28 Apr

The Bank of Japan maintained all monetary policy settings. META boosted the tech sector

By JustMarkets

The Nasdaq Technology Index led a rally on Wall Street Thursday as a strong report from parent company Facebook (META) outweighed concerns about slowing US economic growth. As the stock market closed yesterday, the Dow Jones Index (US30) increased by 1.57%, and the S&P 500 Index (US500) added 1.96%. The NASDAQ Technology Index (US100) jumped by 2.43%.

Meta stock soared more than 13% yesterday, hitting its highest in more than a year after the company reported quarterly earnings above estimates and CEO Mark Zuckerberg said artificial intelligence is driving traffic to Facebook and Instagram and boosting ad sales. First-quarter earnings expectations have improved sharply, with analysts forecasting a 2.4% year-over-year drop in S&P 500 companies’ earnings, compared with a 5.1% decline forecast at the start of the reporting season.

The US economic growth slowed more than expected in the first quarter of 2023. GDP data for the quarter showed growth of 1.1% compared to the forecast of 2.0%. The slowdown in GDP growth largely reflected weak inventory investment. Housing investment recorded its eighth consecutive quarterly decline, although the rate of decline slowed considerably from October through December. But the labor market remains resilient. Jobless claims came in at 230,000, less than the projected 247,000.

Equity markets in Europe were mostly up on Thursday. German DAX (DE30) gained 0.03%, French CAC 40 (FR40) added 0.23%, Spanish IBEX 35 (ES35) increased by 0.16%, and British FTSE 100 (UK100) closed yesterday down by 0.27%.

The ECB meeting will be held next week, and the main question is which rate hike the Central Bank of Europe will choose. At the moment, analysts are leaning towards 0.25%. However, it is worth realizing that the probability may change due to the new incoming data. A number of GDP and inflation statistics will be released in Europe today, and the Eurozone core inflation report will be released two days before the meeting next week. Any signs of solid inflation, especially the core indicator, will raise the odds of a 0.5% rate hike at the May meeting.

European commercial real estate investment has fallen to its lowest level in 11 years. Higher interest rates and the economic outlook spook investors. A recent JP Morgan investor survey cited commercial real estate as the most likely cause of the next financial crisis.

Oil prices stabilized Thursday, offsetting some losses from the previous session after OPEC+ indicated it saw no need to cut production further.

Asian markets were also mostly on the rise yesterday. Japan’s Nikkei 225 (JP225) gained 0.15%, China’s FTSE China A50 (CHA50) increased by 1.09%, Hong Kong’s Hang Seng (HK50) gained 0.42%, India’s NIFTY 50 (IND50) added 0.57%, and Australia’s S&P/ASX 200 (AU200) closed negative 0.32%.

Argentina is planning a sharp rate hike to 91% to stop the peso’s decline. Since Argentina’s inflation rate is above 100%, its Central Bank raised its rate last week by 300 basis points to 81%. Argentina, a major global supplier of grain and beef, is struggling with inflation, which topped 104% in March, with analysts predicting that prices will rise about 110-130% this year.

The Chinese yuan is slowly but surely being accepted for more international payments, which analysts say could set the stage for a trading system that runs parallel to the dominant US dollar. In March, there were more cross-border transactions with China in yuan than in dollars, and Argentina said it aims to pay for Chinese goods in yuan rather than dollars regularly.

The Bank of Japan left the interest rate unchanged and also did not change its yield curve control policy and is considering a comprehensive review of past monetary policy easing decisions. The policy report indicates that the abrupt move to roll back quantitative easing could create huge problems for Japan’s regional banks and exacerbate global market conditions. Tokyo’s consumer price index inflation rose more than expected in April, returning to 40-year highs. On an annualized basis, the core CPI rose to 3.5% from 3.2%. Japan’s unemployment rate rose from 2.6% to 2.8%.

S&P 500 (F) (US500) 4,135.35 +79.36 (+1.96%)

Dow Jones (US30)33,826.16 +524.29 (+1.57%)

DAX (DE40) 15,800.45 +4.72 (+0.03%)

FTSE 100 (UK100) 7,831.58 −21.06 (−0.27%)

