InvestMacro

Week Ahead: SPX500_m braces for double whiplash

Even as we await the pivotal US jobs report due later today (Friday, April 7), while noting that US stock markets have the day off on this Good Friday, traders and investors are also keenly aware of the slate of market-moving events due over the coming week.

The incoming US inflation data as well as the earnings announcements by Wall Street banks may trigger fresh volatility for the S&P 500 in the week ahead.

Monday, April 10

IMF/World Bank spring meetings
USD: Speech by New York Fed President John Williams
Markets closed in UK, Europe, Hong Kong, and Australia

Tuesday, April 11

AUD: Australia March business confidence, April consumer confidence
CNH: China March CPI and PPI
EUR: Eurozone February retail sales
USD: Fed Speak – speeches by Chicago Fed President Austan Goolsbee, Philadelphia Fed President Patrick Harker, and Minneapolis Fed President Neel Kashkari

Wednesday, April 12

CAD: Bank of Canada rate decision
USD: US March CPI, FOMC meeting minutes, speech by Richmond Fed President Thomas Barkin

Thursday, April 13

AUD: Australia March unemployment, April inflation expectations
CNH: China March external trade
EUR: Eurozone February industrial production; Germany March CPI (final)
GBP: UK February GDP, industrial production, trade balance; BOE chief economist Huw Pill speech
USD: US weekly initial jobless claims; March PPI

Friday, April 14

SPX500_m: US earnings season kicks off with Wall Street banks
USD: US March retail sales, industrial production; April consumer sentiment

Here’s a breakdown of these two major events that are set to influence the S&P 500 over the coming week:

1) US March consumer price index (CPI) due Wednesday, April 12

The CPI is the index used to measure overall inflation, i.e. the change in prices that consumers pay for goods and services.

And here’s what markets are forecasting for this tier-1 data:

CPI year-on-year (March 2023 vs. March 2022): 5.2%
(an official 5.2% print would mark a slowdown from February’s 6% y/y figure)
Core CPI year-on-year: 5.6%
(core CPI measures the changes in consumer prices excluding more volatile items such as food and energy, as their prices tend to fluctuate more)
CPI month-on-month (March 2023 vs. February 2023): 0.2%
(an official 0.2% print would mark a slowdown from February’s 0.4% m/m figure)
Core CPI month-on-month: 0.4%
(an official 0.4% print would mark a slowdown from February’s 0.5% m/m core CPI)

Overall, stock bulls (those hoping prices will move higher) want to see further evidence that US inflation is slowing down.

After all, stubbornly elevated inflation has been enemy #1 of the US central bank, the Federal Reserve.

And the Fed has raised US interest rates by 475 basis points over the past 12 months in a bid to quell inflation that was running at a multi-decade high.

And the S&P 500, with its higher concentration of US tech stocks, generally, does not like the prospects of US interest rates moving higher if the Fed is forced to prolong its fight against still-stubborn inflation with even more rate hikes.

How might the SPX500_m react to the US inflation data?

If the inflation numbers come in higher than market forecasts, then the SPX500_m may be dragged lower, as markets fear more incoming Fed rate hikes.
If the inflation numbers come in lower than market forecasts, then the SPX500_m may be pushed higher, should markets rejoice over the prospects of Fed being almost done with its rate hikes.

2) US bank earnings released on Friday, April 14th

Once every quarter, companies whose shares are listed on the US stock markets have to reveal to the public how well it performed financially during the previous quarter.

This period is known as “earnings season”.

And the official curtain raiser is the results out of JPMorgan, the largest US bank.

Also on Friday, other financial heavyweights such as Wells Fargo, BlackRock, and Citigroup are also due to announce their respective earnings.

Why are US bank earnings important for the S&P 500?

Financial stocks account for nearly 13% of the S&P 500.
Given its weight, the market’s reactions to the earnings out of JPMorgan and its peers should have a big influence on how the SPX500_m fares overall leading into next weekend.
The health of US banks is widely used as a barometer for the health of the broader US economy. Hence, if US banks are struggling to earn profits, that may suggest deteriorating growth for the world’s largest economy, especially as recession fears are festering across global financial markets.
And lest we forget the recent US banking crisis.
Q1 2023 was certainly a tumultuous time for US banks, as three regional banks collapsed (Silicon Valley Bank, Signature Bank, Silvergate) while the likes of First Republic Bank were left teetering.
Then came Wall Street to the rescue.
JPMorgan, Wells Fargo, and Citigroup were among the big US banks that pledged US$30 billion of cash for First Republic Bank in order to prevent yet another collapse.

Hence, any further commentary from these banking C-suites next week about potentially further contagion, or the risk of a wider US banking/financial crisis that ramps up the risk of a recession, would be closely scrutinised by the markets.

