and the UK’s FTSE 100 (UK100) closed up by 0.02%.

ECB spokesman Holtzman said yesterday that it is still unclear whether the ECB has peaked as upside risks to inflation remain. But his ECB counterpart Müller does not currently expect further interest rate hikes by Europe’s Central Bank. This suggests that a rift is maturing within the ECB over the future conduct of monetary policy.

WTI crude oil prices rose moderately amid concerns that global oil supplies will remain tight for the foreseeable future. Oil prices also rose on expectations that the EIA’s weekly oil inventories report will be released on Wednesday, which will show a decline of 900,000 barrels. Tensions in the oil market are expected to continue as OPEC+ production cuts are extended. Saudi Arabia recently said it would maintain its unilateral oil production cut of 1.0 million BPD through December. The move will keep Saudi oil production at around 9 million BPD, the lowest in three years. Russia also recently announced that it will maintain its 300,000 BPD oil production cut through December. The oil rally continues, and there are no factors for a reversal at the moment.

Asian markets traded lower on Tuesday. Japan’s Nikkei 225 (JP225) declined by 1.11% for the day, China’s FTSE China A50 (CHA50) fell by 0.77%, Hong Kong’s Hang Seng (HK50) declined by 1.48%, and Australia’s ASX 200 (AU200) was negative by 0.54% on Tuesday. On Wednesday, most Asian stocks continued to fall amid lingering concerns over a US interest rate hike, while Chinese stocks rose on positive industrial earnings data and PBoC promises to expand stimulus to the economy.

But China’s worsening real estate debt crisis remains a concern for global stock markets due to fears it will derail the country’s growth prospects and drag down the global economy. China Evergrande Group said its subsidiary Hengda Real Estate Group defaulted on a 4 billion yuan ($547 million) debt payment due on Monday, and Chinese authorities have detained former executives of the company.

Minutes from Japan’s latest monetary policy meeting showed that the board’s view was that the current monetary easing should be maintained to achieve the price target in a stable and sustainable manner. Against this backdrop, the Japanese yen continues to depreciate. Yesterday, Japan’s Finance Minister Suzuki said he was closely monitoring market trends, hinting that the government could intervene at any time to support the currency. In 2022, the Japanese government conducted record dollar sales to support the yen, which by then had passed the 150 mark. Now, the currency is on the verge of testing those same levels.

S&P 500 (F)(US500) 4,273.53 −63.91  (−1.47%)

Dow Jones (US30) 33,618.88 −388.00 (−1.14%)

DAX (DE40)  15,255.87 −149.62 (−0.97%)

FTSE 100 (UK100) 7,625.72 +1.73 (+0.023%)

USD Index  106.17 +0.18 (+0.17%)

• – Japan Monetary Policy Meeting Minutes (m/m) at 02:50 (GMT+3);
• – Australia Consumer Price Index (m/m) at 04:30 (GMT+3);
• – German GfK Consumer Confidence (m/m) at 09:00 (GMT+3);
• – US Core Durable Goods Orders (m/m) at 15:30 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – Switzerland Chairman Thomas Jordan speaks at 19:45 (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.