InvestMacro

By JustMarkets

Last week, the Nasdaq recorded its first weekly decline of the year. After a strong report on nonfarm payrolls and data from ISM in service sectors, investors concluded that the US economy remains resilient, and interest rates are pricing in a “higher for the longer term” scenario. Such market conditions create an environment of uncertainty for investors, which limits growth potential. As the stock market closed on Friday, the Dow Jones Index (US30) increased by 0.50 (-0.02% for the week), and the S&P 500 Index (US500) added 0.22% (-0.71% for the week). The NASDAQ Technology Index (US100) fell by 0.61% on Friday (-1.56% for the week).

2-year and 10-year bond yields soared to more than four-week highs last week as traders reassessed the trajectory of monetary policy higher, with the final rate now at 5.17% compared to 4.92% earlier this month.

According to Refinitiv, more than half of the firms in the S&P 500 reported earnings, with 69% beating earnings estimates for the quarter. Coca-Cola (KO), Barrick Gold (GOLD), Kraft Heinz (KHC), Airbnb (ABNB), and Biogen (BIIB) are reporting this week.

Equity markets in Europe were mostly down on Friday. German DAX (DE30) fell by 1.39% (-0.38% on the week), French CAC 40 (FR40) lost 0.82% (-0.73% on the week), Spanish IBEX 35 (ES35) fell by 1.36% (-0.63% on the week), British FTSE 100 (UK100) decreased by 0.36% (-0.24% on the week).

After the Bank of England’s latest rate hike and Friday’s GDP data, markets believe the central bank may soon hit the pause button. According to business surveys, the UK economy faces serious recession risks. The deciding factor this week will be the labor market figures and new inflation data. Inflation is projected to remain above 10%, while the labor market will show signs of weakness. In that case, the Bank of England will have no choice but to stop raising rates.

The selloff in precious metals stabilized somewhat late last week as markets await important inflation data this week. With the new economic data, there is a constant reassessment of forward-looking expectations. A soft landing and a resilient US economy will help push gold prices higher. New signals of policy tightening will be negative for gold, as the precious metals have an inverse correlation to the dollar index and government bond yields.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) declined 0.34% over the week, China’s FTSE China A50 (CHA50) fell by 0.63% over the week, Hong Kong’s Hang Seng (HK50) lost 0.74% over the week, India’s NIFTY 50 (IND50) added 0.60%, and Australia’s S&P/ASX 200 (AU200) was down by 1.65% over the week.

This week, the Japanese government will officially elect a new Governor of the Bank of Japan to replace Haruhiko Kuroda, whose decade as the Central Bank will end in April. Whether the Bank of Japan will adjust its policy is one of the main questions facing markets around the world this year. BoJ observers suspect that the current ultra-soft monetary policy is likely to change as inflation rises. Also, on Friday, it was reported that the Japanese government decided to nominate Kazuo Ueda as governor of the Bank of Japan after Deputy Governor Masayoshi Amamiya reportedly refused the role. It was thought that Amamiya would provide some continuity to Kuroda’s policies. Although Ueda’s political views are not yet clear, traders are betting that he is unlikely to be as cautious as Amamiya about tightening policy. He is not currently a member of the Bank of Japan and has not been involved in extreme stimulus policies in the last decade, so it is thought that he might be more open to raising interest rates.

In the commodities market, futures on WTI crude oil (+8.68%), Brent oil (+8.23%), gasoline (+7.65%), natural gas (+7.05%), orange juice (+4.47%) and wheat (+4.26%) showed the biggest gains last week. Futures on lumber (-15.23%), palladium (-5.8%), and platinum (-2.96%) showed the biggest drop.

S&P 500 (F) (US500) 4,090.46 +8.96 (+0.22%)

Dow Jones (US30) 33,869.27 +169.39 (+0.50%)

DAX (DE40) 15,307.98  −215.44 (−1.39%)

FTSE 100 (UK100) 7,882.45 −28.70 (−0.36%)

USD Index 102.99 +1.24 (+1.22%)

• – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+2);
• – Indian Consumer Price Index (m/m) at 14:00 (GMT+2);
• – US FOMC Member Bowman Speaks at 15:00 (GMT+2).

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.

“If you believe in Gold as a consumer price inflation hedge then…”

By Elliott Wave International

Back in the days of the Roman Empire, an ounce of gold could buy a Roman a well-made toga, belt and finely crafted sandals.

In modern day Rome, lo and behold, a businessman can become sharply dressed via the value of that same ounce of gold.

So, yes, gold has maintained its store of value over the centuries.

However, in the relative short term — which can last years — gold may not be the inflation hedge that gold bugs believe it to be.