How might the SPX500_m react to the US banks’ earnings?

If the earnings exceed market expectations, then the SPX500_m may be pushed higher.
If the earnings disappoint, then the SPX500_m may be dragged lower.

Week Ahead: all still calm for US stock markets?

Let’s consider the VIX index, which measures how much volatility is expected for the S&P 500 over the next 30 days.

The VIX index is also more commonly known as the stock market’s “fear gauge”.

Note that the 30-day period ahead not only includes the upcoming CPI print and US earnings season, but also the Fed’s next decision on its interest rates due May 3rd.

Yet, the US stock market appears rather sanguine despite such looming event risks, with the VIX index rooted around its lowest levels so far this year.

With the VIX now at 18.40, that’s also lower than the 19.80 level that’s been its average reading over the past 30 years.

Still, that doesn’t mean that we’ll see guaranteed calm next week.

The vigilant trader and investor will certainly be paying close attention to the incoming CPI and earnings results, and awaiting potential opportunities that may be uncovered.

Key levels for SPX500_m

RESISTANCE:

4146.9: latest cycle high
4156.3: 50% Fibonacci retracement from 2022’s plummet (between record high in January 2022 and October’s trough).
4197.3: February 2023 intraday high

SUPPORT:

4070 – 4080: recent cycle low and early March intraday high
50-day simple moving average (SMA)
4,000: psychologically-important level, also close to the 38.2% Fib level

Article 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

07 Apr

Why Britain’s new CPTPP trade deal will not make up for Brexit

By Terence Huw Edwards, Loughborough University and Mustapha Douch, The University of Edinburgh

The UK recently announced that it will join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), giving British businesses access to the 11 other members of the Indo-Pacific trade bloc and bringing its combined GDP to £11 trillion.

Some commentators have suggested the deal could make up for Brexit. It’s been called “a momentous economic and strategic moment” that “kills off any likelihood that it [the UK] will ever rejoin the EU customs union or single market”. Shanker Singham of think tank the Institute of Economic Affairs has even said: “it’s no exaggeration to say that CPTPP+UK is an equivalent economic power to the EU-28-UK”, comparing it to a trade deal between the UK and EU members.

UK business and trade secretary Kemi Badenoch echoed such sentiments, telling Times Radio:

We’ve left the EU so we need to look at what to do in order to grow the UK economy and not keep talking about a vote from seven years ago.

The problem with this fanfare is that the government’s own economic analysis of the benefits of joining this bloc is underwhelming. There is an estimated gain to the UK of 0.08% of GDP – this is just a 50th of the OBR’s estimate of what Brexit has cost the UK economy to date. Even for those that are sceptical about models and forecasts, that is an enormous difference in magnitude.

Of course, the CPTPP is expected to offer the UK some real gains. It certainly provides significant potential opportunities for some individual exporters. But the estimated gains for Britain overall are very small.

The main reason for this is that, apart from Japan, the major players of the global economy are not in the CPTPP. The US withdrew from the Trans Pacific Partnership (the CPTPP is what the remaining members formed without it). And China started negotiations to join in 2022, but current geopolitics now make its entry highly improbable. India was never involved.

In addition, the UK already has free trade agreements with nine out of the 11 members. The remaining two, Malaysia and Brunei, are controversial due to environmental threats from palm oil production to rainforests and orangutans.

Britain’s existing trade agreements with CPTPP members

A table listing the existing British trade agreements with CPTPP members. — Author provided using GDP data from the World Bank and trade data from UN Comtrade.

And despite the widespread public perception of the Asia-Pacific area as a hub of future growth, the performance and prospects of the CPTPP members are a mixed bag. The largest member, Japan, is arguably in long-term decline, as is Brunei, while just three members (Vietnam, Singapore and New Zealand had average growth in the last decade above 3% annually.

Finally, distance really does matter in trade. All the CPTPP members are thousands of miles from the UK, which explains their relatively small shares in UK trade at present.

Some benefits of CPTPP

While all of these points pour cold water on the suggested gains, there are some potential benefits from the CPTPP agreement, which allows for mutual recognition of certain standards. This includes patents and some relaxation of sanitary and phytosanitary rules on food items.

However, agreements over standards will involve the UK submitting to international CPTPP courts on these issues. This sits uncomfortably with many of the “sovereignty” objections to the European Court of Justice in relation to Brexit (largely from many of those who have extolled the CPTPP). It’s also notable that out of the nine agreements with CPTPP members that existed before the UK signed this deal, all but two are rollovers of previous EU deals.

But a trade deal with the CPTPP is worth more to the UK than separate deals with each member due to requirements around “rules of origin”, which determine the national source of a product. When a product contains inputs from more than one country, a series of separate free trade agreements may not eliminate tariffs. But if all the relevant countries are members of a single free trade agreement, then rules of origin on inputs from other members cease to be a problem (although there might be some issues if some members do not police the requirements properly).

