InvestMacro

By JustMarkets

At Monday’s close, the Dow Jones Index (US30) added 0.14%, and the S&P 500 (US500) was up by 0.30%. The NASDAQ Technology Index (US100) closed yesterday positive by 0.66%. Reports of progress in the debt ceiling negotiations fuel investor optimism that US lawmakers can break the current impasse and agree to increase the federal budget and prevent the United States from defaulting on its debt. President Biden is scheduled to meet with House Speaker Kevin McCarthy and other congressional leaders today.

Beyond politics, the focus remains on regional banks, which have partially recovered from last week’s sell-off: PacWest Bancorp (PACW) jumped by 17%, Comerica Inc (CMA) increased by 7%, and Zions Bancorporation (ZION) has added over 8% yesterday. Nevertheless, despite the rally, concerns about the banking sector remain. Data released on Friday showed that US commercial bank deposits fell for the second week in a row, and lending activity declined strongly after a month of growth.

As for economic indicators, the Empire State manufacturing index for May fell more than expected, indicating a continued slowdown in manufacturing activity.

Microsoft Corporation (MSFT) got approval from EU antitrust regulators to buy Activision Blizzard (ATVI) for $69 billion. But Microsoft will also have to appeal against the decision of the British Competition Authority, which had earlier blocked the deal.

Stock markets in Europe were mostly up yesterday. German DAX (DE30) gained 0.02%, French CAC 40 (FR40) added 0.05%, Spanish IBEX 35 (ES35) lost 0.35% on Monday, British FTSE 100 (UK100) closed the day up by 0.30%.

Oil prices increased yesterday as the US government confirmed plans to start replenishing its depleted strategic oil reserves (SPR). The Department of Energy (DOE) said on Monday that it would purchase up to 3 million barrels of oil for SPR. Oil prices were also helped by news of supply cuts in Canada due to wildfires.

Gold prices fell slightly yesterday as a number of Federal Reserve officials warned that interest rates could still rise amid relatively high inflation and a robust labor market. Gold has an inverse correlation to government bond yields, which tend to rise when rates rise. Nevertheless, gold’s medium-term trend remains bullish. Unless the US somehow raises the government debt ceiling, investors will sell off dollars in favor of gold as a shelter asset. If there is no US default, there is a high probability of a pause by the Fed in June, which would also be a green flag for gold.

Asian markets rose strongly yesterday. Japan’s Nikkei 225 (JP225) gained 0.81%, China’s FTSE China A50 (CHA50) increased by 1.33%, Hong Kong’s Hang Seng (HK50) jumped by 1.75%, India’s NIFTY 50 (IND50) added 0.46%, and Australia’s S&P/ASX 200 (AU200) was up by 0.14% over the Monday.

Industrial production in China rose less than expected in April (actual 5.6%, expectations 10.9%). Lower-than-expected retail sales data (actual 18.4%, expectations 21%) suggest a sluggish economic recovery this year. Fixed-asset investment, a key indicator of business sentiment for the coming months, rose by 4.7% in April, below the 5.5% increase expected and slower than the 5.1% increase seen in March. The unemployment rate fell from 5.3% to 5.2%. But looking at the numbers from a non-expected perspective, China’s economy is recovering, but not at such a fast pace.

S&P 500 (F) (US500)  4,136.28 +12.20 (+0.30%)

Dow Jones (US30)33,348.60 +47.98 (+0.14%)

DAX (DE40) 15,917.24 +3.42 (+0.021%)

FTSE 100 (UK100) 7,777.70 +23.08 (+0.30%)

USD Index 102.71 +0.65 +0.63%

• – Australia RBA Meeting Minutes (m/m) at 03:30 (GMT+3);
• – China Retail Sales (m/m) at 05:00 (GMT+3);
• – China Unemployment Rate (m/m) at 05:00 (GMT+3);
• – UK Average Earnings Index (m/m) at 09:00 (GMT+3);
• – UK Claimant Count Change (m/m) at 09:00 (GMT+3);
• – UK Unemployment Rate (m/m) at 09:00 (GMT+3);
• – German ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
• – Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
• – Eurozone GDP (q/q) at 12:00 (GMT+3);
• – Eurozone Trade Balance (q/q) at 12:00 (GMT+3);
• – Canada Consumer Price Index (m/m) at 15:30 (GMT+3);
• – US Retail Sales (m/m) at 15:30 (GMT+3);
• – US Industrial Production (m/m) at 16:15 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 17:00 (GMT+3);
• – US FOMC Member Williams Speaks at 19:15 (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 George Prior

The US failing to raise the debt ceiling and defaulting on its financial obligations would be the “ultimate gift” for China, affirms the CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations.

Nigel Green’s comments come as President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders are planning to meet Tuesday to discuss budget negotiations to avoid what could be an unprecedented default that would rock the global financial system.