USD Index 101.52 +0.05 +0.05%

Important events for today:
  • – Japan Tokyo Core CPI (m/m) at 02:30 (GMT+3);
  • – Japan Unemployment Rate (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);
  • – Australia Producer Price Index (q/q) at 04:30 (GMT+3);
  • – Japan BoJ Monetary Policy Statement at 06:00 (GMT+3);
  • – Japan BoJ Interest Rate Decision at 06:00 (GMT+3);
  • – Japan BoJ Outlook Report at 06:00 (GMT+3);
  • – Japan BoJ Press Conference at 08:00 (GMT+3);
  • – French GDP (q/q) at 08:30 (GMT+3);
  • – French Consumer Price Index (m/m) at 09:45 (GMT+3);
  • – Spanish GDP (q/q) at 10:00 (GMT+3);
  • – Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
  • – German Unemployment Rate (m/m) at 10:55 (GMT+3);
  • – German GDP (q/q) at 11:00 (GMT+3);
  • – Switzerland SNB Chairman Thomas Jordan speaks at 11:00 (GMT+3);
  • – Eurozone GDP (q/q) at 11:00 (GMT+3);
  • – German Consumer Price Index (m/m) at 15:00 (GMT+3);
  • – US PCE Price Index (m/m) at 15:30 (GMT+3);
  • – Canada GDP (q/q) at 15:30 (GMT+3);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (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.

Economics & Fundamentals Financial News
28 Apr

Week Ahead: EURUSD braced for explosive risk cocktail

By ForexTime 

If you thought the last few days were wild for financial markets, then wait until you see what’s in store for the week ahead…

Investors will be served a generous platter of risk investors ranging from pivotal major central bank meetings in the shape of the Reserve Bank of Australia (RBA), Federal Reserve (Fed), and European Central Bank (ECB).

This will be complemented with top-tier data like the US ISM and Friday’s monthly non-farm payrolls report. Another wave of quarterly earnings from the largest economies in the world will top this off, leaving even the hungriest of market players satisfied.

The first trading week of May features these scheduled economic data releases and events:

Monday, May 1

  • May Day holiday: UK, France & China
  • USD: ISM manufacturing

Tuesday, May 2

  • AUD: RBA rate decision
  • EUR: CPI, Eurozone S&P Global manufacturing PMI
  • GBP: UK S&P Global manufacturing PMI
  • USD: US factory orders, revised durable goods

Wednesday, May 3

  • AUD: Australia retail sales
  • NZD: RBNZ financial stability report
  • EUR: Eurozone unemployment
  • USD: Fed rate decision, US ADP payrolls data

Thursday, May 4

  • CNH: China Caixin manufacturing PMI
  • EUR: ECB rate decision
  • USD: US initial jobless claims
  • NQ100_m: Apple Inc (after US markets close)

Friday, May 5

  • CNH: China Caixin services PMI
  • EUR: Eurozone retail sales
  • USD: US April nonfarm payrolls (NFP)

Given the crackerjack list of risk events, investors may feel like a kid in a candy store of volatility and opportunity! Our focus will fall on the world’s most popular traded currency pair which could be heavily influenced by central bank meetings and economic data.

Here are 3 reasons why we’re focusing on the EURUSD for the coming week:

  1. Fed + ECB meeting combo

A central bank combo featuring the Fed and ECB could spark explosive levels of volatility on the EURUSD.

Markets widely expect the Federal Reserve to raise interest rates by 25 basis points on Wednesday, taking the upper band of the Fed funds rates to 5.25%. The key question is whether this will be the final hike that marks the end of the Central Bank’s hiking cycle. Given how annual US inflation cooled for a ninth consecutive period in March and economic growth slowed in Q1, this could strengthen the argument for a cut down the road. If the Fed moves along with a dovish hike, dollar weakness could become a dominant theme in the week ahead.

In regards to the ECB, a 25-basis point hike has been penciled for its Thursday meeting. Stabilizing inflationary pressures continue to support expectations around the central bank shifting into lower gear from 50 basis point hikes. It may be wise to keep a close eye on the euro-inflation data for April which could influence May’s policy decision and beyond. If core inflation remains sticky, this could fuel speculation of the ECB hiking into the summer.

Whatever the outcome of both central bank rate decisions, it will certainly impact the EURUSD.

  1. US April nonfarm payrolls

The NFP may provide fresh clues on what actions the Federal Reserve may take beyond May.

Markets expect the US economy to have created 177,000 jobs in April which is less than the prior month while the unemployment rate is seen holding at 3.5%. A stronger-than-expected US jobs report may support expectations around the Fed keeping US interest rates high for longer – boosting the dollar. However, further evidence of weakening US jobs markets may reinforce bets around the Fed pausing rate hikes, before eventually lowering them. Such a scenario is likely to weaken the dollar – pushing the EURUSD higher.

  1. EURUSD ready to breakout?

Euro bulls have struggled to conquer the 1.1075 level on repeated occasions.

Although the trend remains bullish with prices above the 50 and 100-day Simple Moving Average, bears could strike if prices slip below 1.0950. A daily close below this point could signal a decline towards 1.0910 and 1.0845, respectively. Alternatively, a strong breakout above 1.1075 could inspire an incline toward levels not seen since late March 2022 at 1.1150.