Not the ideal agreement

While these benefits should be recognised, we should also acknowledge that the CPTPP is not the ideal agreement for Britain. As stated above, distance really does matter in trade – this is overwhelmingly accepted by modern trade economists.

Research shows that the rate at which trade declines with distance has barely changed over more than a century. This might seem strange because transport costs have fallen over time. But, as transport and communications have improved, firms have outsourced much of their production to complex supply chains that often cross national borders many times, with “just-in-time” supply schedules to keep down the costs of holding large stocks.

This means that, while trade everywhere has grown, there is still a big premium for trading (many times) across borders between contiguous countries. It is exactly this type of trade which benefits most from big comprehensive trade agreements that simplify rules of origin and regulatory paperwork.

This suggests that, while some elements of the the CPTPP offer benefits to the UK, it is unlikely to boost its trade in the way it does between countries around the Pacific Rim. For this sort of boost, the UK really needs to look towards its own neighbours. Of course, this is just the sort of agreement that Badenoch seems reluctant to discuss.

About the Author:

Terence Huw Edwards, Senior Lecturer in Economics, Loughborough University and Mustapha Douch, Assistant Professor in Economics, The University of Edinburgh

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

Economics & Fundamentals Opinions

07 Apr

Haruhiko Kuroda leaves the Bank of Japan. Global financial markets are closed today due to the Good Friday holiday

By JustMarkets

At the close of the stock market on Thursday, the Dow Jones Index (US30) increased by 0.01%, and the S&P 500 Index (US500) added 0.36%. The NASDAQ Technology Index (US100) gained 0.76% yesterday.

Weekly jobless claims in the US are falling. Initial jobless claims fell by 18,000 in the last week from 246,000, exceeding economists’ forecast of 200,000 applications and reinforcing expectations of a cooling labor market. An important monthly labor market report will be released today, namely the change in nonfarm payrolls. Analysts forecast that the US economy will add 238,000 jobs in March after an increase of 311,000 in February. The unemployment rate is forecast to remain at a low of 3.6%. With low liquidity due to the closure of other financial exchanges in Asia and Europe (Good Friday holiday), this report could cause a significant spike in volatility.

The Federal Reserve should stick to raising interest rates to reduce inflation while the labor market remains strong, given the high probability that recent financial stresses will continue to ease and in the absence of a marked tightening of credit conditions, St Louis Fed President James Bullard said on Thursday. Bullard previously said he had raised his estimate of how high the Fed’s benchmark overnight interest rate should rise by the end of 2023 to a range of 5.50%-5.75%.

Equity markets in Europe were mostly up yesterday. German DAX (DE30) gained 0.50%, French CAC 40 (FR40) added 0.12%, Spanish IBEX 35 (ES35) increased by 0.67%, and British FTSE 100 (UK100) closed with a 1.03% gain.

ECB spokesman Philip Lane said yesterday that if the ECB’s economic outlook remains unchanged by the May meeting (4 May), a rate hike would be appropriate. His comments followed a stronger-than-expected rise in industrial production in Germany in February, which, combined with strong business activity data on Wednesday, made the eurozone economy avoid recession in the first quarter. Analysts are now forecasting a 0.25% interest rate hike at each of the next 2 ECB meetings.

Natural gas futures resumed their downtrend, closing the current week down almost 10%. Natural gas is down for the 4th week in 5. The monthly contract has once again fallen below the key support level of $2, with new lows likely in the coming days. Natural gas storage in the US fell only slightly last week as cooler-than-normal weather led to sustained demand for heating. According to the EIA, the storage volume is now 32% higher than a year ago and nearly 20% higher than the five-year average.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.10%, China’s FTSE China A50 (CHA50) fell by 0.58%, and Hong Kong’s Hang Seng (HK50) added 0.01%, India’s NIFTY 50 (IND50) increased by 0.24%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.31%.

Haruhiko Kuroda will hold his last press conference as head of Japan’s central bank today, ending a decade of soft monetary policy. Shock therapy was one of the key features of Kuroda’s monetary experiment, under which the Bank of Japan rolled out a massive asset purchase program in 2013.

Today is a Good Friday holiday. Most financial exchanges will be closed. Only the US futures and forex exchanges will be open part-time.