Biden has been reluctant to give details about terms of the negotiation but said at the weekend that he believed a deal could be reached.

The standoff is down to Democrats demanding a “clean” increase without conditions to pay debts resulting from spending and tax cuts approved by Congress. Meanwhile, Republicans are saying they will not authorise any additional borrowing without an agreement to cut spending.

According to the Treasury, the US may default as soon as June 1, causing a global economic catastrophe, if the limit is not raised by Congress before then.

The deVere Group CEO says: “A default would upend the global financial system and would likely be worse than the 2008 crash.

“It would cause upheaval on an unprecedented level. However, there would be a major beneficiary of the economic and financial fallout: China.”

He continues: “The US failing to raise the debt ceiling and defaulting on its financial obligations would be the ultimate gift for China as it seeks global economic and financial dominance.

“A default would lead to a decline in the value of the US dollar and a loss of confidence in the US financial system. As such, investors would seek alternative destinations for their capital.

“China would move to position itself as a more stable and attractive investment option, attracting more international investment and capital inflows. In turn, this would boost the Chinese economy and financial markets.”

If Congress is unable to agree and raise the debt ceiling there would be a depreciation of US asset prices, including real estate, companies, and infrastructure. “China, with its significant foreign exchange reserves, would likely take advantage of the situation by purchasing these assets at discounted prices.

“Beijing would, we expect, acquire strategic assets in sectors like technology, energy, or manufacturing, which could enhance its economic and technological capabilities.”

The strengthening of the yuan’s position would also be a major advantage for China, notes Nigel Green. “The US dollar’s status as the world’s primary reserve currency could be undermined in the event of a default. This would be an opportunity for China to promote the internationalisation of its own currency.”

Beijing has been pushing for the use of the yuan in global trade, investment, and as a reserve currency, aiming to reduce reliance on the US dollar and enhance the influence of its currency – and a default would be a huge help for China in this regard.

Last week, in a media statement, the deVere CEO said that even if there is a last-minute agreement and a default is diverted, the drama will have eroded some of the current global reserve currency’s credibility and reputation as a ‘safety asset’.

“In addition, we expect that China would seize the opportunity to strengthen its trade partnerships with other countries, offering more attractive trade terms and position itself as a reliable trading partner. This could lead to increased market access and trade opportunities for Chinese firms.”

Nigel Green concludes: “Whatever happens in debt ceiling talks this week between Democrats and Republicans, China’s massive PR machine is already spinning the narrative that the US is a declining power.”

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.

“U.S. pension funds are on the brink of implosion”

By Elliott Wave International

Did you get a heads-up from the financial media that the U.S. banking system was vulnerable before the failures of Silicon Valley, Signature and First Republic banks?

There may have been outlier articles here and there but no real warnings.

By contrast, the 2021 edition of Robert Prechter’s book Conquer the Crash, Last Chance to Conquer the Crash, reminded readers that:

In a crash and depression, we will see falling asset values, massive layoffs, high unemployment, corporate and municipal bankruptcies, pension fund implosions, bank and insurance company failures and ultimately social and political crises.

As you know, some of these things have recently been unfolding.

Let’s focus on pension funds for a few moments. Yes, some recent articles have provided warnings, but they have not been widespread.

The headline of one of those news items is from the Washington Post (Feb. 14):

Time Bomb of Public Pension Funding Ticks Louder

Many public pensions suffer from funding shortfalls. In other words, they don’t have nearly enough money to meet their obligations. More than that, investments are being made in potentially financially dangerous assets to boost returns, such as private equity.

Many people who are counting on a pension probably don’t know that some private equity firms have invested pension-fund money in the housing market since the Great Recession — yes, they bought actual houses. As the Atlanta Journal Constitution reported (Feb. 12):

Private equity firms like Blackstone Group, Pretium Partners and Amherst convinced public pension funds and other large institutional investors to bankroll their homebuying sprees.

If the housing market crashes, you guessed it, some pension funds will take a big hit.

Here’s another headline from a British newspaper, the Guardian (Feb. 2):

US pension funds are on the brink of implosion — and Wall Street is ignoring it

However, Elliott Wave International is not ignoring it.

As the Elliott Wave Theorist said in February [The Elliott Wave Theorist has published monthly since 1979 and covers major financial and cultural trends):

Unfunded liabilities of states’ pension funds in the U.S. stood at $1.3 trillion as of year-end 2022. Private pension funds are underfunded as well. The whole system has made promises it can’t fulfill.

And, getting back to the banking crisis, the FDIC may face challenges fulfilling its promises to depositors if bank failures become widespread. In other words, the FDIC can only “make whole” a limited number of depositors at one time (up to $250,000). Whether the federal government steps in is another matter. The point is: it may not be wise to count on the FDIC during a major banking panic.