Zooming out to the weekly chart, bulls are clearly in the driving seat. A strong weekly close above 1.1075 may signal a move toward the 200-week SMA near 1.1200. If prices dip back under 1.0900, prices may test 1.0754 and 1.0500, respectively.

At the time of writing Bloomberg’s FX model forecasts a 72% chance that EURUSD will trade within the 1.0827 – 1.1153 range over the upcoming week.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Opinions
27 Apr

Market mood positive ahead of US data

By ForexTime 

It has certainly been a busy week for global financial markets thanks key economic data and earnings from some of the largest companies in the world.

Overall sentiment remains supported by upbeat results despite lingering worries about the U.S. banking sector. Stocks in Europe gained this morning after reversing losses while US equity futures are pointing to strong open. Interestingly, the encouraging first-quarter results from Microsoft, Alphabet, and Meta have failed to inspire Nasdaq bulls with the index down 1.5% this week. In the currency space, the dollar is on standby ahead of the US GDP and jobless claims data this afternoon. We see a similar theme on the yen ahead of the Bank of Japan (BoJ) rate decision on Friday, the first with new governor Kazuo Ueda. Looking at commodities, oil is stabilizing while gold seems to be waiting for a fresh fundamental spark.

With the new trading month around the corner, here are some potential setups to watch out for.

DXY to resume downtrend?

The Dollar Index (DXY) remains trapped within a range on the daily charts. Support can be found around the 100.80 regions and resistance at 102.00. A breakout could be on the horizon with the pending US economic data acting as a potential catalyst. Weakness below 100.82 could encourage a decline toward 100.46 and 100.00, respectively. Should prices break above 102.00, this may open the doors toward 103.00.

EURUSD capped below 1.1075?

Euro bulls have struggled to conquer the 1.1075 level on repeated occasions. Although the trend remains bullish, bears could jump back into the scene if prices slip back below 1.1000. Such a development may inspire a steeper decline towards 1.0910 and potentially lower. Should 1.1075 prove to be unreliable resistance, the next key level of interest can be found at 1.1150.

GBPUSD trapped within a range

A breakout could be pending on the GBPUSD. It has been same the old story for the currency pair with prices trading within a very wide range. Support can be found at 1.2380 and resistance around 1.2500. Should prices slip back below 1.2380, the next key level of interest can be found at 1.2200. A breakout above 1.2500 may signal an incline back towards 1.25457.

USDJPY waits on BoJ decision

Where the yen concludes this week may be influenced by the BoJ rate decision on Friday morning. The USDJPY is trading marginally below the 133.70 support level as of writing. Sustained weakness below this level could inspire a selloff towards 132.90. A move back above 133.70 could open the doors back towards 135.00 and 137.00 – where the 200-day SMA resides.

Commodity Spotlight – Gold

Gold remains trapped within a sticky range. Price action suggests that a fresh catalyst is needed to trigger a bullish or bearish breakout. A strong move above $2000 may inspire a push toward $2032 and $2048. If prices remain below $2000, gold could test $1950 and $1935.

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
27 Apr

Cognitive flexibility is essential to navigating a changing world – new research in mice shows how your brain learns new rules

By Vikaas Sohal, University of California, San Francisco and Kathleen Cho, Inserm 

Being flexible and learning to adapt when the world changes is something you practice every day. Whether you run into a new construction site and have to reroute your commute or download a new streaming app and have to relearn how to find your favorite show, changing familiar behaviors in response to new situations is an essential skill.

To make these adaptations, your brain changes its activity patterns within a structure called the prefrontal cortex – an area of the brain critical for cognitive functions such as attention, planning and decision-making. But which specific circuits “tell” the prefrontal cortex to update its activity patterns in order to change behavior have been unknown.

The prefrontal cortex of the brain is involved in executive functions like self-control and decision-making.

We are a team of neuroscientists who study how the brain processes information and what happens when this function is impaired. In our newly published research, we discovered a special class of neurons in the prefrontal cortex that may enable flexible behavior and, when they malfunction, may lead to conditions such as schizophrenia and bipolar disorder.

Inhibitory neurons and learning new rules

Inhibitory neurons dampen the activity of other neurons in the brain. Researchers have traditionally assumed they send their electrical and chemical outputs only to nearby neurons. However, we found a particular class of inhibitory neurons in the prefrontal cortex that communicate across long distances to neurons in the opposite hemisphere of the brain.

We wondered whether these long-range inhibitory connections are involved in coordinating changes in activity patterns across the left and right prefrontal cortex. By doing so, they might provide the critical signals that help you change your behavior at the right moment.