S&P 500 (F) (US500) 4,105.00 +14.62 (+0.36%)

Dow Jones (US30)33,485.29 +2.57 (+0.0077%)

DAX (DE40) 15,597.89 +77.72 (+0.50%)

FTSE 100 (UK100) 7,741.56 +78.62 (+1.03%)

USD Index 101.90 +0.05 (+0.04%)

Important events for today:

– US Nonfarm Payrolls (m/m) at 15:30 (GMT+3);
– US Unemployment Rate (m/m) at 15:30 (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

07 Apr

Dollar steadies near long-term support

By ForexTime

The greenback has tumbled since topping out and printing a “doji” candle around a month ago at 105.88 on the widely followed DXY index. The low print yesterday at 101.41 was down over 4% from that peak as the USD has struggled with a huge reset of Fed rate hike bets. Policymakers are very much data dependent with much focus on the non-farm payrolls report out tomorrow amid holiday-thin markets and next week’s US CPI data. Strong support should be found around the early February bottom at 100.82.

Most of the economic releases this week have played into the slower growth narrative with ISM data generally disappointing and the JOLTS job vacancy numbers coming in much lower than expected. In fact, it was the lowest print since May 2021 and jolted the market ahead of the marquee NFP report. Consensus sees around 240,000 job gains in March with the jobless rate sticking at 3.6% and average hourly earnings moving a tick higher to a relatively benign 0.3%. The headline number has continued to surprise to the upside over recent months with 311k new jobs created in February and only marginal revisions.

The odds have flipped back and forth as to whether the FOMC hikes rates by 25bps or stand pat at its meeting at the start of next month. Currently, money markets give the no change camp a 56% chance while a hike is seen as a 44% probability. Of course, Fed rate hike expectations have changed markedly since a month ago before the banking turmoil when investors were seeing a peak, terminal rate above 5.5%. Now, this rate is seen close to where we stand at the moment at 4.75%, with around 80bp of rate cuts into year end.

Cable consolidates after breaking higher

Sterling is managing to hold near its recent highs and above key support. The pound pushed north on Tuesday to its highest level since last June. Certainly, the softer dollar is a boon and comments from a BoE official encouraged bulls to advance beyond key resistance at the year-to-date top at 1.2447. Huw Pill, the bank’s chief economist, said that the MPC still cannot be sure that it has raised interest rates enough to tame inflation. He voted last month to lift rates to 4.25%, its eleventh increase since the start of the hiking cycle in December 2021. Money market currently forecast over 50bps of additional hikes by September, before the bank stops tighening policy.

A weekly close above the Janaury peak at 1.2447 is important for buyers to build on this week’s upside bullish momentum. A long-term move towards the 200-week SMA above 1.28 could be on the cards if that happens. Near-term support below the February top is 1.2274.

Article by ForexTime

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

Forex and Currency News Opinions

06 Apr

RoboForex Increases Partner Commission for Gold, Silver, Oil, and US Indices

RoboForex, a regulated financial services broker, announces enhancements to its Partner programme. One of the main updates is an increased Partner commission for several trading instruments, including Gold, Silver, and Crude Oil.

The improvements of the Partner programme feature increased Partner commissions for several popular instruments: Gold (XAU/USD), Silver (XAG/USD), and Crude Oil (Brent, WTI). For example, the Pro account Partner commission for a lot of XAU/USD is now increased from $4 to $8. Same with Brent: the previous commission of $10 per lot is now increased to $20. Other instruments for which the Partner commission is more attractive are US500, USTech, and US30.

Moreover, the spreads for all the instruments above on ECN and Prime accounts have been enhanced and will be a welcome surprise for clients. All the updated information on spreads can be found in Contract Specifications.

This is not the first improvement made to the programme’s condition. In fact, RoboForex aims at making its Partner programme more attractive every year. For example, the commission on Affiliate accounts was increased from 50% to 70% in the beginning of 2022, while the overall commission size for the Partners can attain 84% including the Loyalty programme payments.

About the RoboForex Partner programme

The RoboForex Partner programme is one of the key products of the company that allows for receiving a stable income from attracting clients to RoboForex, thereby giving them access to its cutting-edge trading technologies and high-quality services. Through the programme, the broker offers clients up to 70% of its income and up to 20% in loyalty payments, which is a unique offer in the market.

Moreover, Partners get access to a 5-level Expert programme that offers a multi-level Partner reward – up to 35% of the company’s earnings on direct clients, and extra payments from commissions of sub-partners on various levels of the Affiliate network.

About RoboForex

RoboForex is a company which delivers brokerage services. The company provides traders who work on financial markets with access to its proprietary trading platforms. RoboForex Ltd has the brokerage licence FSC 000138/437. More detailed information about the Company’s products and activities can be found on the official website at roboforex.com.

Financial News

06 Apr

Japanese Candlesticks Analysis 06.04.2023 (XAUUSD, NZDUSD, GBPUSD)

By RoboForex.com

XAUUSD, “Gold vs US Dollar”

Gold has formed a Shooting Star reversal pattern near the resistance level. Currently, the instrument is going by the reversal signal in a descending wave. The target for the correction might be 1990.00. After testing the support, the price could rebound from it and continue the uptrend. However, the quotes may grow to 2050.00 without testing the support.