In a moment, I’ll show you how this relates to what’s going on with gold and inflation now. However, let’s first get insights from a chart and commentary from our February 2022 Global Market Perspective, which published when inflation was really getting going (The monthly Global Market Perspective is an Elliott Wave International publication which covers 50-plus global financial markets):

The chart shows the U.S. dollar price of Gold versus the annualized rate-of-change in the U.S. Consumer Price Index (CPI). If you believe in Gold as a consumer price inflation hedge then, as the CPI is accelerating, the Gold price should be advancing. The green shaded areas show that there have been five occasions since 1980 when the opposite was true, the last year being a good example. On the other side, the Gold-Inflation myth would allude to the price of Gold declining as CPI was decelerating. The grey shaded areas show five occasions since 1970 when this was not the case, 2007 to 2010 being a prime example.

Fast forward to today and we have these headlines:

• US inflation eases grip on economy, falling for a 6th month (AP News, Jan. 23)
• Inflation in U.S. could turn negative by midyear, says [this] billionaire investor … (MarketWatch, Jan. 28)

What’s happened to the price of gold? It’s steadily climbed in the face of easing inflation. Of course, this is just the opposite of what was occurring around this time last year. In both cases, the price of gold went in the opposite direction from what many would expect.

On Sept. 28, gold was trading at $1613.75 and has been in an overall uptrend since. The precious metal traded as high as $1949.46 on Jan. 26 (as of this writing on Jan. 30).

The bottom-line takeaway is that the widespread expected relationship between gold and inflation is not always there — indeed, there have been several instances in the past several decades where the opposite is the case.

Know that Elliott wave analysis, which is by no means a crystal ball, can nonetheless help you anticipate gold’s next big price move.

If you’re unfamiliar with Elliott wave analysis, read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.

Learn about these “forms” for free as a Club EWI member.

That’s right — you can gain free access to the entire online version of this Wall Street classic by joining Club EWI — the world’s largest Elliott wave educational community. A Club EWI membership is also free, and members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading.

Get started right away by following this link: Elliott Wave Principle: Key to Market Behavior — get free and instant access.

By JustMarkets

On Thursday, Federal Reserve officials continued to impose their hawkish message on the market. The main message from policymakers is that further rate hikes are not far off and that the rate should remain high for an extended period. While there is nothing new in these comments, the 2-10 Treasury yield curve has flipped by 85 basis points, the deepest inversion since the early 1980s, raising new fears about economic problems. As the stock market closed Thursday, the Dow Jones Index (US30) decreased by 0.73%, and the S&P 500 Index (US500) fell by 0.88%. The NASDAQ Technology Index (US100) lost 1.02% yesterday.

Walt Disney announced a restructuring plan that will include cutting 7,000 jobs, which could result in about $5.5 billion in savings. PayPal Holdings Inc (PYPL) released a report Thursday with fourth-quarter results that beat analysts’ forecasts. Shares of PayPal Holdings Inc jumped by 7.04% after the market close. LYFT (LYFT) released a report Thursday with fourth-quarter results that disappointed analysts. The company’s stock fell more than 22% on the report.

Stock markets in Europe were mostly up yesterday. Germany’s DAX (DE30) gained 0.33%, France’s CAC 40 (FR40) gained 0.96%, Spain’s IBEX 35 Index (ES35) added 0.18%, and the British FTSE 100 (UK100) closed up by 0.33% on Thursday.

According to the latest report from the National Institute of Economic and Social Research (NIESR), sluggish growth and persistent inflation will continue to hurt British households this year. NIESR expects UK GDP for the fourth quarter to show a 0.3% contraction. Bank of England Governor Andrew Bailey urged workers and employers to consider this year’s expected sharp drop in inflation when discussing wage settlements. Bailey told a parliamentary committee Thursday that the continued tightening reflects the Monetary Policy Committee’s concern about continued inflation and the need to see more evidence of easing in the labor market. The bank expects inflation to begin to decline rapidly from the middle of 2023 and, by the end of the year, will be about 4% due to sharp declines in wholesale energy prices, a sharp drop in import prices, and falling demand due to declining personal income.

On Wednesday, the US Energy and Information Administration (EIA) announced that weekly crude oil inventory levels reached their highest level since June 2021. Production reached a high last seen in April 2020. Despite the rise in inventories, oil continued to rise yesterday. The optimism about growth is due to increased demand from China after Fitch Ratings raised China’s economic growth forecast for 2023 to 5% from the previous figure of 4.1%. Fitch cited January services PMI data as well as Q4 2022 real GDP as reasons for the increase.