Microscopy image of an interneuron
Interneurons connect other neurons together.
NICHD/McBain Laboratory via Flickr, CC BY-NC-ND

To test the function of these long-range inhibitory connections, we observed mice performing a task that required them to learn a rule to receive a reward and then later adapt to a new rule in order to continue receiving the reward. In this task, mice dug in bowls to find hidden food. Initially, the smell of garlic or the presence of sand within a bowl might indicate the location of the hidden food. The specific cue associated with the reward would later change, forcing the mice to learn a new rule.

We found that silencing the long-range inhibitory connections between the left and right prefrontal cortex caused the mice to get stuck, or perseverate, on one rule and prevented them from learning new ones. They were unable to change gears and learn that the old cue was now meaningless and the new cue signaled food.

Brain waves and flexible behavior

We also made surprising discoveries about how these long-range inhibitory connections create behavioral flexibility. Specifically, they synchronize a set of “brain waves” called gamma oscillations across the two hemispheres. Gamma oscillations are rhythmic fluctuations in brain activity that occur roughly 40 times per second. These fluctuations can be detected during many cognitive functions, such as when performing a task that requires holding information in your memory or making different movements based on what you see on a computer screen.

Though scientists have observed the presence of gamma oscillations for many decades, their function has been controversial. Many researchers think that the synchronization of these rhythmic fluctuations across different brain regions doesn’t serve any useful purpose. Others have speculated that synchronization across different brain regions enhances communication between those regions.

Fluctuations in neural activity manifest as brain waves, or neural oscillations.

We found a completely different potential role for gamma synchrony. When long-range inhibitory connections synchronize gamma oscillations across the left and right prefrontal cortex, they seem to also gate communication between them. When mice learn to disregard a previously established rule that no longer leads to a reward, these connections synchronize gamma oscillations and seem to stop one hemisphere from maintaining unneeded activity patterns in the other. In other words, long-range inhibitory connections seem to stop input from one hemisphere from “getting in the way” of the other when it is trying to learn something new.

For example, the left prefrontal cortex can “remind” the right prefrontal cortex about your usual route to work. But when long-range inhibitory connections synchronize these two areas, they also seem to shut off these reminders and enable new patterns of brain activity corresponding to your new commute to take hold.

Finally, these long-range inhibitory connections also trigger long-lasting effects. Shutting off these connections just once caused mice to have trouble learning new rules several days later. Conversely, rhythmically stimulating these connections to artificially synchronize gamma oscillations can reverse these deficits and restore normal learning.

Cognitive flexibility and schizophrenia

Long-range inhibitory connections play an important role in cognitive flexibility. The inability to appropriately update previously learned rules is one hallmark form of cognitive impairment in psychiatric conditions such as schizophrenia and bipolar disorder.

Research has also seen deficiencies in gamma synchronization and abnormalities in a class of prefrontal inhibitory neurons, which includes the ones we studied, in people with schizophrenia. In this context, our study suggests that treatments that target these long-range inhibitory connections may help improve cognition in people with schizophrenia by synchronizing gamma oscillations.

Many details of how these connections affect brain circuits remain unknown. For example, we do not know exactly which cells within the prefrontal cortex receive input from these long-range inhibitory connections and change their activity patterns to learn new rules. We also do not know whether there are specific molecular pathways that produce the long-lasting changes in neural activity. Answering these questions could reveal how the brain flexibly switches between maintaining and updating old information and potentially lead to new treatments for schizophrenia and other psychiatric conditions.The Conversation

About the Author:

Vikaas Sohal, Professor of Psychiatry, University of California, San Francisco and Kathleen Cho, Principal Investigator in Neuroscience, Inserm

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

 

Economics & Fundamentals Opinions
27 Apr

Gold returned to growth amid rising recession fears. Tech companies reports beat forecasts

By JustMarkets

Stronger-than-expected reports from tech companies Microsoft (MSFT) and Google Alphabet (GOOGL) helped improve investor sentiment in the tech sector. But weak economic data exacerbated recession fears in the world’s largest economy as rising recession risks threaten consumer spending. At the close of the stock market on Wednesday, the Dow Jones Index (US30) decreased by 0.68%, and the S&P 500 Index (US500) fell by 0.38%. The NASDAQ Technology Index (US100) gained 0.47% yesterday.

Shares of Activision Blizzard (ATVI), the largest video game maker, plummeted more than 10% after the UK Competition and Markets Authority (CMA) blocked the acquisition of Activision Blizzard by Microsoft Corporation (MSFT). The regulator fears that the deal could lead to a significant decrease in competition in the markets for game consoles, subscriptions, and cloud computing.