NZDUSD, “New Zealand Dollar vs US Dollar”

On H4, near the resistance NZDUSD has formed a Harami reversal pattern. Currently, the instrument is going by the reversal signal in a descending wave. The target for the pullback might be 0.6260. After a rebound from the support, the quotes could continue the uptrend. However, the price may grow to 0.6340 and continue the uptrend without a test of the support.

GBPUSD, “Great Britain Pound vs US Dollar”

On H4, near the support level GBPUSD has formed a Harami reversal pattern. Currently, the instrument could go by the reversal signal in an ascending wave. The target for the growth might be 1.2500. However, the price may pull back to 1.2400 and continue the uptrend after correcting to the support.

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

Financial News Forex and Currency News

06 Apr

Gold has reasons to rise further. Chinese business activity recovers

By JustMarkets

In the United States, the ISM manufacturing and services business activity index fell short of expectations in March, indicating a clear deterioration in demand conditions. If the business activity does not recover soon, layoffs could accelerate in the coming months, exacerbating labor market problems and pushing the country into a painful recession. The ADP National Employment report showed that US private employers hired far fewer workers than expected in March, adding to the signs of a cooling labor market after Tuesday’s weak jobs data. Stock indices are once again under pressure. As the stock market closed Wednesday, the Dow Jones Index (US30) increased by 0.24%, while the S&P 500 Index (US500) fell by 0.25%. The NASDAQ Technology Index (US100) lost 1.07% yesterday.

Cleveland Fed President Loretta Mester said Wednesday that it is too early to tell if the Fed needs to raise the benchmark rate at its next policy meeting in early May. The US interest rate futures markets currently estimate a 60.5% chance that the Fed will leave rates unchanged at its next meeting.

Recent Bloomberg research has unexpectedly shown that the biggest “short” in the banking industry in the world is not in Switzerland or Silicon Valley in the US but in the relatively quiet financial center of Canada. In recent weeks, sellers have increased their bearish positions against Toronto-Dominion Bank, Canada’s second-largest lender, with $3.7 billion in total capital, more than BNP Paribas (BNPP) and Bank of America (BAC). There is little indication that the Canadian lender has any liquidity problems. But analysts point to concerns about TD’s exposure to the domestic housing slowdown, as well as its ties to the US market through its stake in Charles Schwab (SCHW) and its planned acquisition of a regional US bank.

Equity markets in Europe traded flat on Tuesday. German DAX (DE30) decreased by 0.53%, French CAC 40 (FR40) lost 0.39%, Spanish IBEX 35 (ES35) gained 0.35%, and British FTSE 100 (UK100) was up by 0.37% yesterday.

According to analysts, the ECB will continue to tighten monetary policy with no signs of any disinflationary process, discounting energy and commodity prices and the fact that inflation is increasingly dependent on demand. Two more interest rate hikes of 0.25% at each meeting are currently expected.

In the precious metals market, the situation has not changed. Falling government bond yields, caused by the dovish review of the Fed’s monetary policy course, will continue to act as a tailwind for gold and silver. The US Treasury curve has shifted sharply downward since mid-March following the turmoil in the US banking sector, and recent macro data have reinforced investors’ views that the US economy is in trouble.

The weekly US inventory report on Wednesday showed that the government has again cut reserves to boost market supply and limit fuel price spikes. Clearly, there is a standoff between the US and OPEC+ countries. The Biden administration has relied heavily on reserves since late 2021 to offset limited inventories and lower black gold prices. In turn, OPEC+ countries are cutting production to create shortages and allow oil prices to continue their upward rally.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.07%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) did not trade yesterday, India’s NIFTY 50 (IND50) gained 0.77%, and Australia’s S&P/ASX 200 (AU200) ended the day negative by 0.09%.

The latest Caixin report showed that service sector activity in China grew at its fastest pace in 2.5 years in March, thanks to solid new orders, new job creation, and a post-pandemic recovery. The Caixin Global Services Purchasing Managers’ Index (PMI) rose to 57.8 in March from 55.0 in February, increasing for the third straight month. The 50-point mark separates expansion and contraction in activity.

India’s Central Bank left the interest rate unchanged at 6.5%. This was a surprise, as analysts had expected a 0.25% increase. But the Reserve Bank of India said it was ready to act against inflation if further conditions warranted.