So, the question arises: Are there viable alternatives to banks?

Yes!

Elliott Wave International is now offering a special report titled “Your 5 Top Alternatives to Banks,” which is excerpted from Robert Prechter’s Last Chance to Conquer the Crash.

You can access this special report for free when you join Club EWI, the world’s largest Elliott wave educational community. Just follow the link below:

Read “Your 5 Top Alternatives to Banks” now when you sign up for a FREE Club EWI account.

By JustMarkets

At the closing of the stock market on Friday, Dow Jones Index (US30) decreased by 0.03% (-0.23% for the week), and S&P 500 (US500) fell by 0.16% (-0.31% for the week). The Technology Index NASDAQ (US100) lost 0.32% on Friday (+0.43% for the week). Friday’s data, which showed a sharper-than-expected drop in consumer sentiment in the United States, heightened fears that the political debate over raising the debt ceiling could trigger a recession. Republicans are pushing for steep spending cuts in exchange for raising the debt ceiling, while Democrats are pointing out that the debt ceiling is not an appropriate vehicle for budget changes.

The Congressional Budget Office warned late last week that the US would face a significant risk of default during the first two weeks of June if lawmakers do not raise the debt ceiling the country is legally allowed to incur. Negotiations between US President Joe Biden and top lawmakers to raise the $31.4 trillion debt ceiling are scheduled to resume early this week. Analysts at JPMorgan believe there is unwarranted panic in the markets, and politicians will not default but point out that, statistically, volatility in financial markets at a time like this is increasing.

Equity markets in Europe mostly rose on Friday. German DAX (DE30) gained 0.50% (-0.34% for the week), French CAC 40 (FR40) added 0.45% (-0.18% for the week), Spanish IBEX 35 (ES35) increased by 0.56% (+0.78% for the week), British FTSE 100 (UK100) close up by 0.31% (+0.67% for the week).

With underlying inflation in the Eurozone remaining steady, there is no doubt that the ECB will continue to raise rates. Europe’s central bank has already raised interest rates by 375 basis points in the current tightening cycle and is expected to raise them another 50 basis points in two quarter-point steps in June and July.

Oil prices fell more than 1% Friday, falling for the third straight week because of a stronger dollar and fears of weak demand due to weak data from China. Data from Beijing last week showed that China’s consumer inflation barely rose in April, while producer inflation fell to its lowest level since the pandemic peak in 2020. China’s trade data is also disappointing, with imports down 1.4% and exports up 8.5%. This is evidence that the economy is recovering unevenly, which could hit demand.

Gold gained momentum on Friday. The trigger for gold’s rise now is investor concern about the impasse over the US government debt hike. Investors are looking for safe-haven assets, which tend to be gold, the US dollar, and the Swiss franc. And the medium-term outlook for gold remains bullish. Historically, once the Fed officially pushes the pause button, nominal government bond yields begin to fall over the next few months. And that tends to drive up the price of precious metals, especially if rates fall further.

Turkish President Tayyip Erdogan beat his opposition rival Kemal Kilicdaroglu in Sunday’s election (49% to 45%) but failed to win an absolute majority to extend his 20-year rule. Neither Erdogan nor Kilicdaroglu passed the 50% barrier needed to avoid a second round, which is due in the May 28 elections.

Asian markets traded unevenly last week. Japan’s Nikkei 225 (JP225) gained 1.01% over the week, China’s FTSE China A50 (CHA50) fell by 1.76% over the week, Hong Kong’s Hang Seng (HK50) lost 2.49% over the week, India’s NIFTY 50 (IND50) gained 0.75%, and Australia’s S&P/ASX 200 (AU200) was up by 0.51% over the week.

In the commodities market, futures on natural gas (+6.6%), gasoline (+2.14%), and lumber (+2.1%) showed the biggest gains last week. Futures on orange juice (-9.54%), silver (-6.94%), cotton (-4.22%), copper (-4.06%), wheat (-3.79%), coffee (-2.92%) and corn (-2.22%) showed the biggest declines.

S&P 500 (F) (US500) 4,124.08 −6.54 (−0.16%)

Dow Jones (US30)33,300.62 −8.89 (−0.027%)

DAX (DE40) 15,913.82 +78.91 (+0.50%)

FTSE 100 (UK100) 7,754.62 +24.04 (+0.31%)

USD Index 102.71 +0.65 +0.63%

• – Japan Producer Price Index (m/m) at 02:50 (GMT+3);
• – Switzerland Producer Price Index (m/m) at 09:30 (GMT+3);
• – Eurozone EU Economic Forecasts at 12:00 (GMT+3);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
• – US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
• – US FOMC Member Kashkari Speaks at 16:15 (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.