Alphabet (GOOGL) Inc. reported better-than-expected first-quarter results and a $70 billion stock buyback plan. Microsoft Corporation (MSFT) gained 7% after posting quarterly results that beat Wall Street estimates as its Azure cloud business performed better than expected. According to Refinitiv IBES, of 163 S&P 500 companies that reported first-quarter earnings, 79.8% beat analysts’ expectations.

Stock markets in Europe were mostly down Wednesday. German DAX (DE30) decreased by 0.48%, and French CAC 40 (FR40) lost 0.86%, Spanish IBEX35 (ES35) closed at the opening price, British FTSE100 (UK100) closed negative 0.49% yesterday.

The German government raised this year’s economic growth forecast to 0.4% from the previous forecast of 0.2%. Current economic indicators like industrial production, new orders, and business climate point to an economic recovery. Economists expect stagnation in the first quarter, followed by an acceleration in growth. For 2024, the government slightly lowered its growth forecast to plus 1.6% from plus 1.8%. Inflation forecasts have also been adjusted downward to 5.9% for 2023 and 2.7% for 2024. The government expects the unemployment rate to be 5.4% in 2023 and 5.2% in 2024, after 5.3% in 2022.

The US crude oil inventories fell last week by 5.1 million barrels to 460.9 million barrels. But oil continued its downward movement yesterday as recession fears outweighed the US inventory decline. Investors also expressed concern that potential interest rate hikes by central banks may slow economic growth and reduce energy demand in the United States, United Kingdom and the European Union.

Gold and silver prices are rising as US recession fears continue to rise. The US 2-10-year bond yield spreads remain heavily inverted, while US Treasury yields fell sharply yesterday as traders continue to count on a US rate cut later this year.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.71%, China’s FTSE China A50 (CHA50) was down by 0.03% for the day, Hong Kong’s Hang Seng (HK50) ended the day up 0.71%, India’s NIFTY 50 (IND50) added 0.25%, and Australia’s S&P/ASX 200 (AU200) closed negative by 0.08% for the day.

Last month the yuan became the most widely used currency for cross-border transactions in China, overtaking the dollar for the first time. Cross-border payments and receipts in yuan rose to a record $549.9 billion in March from $434.5 billion a month earlier. China has long promoted the use of the yuan to settle cross-border transactions as part of efforts to internationalize the use of its currency. The use of the yuan in global trade finance remains low, although it is showing strong growth. SWIFT data showed that the share of the yuan in global foreign exchange trade finance transactions rose to 4.5% in March, while the dollar accounted for 83.71%.

S&P 500 (F) (US500) 4,055.96 −15.67 (−0.38%)

Dow Jones (US30)33,301.87 −228.96 (−0.68%)

DAX (DE40) 15,795.73 −76.40 (−0.48%)

FTSE 100 (UK100) 7,852.64 −38.49 (−0.49%)

USD Index 101.86 +0.51 +0.50%

Important events for today:
  • – 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);
  • – 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.

Economics & Fundamentals Financial News
26 Apr
trading

Corporate Bonds: “The Next Shoe to Drop”

“The neckline has been broken over the last few days”

By Elliott Wave International

A “calamity” is likely ahead for corporate bonds, says our head of global research, Murray Gunn.

Some of Murray’s analysis involves the head and shoulders, a classic technical chart pattern. In case you’re unfamiliar with it, here’s an illustration along with an explanation from one of our past publications:

A head-and-shoulders is a reversal pattern that consists of three price extremes. Market technicians refer to [them] as the left shoulder, head, and right shoulder. …it takes a break of the neckline to confirm a reversal… [and it’s] not just a bearish reversal formation. Inverted head-and-shoulders mark bottoms.

With that in mind, here’s a chart and commentary which Murray provided for the April Global Market Perspective, a monthly Elliott Wave International publication which covers 50-plus financial markets:

The chart … shows the relative performance of corporate bonds, as proxied by the iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker LQD) versus the iShares 7-10 Year Treasury Bond ETF (ticker IEF). A distinct Head and Shoulders pattern exists where the neckline has been broken over the last few days. The corporate bond market has held in reasonably well over the last year, but we fully expect this sector to be the next shoe to drop.

Don’t count on the ratings services to provide timely warnings. In the past, downgraded ratings have sometimes come only after most if not all the damage was done.

Remember Enron? The company still had an “investment grade” rating just four days before it collapsed. Ratings services also missed the 1995 debacle at Barings Bank. Olympia and York of Canada is another historical example: the largest real estate developer in the world at the time had a AA rating on its debt in 1991. Less than a year later, it went bankrupt.

Getting back to the present, Murray Gunn also notes:

When … corporate loans are re-set this year, there are going to be a few deep breaths being taken, and more than a fair share of tightened sphincters!