Asian markets were also mostly up yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.08% yesterday, China’s FTSE China A50 (CHA50) added 1.24%, Hong Kong’s Hang Seng (HK50) increased by 1.60% for the day, India’s NIFTY 50 (IND50) was up by 0.12%, and Australia’s S&P/ASX 200 (AU200) was down by 0.53% for the day.

The appointment of Haruhiko Kuroda’s successor will probably take place next week. Several representatives of the Liberal Democratic Party have said that opposition would arise within the party if the prime minister of Japan chose Yamaguchi, the former deputy governor of the Bank of Japan. Yamaguchi’s name was recently ranked third in polls of economists as a likely candidate for governor of the Bank of Japan. Yamaguchi, in comparison with other contenders for the top post, is considered more hawkish. If he is appointed, market participants expect it to cause significant market volatility and signal that the government is committed to a clear change in policy toward normalization.

Australia’s Central Bank (RBA) on Friday revised its forecasts for core inflation and wage growth upward and warned of further interest rate hikes, raising the risk of the economy sliding into recession. Given the importance of preventing a price-wage spiral, the council will continue to pay close attention to labor market data. Annual wage growth is expected to peak at 4.2% later this year, up from the previous forecast of 3.9%, and then decline to 3.8% by mid-2025. The unemployment rate will rise steadily to 4.4% by mid-2025 from the current 3.5%. The RBA also raised this year’s economic growth forecast to 1.6%, up from 1.4% previously. All of these forecasts are based on the assumption that interest rates will peak at about 3.75% in mid-2023 and then decline to about 3% by June 2025.

S&P 500 (F) (US500) 4,081.50 −36.36 (−0.88%)

Dow Jones (US30) 33,699.88 −249.13 (−0.73%)

DAX (DE40) 15,523.42 +111.37 (+0.72%)

FTSE 100 (UK100) 7,911.15 +25.98 (+0.33%)

USD Index 103.22 -0.19 (-0.18%)

• – Japan Producer Price Index (m/m) at 01:50 (GMT+2);
• – Australia RBA Monetary Policy Statement at 02:30 (GMT+2);
• – China Consumer Price Index (m/m) at 03:30 (GMT+2);
• – China Producer Price Index (m/m) at 03:30 (GMT+2);
• – UK GDP (q/q) at 09:00 (GMT+2);
• – UK Industrial Production (m/m) at 09:00 (GMT+2);
• – UK Manufacturing Production (m/m) at 09:00 (GMT+2);
• – Canada Unemployment Rate (m/m) at 15:30 (GMT+2);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2);
• – US FOMC Member Waller Speaks at 19:30 (GMT+2).

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

Global investors should remain open to India’s enormous potential, despite the heightening crisis engulfing the Adani Group, affirms the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The observation by Nigel Green of deVere Group comes as MSCI, the global index provider, is set to change its weightings for Adani Group shares after assessing how many shares can be freely traded.

It follows earlier this week mass protests by India’s opposition parties who are demanding a probe into allegations by a U.S. short-seller against the conglomerate, which triggered the Adani Group of companies share price to plummet sharply.

Market losses have now exceeded $110 billion according to media reports since Hindenburg Research accused the corporate giant of stock manipulation and accounting fraud in a 24 January report.

Adani’s diverse businesses include port management, electric power generation and transmission, renewable energy, mining, airport operations, natural gas, food processing and infrastructure.

“The serious issues of the Adani Group of companies, headed by Gautam Adani, are causing such concern in a large part because he has been a close ally of Prime Minister Narendra Modi for many, many years,” says Nigel Green.

“With questions now mounting about this hugely influential conglomerate and issues of regulatory frameworks, nepotism, governance and debt, India’s credibility amongst global investors is now hanging in the balance.”

The debacle, according to many experts, is particularly inconvenient as some multinationals are currently looking to India as a substitute to China as an investment destination.

The questions being raised by global investors have shaken confidence in India.

“However, I would also urge them to keep an open mind on India’s incredible opportunities,” says the deVere CEO.

“The country is still set to overtake Japan and Germany to become the world’s third-largest economy, and together with China will account for more than half of global growth this year.”

He continues: “India’s economy is showing incredible resilience despite external tailwinds such as supply chain issues, the reopening of China, the war in Ukraine, and the impact of considerable economic slowdowns in developed economies.

“The robustness of the Indian economy is attributable in a large part to enormous domestic markets, a growing middle class, significant supply-side reforms, a strong financial sector, pro-business reforms, and the ongoing digitalization of public and private sectors.”

He concludes: “Investors who want to build long-term wealth should remain open to the current and future opportunities in India.”

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