S&P 500 (F) (US500) 4,090.38 −10.22 (−0.25%)

Dow Jones (US30)33,402.38 −198.77 (−0.59%)

DAX (DE40) 15,520.17 −83.30 (−0.53%)

FTSE 100 (UK100) 7,662.94 +28.42 (+0.37%)

USD Index 101.94 +0.35 (+0.34%)

Important events for today:

– Australia Trade Balance (m/m) at 04:30 (GMT+3);
– China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
– China Caixin Services PMI (m/m) at 04:45 (GMT+3);
– Indian Interest Rate Decision at 07:30 (GMT+3);
– Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3).
– German Industrial Production (m/m) at 09:00 (GMT+3);
– UK Construction PMI (m/m) at 11:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– Canada Unemployment Rate (m/m) at 15:30 (GMT+3);
– Canada Ivey PMI (m/m) at 17:00 (GMT+3);

By JustMarkets

Economics & Fundamentals Financial News

05 Apr

Explosive Rise in Stock Market Volatility! Why It May Be Ahead

There are now S&P options that expire each day of the week. What that may mean.

By Elliott Wave International

Here’s a Wall Street Journal headline from a couple of months ago that some people may have scanned without much contemplation (Jan. 11):

VIX, Wall Street’s Fear Gauge, Extends Longest Lull Since 2021

While some investors may not consider a subdued VIX highly significant, Elliott Wave International does. As we’ve repeatedly stated: prolonged periods of low volatility in the stock market are inevitably followed by jumps in volatility — and often, those jumps can be quite high.

With the “lull” in the VIX so extended, the next surge higher in volatility may be exceptionally high and last for an exceptionally long period of time.

Yet, there’s at least one more strong reason to expect a super surge in the fear gauge.

This chart and commentary are from the March Elliott Wave Financial Forecast, a publication which provides analysis of major U.S. financial markets:

The CBOE Volatility Index (VIX) is purportedly a measure of expected future volatility in 30-day S&P 500 index options, but in fact it’s a real-time reading of complacency vs. fear. The index has been subdued, declining to 17.06 on February 2 in conjunction with [an Elliott wave] rally. This was the lowest VIX since January 5, 2022, the very day of the Dow’s all-time high. So, investors are as complacent now with respect to a stock market decline as they were when the blue chip indexes hit top tick in the great bull market.

Digging deeper, we find a segment of investors who are using the market to make casino-style bets. According to Bloomberg, more than 40% of the S&P 500’s total options volume occurs in what is known as “zero-day-to-expiry” options, or 0DTE, as shown by this graph. These are options that expire within 24 hours, making them highly sensitive to changes in price because of the lack of time premium. In 2022, the CBOE and CME expanded existing options so that there are now S&P options that expire each day of the week, allowing investors to speculate using these ultra-short-term instruments. Options dealers have to hedge against the risks of outsized moves in 0DTE options, which increases the potential for an explosive rise in volatility.

If another major leg down occurs in the stock market, wrong-way bets in highly leveraged 0DTE options will spike volatility.

The question is: What are the chances that the price downtrend which began in January 2022 will intensify?

While Elliott wave analysis offers no guarantees (no market analytical does), the stock market’s current Elliott wave structure is highly revealing.

If you’d like to learn how you can analyze financial markets using the Wave Principle, read Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4. The two interruptions are apparently a requisite for overall directional movement to occur.

[R.N.] Elliott noted three consistent aspects of the five-wave form. They are: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest wave; wave 4 never enters the price territory of wave 1.

… Elliott did not specifically say that there is only one overriding form, the “five-wave” pattern, but that is undeniably the case. At any time, the market may be identified as being somewhere in the basic five-wave pattern at the largest degree of trend. Because the five-wave pattern is the overriding form of market progress, all other patterns are subsumed by it.

If you’d like to delve deeper into the Wave Principle, here’s good news: You may read the entire online version of the book free once you become a member of Club EWI, the world’s largest Elliott wave educational community (approximately 500,000 worldwide members).

A Club EWI membership is also free and opens the door to complimentary access to Elliott wave resources on financial markets, investing and trading. Some of these resources (videos and articles) are from Elliott Wave International’s own analysts.

Join Club EWI (free membership) by following this link: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Explosive Rise in Stock Market Volatility! Why It May Be Ahead. 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.

Financial News Stock Market News

05 Apr

Can this former CEO fix the World Bank and solve the world’s climate finance and debt crises as the institution’s next president?

By Rachel Kyte, Tufts University

Over the past two years, a drumbeat of calls for reforming the World Bank has pushed its way onto the front pages of major newspapers and the agenda of heads of state.

Many low- and middle-income countries – the population the World Bank is tasked with helping – are falling deeper into debt and facing growing costs as the impacts of climate change increase in severity. A chorus of critics accuse the World Bank of failing to evolve to meet the crises.

The job of leading that reform is now almost certain to fall to Ajay Banga, an Indian American businessman and former CEO of Mastercard who was nominated by President Joe Biden to replace resigning World Bank President David Malpass. Nominations closed on March 29, 2023, with Banga the only candidate.

There is no shortage of advice for what Banga and the World Bank need to do.