And, speaking of chart patterns of financial markets, another way to monitor the bond market is to use Elliott wave analysis.

If you’d like to delve into the details of this method of analysis, read Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain price and time relationships are likely to recur. In fact, experience shows that they do.

It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market’s actual path. This way, you are alerted quickly when something is wrong and can shift your interpretation to a more appropriate one if the market does not do what you expect. The second advantage of choosing a target well in advance is that it prepares you psychologically for buying when others are selling out in despair, and selling when others are buying confidently in a euphoric environment.

If you’d like to read the entire online version of Elliott Wave Principle: Key to Market Behavior, you may do so for free once you become a member of Club EWI, the world’s largest Elliott wave educational community. A Club EWI membership is also free.

Join now by following this link: Elliott Wave Principle: Key to Market Behavior — get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Corporate Bonds: “The Next Shoe to Drop”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Bonds Financial News
26 Apr

Calm before storm: Is a 10% market correction on the horizon?

By George Prior 

Investors should brace for a 10% market correction over the next few weeks, 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 major central banks continue their battle to try and tame inflation and differing signals from stock and bond markets.

He says: “We expect the US Federal Reserve will raise interest rates once again at its upcoming May meeting; the Bank of England’s chief economist has hinted at a further interest rate rise next month; and a half-point interest rate increase can’t be ruled out for the European Central Bank’s meeting next week according to Executive Board member Isabel Schnabel.

“This is likely to cause jitters in the market as some investors, concerned about short-term profits, will move into panic-selling mode.

“Furthermore, they will have legitimate concerns that further rate hikes now – when monetary policy time lags are notoriously long – could steer economies into a recession.

“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, central banks are slowly winning the battle and officials now need to take their foot of the brake.”

Stock markets are currently calm and enjoying a month-long rally. This suggests that confidence in the outlook for profits and dividends growth is returning. And yet core major bond markets continue to be marked by inverted yield curves, which suggest recession is ahead.

“We’ve seen solid gains on all the major stock markets, over the last month. Fear of a further crisis in the financial system has subsided, and investor risk appetite has returned,” notes Nigel Green.

“In addition, stock market volatility has fallen, with the VIX index of implied volatility on the S&P500 at 17.8, near an 18-month low.

“Investors appear to be seeing beyond the current interest rate cycle, and its likely impact on company earnings, and looking ahead to the next upswing in the economic cycle.”

He continues: “In contrast, the bond market is very much focused on the interest rate cycle, with yield curves inverted in the US, UK and Eurozone. Longer term lending rates are below the overnight rates set by central banks.

“This reflects fear that the final rounds of interest rate hikes, from the major central banks this spring and summer, may tip economies into recession.

“The IMF, never an organisation to be glass half full, recently supplied a number of arguments as to why recession might occur. They included reduced real wages (because of inflation), low investment spending, and the need for governments to repair their finances after Covid-era deficits.”

The deVere group CEO goes on to add: “This huge disconnect between stocks and bonds suggests that investors should brace themselves for significant volatility in global financial markets over the next few weeks. We could see a 10% correction.”

He concludes: “We expect that we’re currently in the ‘calm before the storm’ phase.

“That said, a market correction is a natural part of the market cycle and can present major buying opportunities for long-term investors who are willing to weather short-term volatility.”

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.

Financial News Stock Market News
26 Apr

Nasdaq bears making a comeback?

By ForexTime

The Nasdaq 100 on the daily timeframe was in an uptrend that continued until a last higher top formed at 13242.2 on 4 April. Bears then saw an opportunity and started testing a weekly support level.

Bulls could not hold their own and bears broke through the weekly support now turned resistance level. The 15 and 34 Simple Moving Averages (SMA) and the Momentum Oscillator changed course to the downside as well, confirming the possible change in market momentum.  

A possible critical support level formed when a lower bottom was recorded on 25 April at 12723.6. The bulls might try to drive the price back through the weekly resistance level in a bid to gain supremacy again but that remains to be seen.

If the Nasdaq 100 breaks through the critical support level at 12723.6, three possible price targets can be calculated from there. Attaching the Fibonacci tool to the lower bottom at 12723.6 and dragging it to a lower top that formed on 18 April at 13207.2, the following targets can be determined. The first target may be estimated at 12424.7 (161.8%). The second price target might be expected at 11941.1 (261.8%) and if bears manage to break through a weekly support level, then the third and final target might be estimated at 11158.7 (423.6%).

If the resistance level at 13207.2 is broken, the current scenario is no longer reasonable and must be reassessed.

As long as the bears continue to direct the market, the outlook for the Nasdaq 100 market on the D1 time frame will remain to the downside.

Forex-Time-LogoArticle by ForexTime

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

Financial News Stock Market News
26 Apr

Weak consumer confidence reports and declining manufacturing data put negative pressure on stock markets

By ForexTime

The US stock indices fell yesterday amid disappointing consumer confidence data and weak company reports. The Conference Board survey showed that consumer confidence fell to a nine-month low. It should be noted that household consumption is the main driver of US gross domestic product. The US Federal Reserve Richmond’s Manufacturing Index also fell to minus 10 in April, the fourth consecutive month of decline. As the stock market closed on Tuesday, the Dow Jones Index (US30) decreased by 1.10%, and the S&P 500 Index (US500) lost 1.58%. The NASDAQ Technology Index (US100) fell by 1.98% yesterday.

Investor nervousness in the banking sector returned after First Republic Bank (FRC) fell nearly 40%, to a record low, following the release of mixed first-quarter results, which showed deposit levels down $104 billion from a year ago, much more than expected. Meanwhile, United Parcel Service Inc (UPS) reported first-quarter results that fell short of forecasts, and the courier company warned that sales would remain under pressure. The company’s stock was down more than 9%. Shares of PepsiCo Inc (PEP) were up more than 2%. Its quarterly results beat estimates on both the top and bottom lines. Energy stocks, in general, were the biggest drag on the stock market. The energy sector came under pressure from falling oil prices amid concerns about the impact of a potential slowdown in global growth on demand.

Equity markets in Europe were mostly down on Tuesday. German DAX (DE30) gained 0.05%, French CAC40 (FR 40) decreased by 0.56%, Spanish IBEX35 (ES35) fell by 1.18%, and British FTSE100 (UK100) closed down by 0.27% yesterday.

The ECB started cutting its balance sheet in March and is likely to accelerate the pace of so-called quantitative tightening (QT) in July. The ECB holds 4.9 trillion euros in securities for monetary policy purposes, and that amount is expected to shrink by 200 billion euros by the end of 2023.

The Confederation of British Industry’s (CBI) monthly industrial orders indicator remained at minus 20 in April, unchanged from its March value. According to the survey, British factory orders and output declined due to higher inventories of finished goods, highlighting the manufacturing sector’s recent weak performance and pointing to easing inflationary pressures.

A review of more aggressive Fed policy and concerns about a global economic slowdown is forcing investors to buy safe-haven assets such as the dollar and the yen, which negatively affects oil prices. A stronger dollar makes oil more expensive for foreign currency holders. Oil was down by 2% over yesterday. Oil prices are now back in their range where they were trading before the OPEC+ decision to cut production.

Asian markets traded yesterday without a single dynamic. Japan’s Nikkei 225 (JP225) gained 0.09%, China’s FTSE China A50 (CHA50) added 0.43% for the day, Hong Kong’s Hang Seng (HK50) ended the day down by 1.71%, India’s NIFTY 50 (IND50) gained 0.15%, and Australia’s S&P/ASX 200 (AU200) was not trading yesterday due to the holiday.

Japan raised its official import rate for the first time in nine months as a double-digit yen depreciation from a year ago increased the cost of imported goods. Trade data released last week showed that the high cost of coal and petroleum products combined with a 16.5% yen drop from a year ago increased imports by 7.3% in March, pushing Japan’s trade deficit in fiscal 2022 to a record high.

In Australia, the consumer price level rose by 1.4% in the last quarter, but year-over-year inflation declined from 6.8% to 6.3%. The quarterly rise in inflation was largely due to higher spending on health care, education, fuel, and increased spending on recreation. The RBA warned at its last meeting that any signs of tight inflation could lead to further rate hikes.

S&P 500 (F) (US500) 4,071.71 −65.33 (−1.58%)

Dow Jones (US30)33,531.72 −343.68 (−1.01%)

DAX (DE40) 15,872.13 +8.18 (+0.052%)

FTSE 100 (UK100) 7,891.13 −21.07 (−0.27%)

USD Index 101.86 +0.51 +0.50%

Important events for today:
  • – US Building Permits (m/m) at 15:00 (GMT+3);
  • – US CB Consumer Confidence (m/m) at 17:00 (GMT+3);
  • – US New Home Sales (m/m) at 17:00 (GMT+3).
  • – US CB Consumer Confidence (m/m) at 17:00 (GMT+3);
  • – US New Home Sales (m/m) at 17:00 (GMT+3).

Forex-Time-LogoArticle by ForexTime

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

Economics & Fundamentals Financial News
26 Apr

What are stock buybacks, which critics are blaming for hastening Bed Bath & Beyond’s bankruptcy? A finance professor explains

By D. Brian Blank, Mississippi State University 

Bed Bath & Beyond filed for bankruptcy on April 23, 2023, and some analysts are blaming the billions of dollars the retailer spent on share buybacks as one of the reasons for its downfall. In total, the company has spent nearly US$12 billion buying back its own stock since 2005, including $1 billion in 2021 alone – cash that could have potentially helped stave off bankruptcy.