The G-20 recently issued a report urging the World Bank and the other multilateral development banks to loosen their lending restrictions to get more money flowing to countries in need. A commission led by economists Nicholas Stern and Vera Songwe called for a rapid, sustained investment push that prioritizes transitioning to cleaner energy, achieving the U.N. sustainable development goals and meeting the needs of increasingly vulnerable countries.

African ministers of finance will soon come out with their own “to do” list for the World Bank, and India’s minister of finance just pulled together an expert group to consider World Bank reform.

Banga will walk into the job with these and many other to-do lists. Yet he will inherit a corporate culture that makes the World Bank Group too inwardly focused and too slow to respond.

I have worked for the World Bank Group and with it from the outside. I see four key roles – four “C’s” – that Banga will need to master from the outset. From his track record and his reputation for deep thoughtfulness, I am confident that he can.

1) Act as a CEO and get the entire World Bank Group house in order.

The World Bank Group is a conglomerate with four balance sheets, three cultures and four executive boards, plus a dispute resolution arm.

Lending to low- and middle-income countries is just part of its role. The World Bank Group also provides technical assistance across all areas of economic development and invests in and provides risk insurance to encourage companies to invest in projects and places they might otherwise consider too risky. Its ability to mobilize private-sector finance and stretch every dollar is crucial for meeting the world’s development and climate adaptation and mitigation needs.

How the World Bank operates.

Banga will need to set clear goals for each part of the World Bank Group and get them working more effectively to help the world achieve its goals.

2) Assume the mantle of collaborator in chief to take on the debt and climate crises.

Many of the World Bank Group’s client countries are facing both mounting debt and rising costs from climate change.

The high cost of borrowing can hamper developing countries’ ability to invest in needed infrastructure to grow and protect their economies, and they fear being locked out of global trade as the United States’ green subsidies in the Inflation Reduction Act and Europe’s border carbon tax may make it more difficult for them to compete.

The solutions to cascading problems like these cannot be managed by one institution. However, the current multilateral development bank system – the World Bank Group and the regional development banks – is disjointed at best and competitive at worst.

In the past, the leaders of the development banks, the International Monetary Fund and the World Trade Organization have cooperated, more or less, depending on crises and personalities, and can move fast when they need to.

During the global financial crisis of 2008 and 2009, for example, the then-heads of the World Bank and the WTO hurried to develop trade finance facilities to support banks in developing countries as capital fled to the U.S. and Europe. It took intense diplomacy to push wealthy countries and institutions to get money out the door to shore up businesses and trade. Success was measured not in months but in days.

The new president of the World Bank will need to support more radical collaboration among development financial institutions, including pooling capital and talent, to help respond quickly to countries’ needs.

It won’t be easy. Institutional rivalries run deep. But with budgets tight, there is growing clarity that there is no choice – the capital that is already in the system is the closest at hand and can be deployed to better effect if the institutions are willing to adapt.

3) Be a convener.

Overhauling how international finance works will require everyone to be on board – development banks, central banks, regulators, investment banks, pension funds, insurance companies and private equity.

Banga and International Monetary Fund Managing Director Kristalina Georgieva can settle institutional differences and present a coordinated face to private investors and the major lending countries, including China – which has emerged as the biggest holder of developing country debt – to speed up support to struggling countries.

On other issues, such as nature-based solutions to climate change, building resilience and economic inclusion, the World Bank Group can bring its significant resources and skills, including data analysis, to global conversations that it has been painfully absent from for the past four years.

4) Be a champion for the most vulnerable.

The world’s most vulnerable people are the World Bank Group’s ultimate beneficiaries. For those living on the front line of biodiversity loss and climate impacts, such as extreme heat, drought and flooding, the current international financial system is proving inadequate.

The World Bank Group’s management incentives are still too oriented to lending approved by the board, not the outcomes of that lending, advice and assistance.

Throughout its history, World Bank leaders have been able to make rapid changes to better help vulnerable countries when they stay close to the needs of their ultimate beneficiaries and the goals that the world has set.

The next president faces turbulent times. Banga’s careful listening on his campaign tour signals that he understands the complexity. It’s an extraordinary moment in the history of the institution, with sky-high expectations of what one leader needs to do.

This article was updated March 30, 2023, with the announcement that Banga is the only candidate for World Bank president.

About the Author:

Rachel Kyte, Dean of the Fletcher School, Tufts University

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

Economics & Fundamentals Financial News

05 Apr

The RBNZ unexpectedly raised its rate by 0.5%. The US labor market is starting to show signs of slowing

By JustMarkets

According to the monthly JOLTS report, the number of job openings, a measure of labor demand, fell by 632,000 to 9.9 million in February, the lowest since May 2021. This is a direct sign of a slowing labor market, reinforcing investors’ bets that the Federal Reserve will end its tightening cycle and fueling recession fears. The US factory orders also declined for the second straight month, a 0.7% decrease in February after falling by 2.1% in January. The Dow Jones Index (US30) decreased by 0.59%, and the S&P 500 Index (US500) lost 0.59% at the close of the stock market on Tuesday. The NASDAQ Technology Index (US100) fell by 0.52% yesterday.