Bed Bath & Beyond is hardly alone in snapping up its own stock. Companies have been buying back record amounts of their own shares in recent years, which prompted President Joe Biden to propose quadrupling the tax on buybacks to 4%.

But what are stock buybacks, and why do some people consider them to be a bad thing? The Conversation tapped D. Brian Blank, who studies company financial decision-making at Mississippi State University, to fill us in.

1. What are stock buybacks?

Before we can answer that question, first we need to understand the basics of how stock works.

Stock represents an ownership interest in a company, such that stockholders have a stake in the business. Companies use stock as one way to raise capital by selling their shares to investors, usually in an initial public offering.

Most stockholders, however, obtain stock by buying it on a secondary market, like the New York Stock Exchange. In this case, one person chooses to sell their ownership in the company, while another person buys it.

As partial owners, shareholders see the value of their stock rise when the company does well.

One way investors can benefit from holding the stock is that some corporations pay dividends, which are payments made directly to shareholders. Another way that stockholders can benefit is by selling the stock for more than they paid for it. Together, this creates a return on investment.

And this brings us to share buybacks – and why investors like them.

2. Why do companies buy back their own stock?

When companies have extra capital, they might go into the secondary market and buy back stock from investors. This is often referred to as a stock repurchase or buyback program. Companies that are older and less focused on rapid growth tend to do them more often.

Companies do this for a variety of reasons, such as because they think their shares are undervalued and want to signal optimism to Wall Street, or because they simply want another way to distribute profits to shareholders – a key goal of any company – other than through dividends.

Shareholders like buybacks because companies often pay a premium over market price. And when companies buy their own stock, this removes those shares from the market, which has the effect of lifting share prices as supply goes down, benefiting existing stockholders.

It’s estimated that American companies bought back a record $1 trillion of their own stock in 2022. And Apple is the biggest user of buybacks, having spent $557 billion over the past decade repurchasing its own shares.

3. Why do Biden and others dislike buybacks?

Critics like Biden contend that share buybacks represent short-term thinking that doesn’t actually create any real value. They argue instead that companies should use more of their profits to invest in more productive activities like business operations, innovation or employees.

Returning money that a company makes to stockholders does mean less capital is available for other investments. In his speech, Biden specifically called out “Big Oil” companies for using the record profits they’ve earned from high energy prices to buy back their stock rather than investing in new wells to increase supply – and help reduce gas prices.

But the decision whether to invest to increase domestic production is a complicated one. For example, the reason companies aren’t investing in new wells right now is not simply because they are buying back stock. The reason has more to do with how oil companies, and their shareholders, don’t think it is profitable to invest in more supply for a whole host of reasons, including the global push for greener energy by both policymakers and consumers, which is bound to reduce demand for fossil fuels in the future.

It’s also worth noting that while share repurchases are becoming increasingly common and controversial, they remain very similar to dividends, which don’t prompt the same concerns among politicians.

4. Would increasing the tax result in fewer buybacks?

The 1% tax on buybacks is actually brand new.

Congress passed the tax in 2022 as part of the Inflation Reduction Act. It took effect at the beginning of 2023 and only affects buyback programs of $1 million or more.

Usually when an activity is taxed, it happens less frequently. So, I expect the tax to nudge companies to spend less on buybacks and more elsewhere. While politicians intend more of the money to be used to invest in their productive capacity, companies may simply spend more on paying shareholders dividends.

Since the tax is new, it’s hard to evaluate its actual impact. Companies reportedly accelerated their repurchase programs in 2022 to avoid paying the tax.

But early data from 2023 suggests the 1% tax isn’t significantly deterring buybacks. Companies announced $132 billion in buybacks in January, three times as much as a year earlier and the most for the month on record.

Biden’s proposal to boost the tax to 4% may alter corporate behavior more. But again, it may just lead to greater dividend payments, not the other types of investments he and others hope for.

In addition, given that Republicans control the House, and Democrats have only a narrow majority in the Senate, this proposal has little chance of becoming law anytime soon.

The reasons why large corporations make the decisions they do about where to allocate capital – whether to build a factory, hire more workers or buy back stock – are complicated and, in my view, never taken lightly. These decisions have many facets and implications, and are not necessarily bad. I believe this is something worth remembering the next time you hear politicians saying “corporations should do the right thing.”

This is an updated version of an article originally published on Feb. 10, 2023.The Conversation

About the Author:

D. Brian Blank, Assistant Professor of Finance, Mississippi State University

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

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