Analysts believe that if bad economic data is added to the banking crisis plus rising oil supply costs, there is a better chance of a rate cut later this year. On Tuesday, the interest rate futures market estimated a 50% chance of a 25-bp rate hike in May. Although on Monday, that probability was more than 65%.

Northcoast Research downgraded Boeing Co. (BA) from neutral amid concerns that engine maker CFM International won’t be able to supply enough engines for the aircraft maker, limiting its growth. Lockheed Martin Corporation (LMT) said Monday that the US Army has a multi-year contract to produce joint air-to-ground missiles (JAGM) and HELLFIRE missiles. The contract is worth $4.5 billion. In March, President Joe Biden requested $842 billion for the Pentagon and $44 billion for defense-related programs. The 2024 budget proposal is $28 billion more than last year.

Stock markets in Europe traded flat Tuesday. German DAX (DE30) gained 0.14%, French CAC 40 (FR40) lost 0.01%, Spanish IBEX 35 (ES35) gained 0.29%, and British FTSE 100 (UK100) closed yesterday down by 0.50%.

Huw Pill, the chief economist of the Bank of England, said that officials might have to raise interest rates even if inflation declines in order to prevent price increases caused by the attempts of households and companies to regain lost income. For her part, Bank of England policymaker Silvana Tenreyro laid out the case for lower interest rates. The politician believes that as the bank rate moves further into restrictive territory, a softer stance is needed to achieve the inflation target in the medium term. Inflation in the UK surprised economists as it stubbornly remained above 10%, five times the Bank of England’s target. Inflation is expected to fall sharply from its current level of 10.4% in the coming months due to lower energy prices and base effects.

On Tuesday, the two-year US Treasury bond yield, which generally reflects interest rate expectations, fell 12 basis points (bps) to 3.86%. With gold and silver inversely correlated to the dollar index and government bond yields, precious metal prices skyrocket. Meanwhile, gold is on track to renew its all-time high.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.35%, China’s FTSE China A50 (CHA50) wasn’t traded, Hong Kong’s Hang Seng (HK50) ended the day down by 0.66%, India’s NIFTY 50 (IND50) was flat, and Australia’s S&P/ASX 200 (AU200) ended the day up by 0.18%.

The RBNZ unexpectedly raised the rate by 50 basis points to 5.25%, saying that inflation is still too high. The RBNZ rate is now higher than that of the US Fed. The central bank of New Zealand was one of the first central banks in the world to take action against rising inflation after COVID-19 and has raised rates by a combined 500 basis points since mid-2021. The central bank said the country’s economic growth is expected to slow until 2023 amid weakening global demand for exports, slowing local consumption, and monetary policy, which is now entering a restricted zone. Further monetary policy will depend on new data.

S&P 500 (F) (US500) 4,100.60 −23.91 (−0.58%)

Dow Jones (US30)33,402.38 −198.77 (−0.59%)

DAX (DE40) 15,603.47 +22.55 (+0.14%)

FTSE 100 (UK100) 7,634.52 −38.48 (−0.50%)

USD Index 101.56 −0.53 (−0.52%)

Important events for today:

– New Zealand RBNZ Interest Rate Decision at 05:00 (GMT+3);
– New Zealand RBNZ Rate Statement at 05:00 (GMT+3);
– Australia RBA Governor Lowe Speaks at 05:30 (GMT+3);
– German Services (m/m) PMI at 10:55 (GMT+3);
– Eurozone Services (m/m) PMI at 11:00 (GMT+3);
– UK Services PMI (m/m) at 11:30 (GMT+3);
– US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
– Canada Trade Balance (m/m) at 15:30 (GMT+3);
– US Trade Balance (m/m) at 15:30 (GMT+3);
– US ISM Services PMI (m/m) at 17:00 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustMarkets

Economics & Fundamentals Financial News

Risk Disclosure: Foreign Currency trading and trading on margin carries a high level of risk and can result in loss of part or all of your investment. Due to the level of risk and market volatility, Foreign Currency trading may not be suitable for all investors and you should not invest money you cannot afford to lose. Before deciding to invest in the foreign currency exchange market you should carefully consider your investment objectives, level of experience, and risk appetite. You should be aware of all the risks associated with foreign currency exchange trading, and seek advice from an independent financial advisor should you have any doubts.

All information and opinions on this website are for general informational purposes only and do not constitute investment advice.