InvestMacro

By JustMarkets

Weekly US jobless claims fell last week, indicating that the US labor market remains robust. That strengthens the outlook for more hawkish Fed policy and raises fears of a recession caused by higher interest rates. As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 0.02%, and the S&P 500 Index (US500) lost 0.31%. The NASDAQ Technology Index (US100) was down by 0.35%.

Fed spokesman Kashkari said yesterday that the central bank couldn’t be too convinced by one month’s data, so the Fed needs to keep raising rates at the same pace until inflation stops rising. But the policymakers added that the economic data provide some evidence that inflation is at a plateau. Another Bullard Fed spokesman pointed out that the rate hikes so far have had “only a limited impact” on inflation. Using the so-called Taylor rule for monetary policy, Bullard suggested that the proper zone for the federal funds rate should be in the 5-7% range, above current market prices and unofficial Fed forecasts.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) gained 0.23%, French CAC 40 (FR40) decreased by 0.47%, Spanish IBEX 35 (ES35) lost 0.75%, and British FTSE 100 (UK100) was down by 0.06% on Thursday.

The inflation rate in the Eurozone fell from 10.7% to 10.6% on an annualized basis. Core inflation (excluding food and fuel prices) remained at 5% y/y. The data points to a possible peak in inflation. This increases the probability that the ECB will raise interest rates by 0.5% at its next meeting rather than by 0.75%, as previously discussed.

The UK government on Thursday unveiled an extensive fiscal plan aimed at closing the hole in finances and restoring confidence in the British economy. Finance Minister Jeremy Hunt, in a statement, outlined spending cuts and £55 billion worth of tax increases. The energy industry will face an increased tax on contingencies from 25% to 35%. Meanwhile, support for households to pay their energy bills will be reduced, with bills rising from £2,500 a year to £3,000 a year from April 2023. The UK GDP is projected to recover to pre-pandemic levels in Q4 2024.

According to Fiscal Watchdog, Brexit has had a significant negative impact on UK trade, reducing both the total volume of trade and the number of trade relationships between British and European firms. The Fiscal Watchdog said this in a forecast prepared for the government.

The European Parliament has agreed to a resolution recognizing Russia as a state sponsor of terrorism, a member of the European Parliament said. The resolution is expected to be discussed and voted on by the European Parliament during a session on November 21-24.

Asian markets were trading lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.35%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.15%, while Australia’s S&P/ASX 200 (AU200) ended the day up by 0.19%.

Goldman Sachs forecasts an acceleration of growth in China in the second half of 2023. China’s actions to mitigate two of the biggest risks facing the economy — coronavirus-related restrictions and a downturn in the real estate market — are fueling optimism for growth recovery next year, prompting economists to raise key forecasts.

The Reserve Bank of New Zealand will raise its rate by 50 bps next week and is signaling a peak rate of about 5.0%. The ongoing housing market downturn and deteriorating external conditions are arguments against a larger move of 75 bps.

Core consumer inflation in Japan accelerated to 3.6%, a 40-year-high. The weak yen has pushed up the cost of imported goods. But despite mounting price pressures that are causing growing concern among households, the Bank of Japan will not join the global trend of tightening monetary policy by raising interest rates. Bank of Japan Governor Haruhiko Kuroda reiterated on Thursday his pledge to maintain monetary stimulus to support the fragile economy.

S&P 500 (F) (US500) 3,946.56 −12.23 (−0.31%)

Dow Jones (US30) 33,553.83 −39.09 (−0.022%)

DAX (DE40) 14,266.38 +32.35 (+0.23%)

FTSE 100 (UK100) 7,346.54 −4.65 (−0.063%)

USD Index 106.64 +0.35 (+0.33%)

• – Japan National Consumer Price Index (m/m) at 01:30 (GMT+2);
• – UK Retail Sales (m/m) at 09:00 (GMT+2);
• – Eurozone ECB President Lagarde Speaks at 10:30 (GMT+2);
• – US Existing Home Sales (m/m) at 17:00 (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.

By George Prior 

The UK Autumn Statement restored some much-needed market credibility but the finance minister’s implied support for interest rate hikes spells more pain for people across the UK, affirms the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The observations from deVere Group’s Nigel Green follow Chancellor Jeremy Hunt delivering his Budget to parliament in which he unveiled a raft of stealth tax hikes and spending cuts.

The deVere CEO says: “The markets have remained largely unmoved by the Chancellor’s Autumn Statement.

“Hunt has managed to make markets boring again – which is a win for the government.

“The idea was to restore stability following Liz Truss’s disastrous mini-budget in September when the pound hit historic lows against the dollar, gilt yields jumped, and stock markets fell due to reckless economic policies.

“The lack of major volatility of the pound and the bond market, which sets the rate at which the government can borrow money, suggests the Hunt statement has worked in bringing back some much-needed market credibility.”

Whilst Rishi Sunak’s government might have soothed the markets somewhat, there are, says Nigel Green, some questions about the Chancellor’s handle on the UK’s soaring inflation crisis, as it hits a 41-year high of 11.1%

“Hunt gave his full support to the Bank of England to tackle the red-hot inflation, which implies his support for more, and probably aggressive, interest rate hikes.

“This at a time when the UK is nose-diving into a recession.

“Another hike can be expected to make the downturn in Britain’s consumer-driven economy worse and last for longer.

“It would mean higher borrowing costs for property owners on variable rate mortgages. Lenders will also increase the rates they charge on personal and business loans at a time when households and firms are facing a shocking cost of living crisis.

“The Bank of England’s anticipated hike would be harmful to the economy and pile on the pain for people across the country.”

The deVere CEO adds: “Hunt began his Budget saying the inflation problem is largely fuelled by external issues, such as rocketing energy prices, rather than by domestic ones.

“Which begs the question: Why is he backing the Bank of England to continue to increase the UK’s interest rates again when they cannot tackle inflation caused by global issues?”

He concludes: “Hunt’s fiscal discipline will please the markets, but households and businesses across the UK will be braced for yet more financial pain in the months to come.”

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.

By JustMarkets

Yesterday, the US Department of Commerce announced that Retail Sales in October rose by 1.3% (1.0% expected). Stronger than expected US Retail Sales overshadowed the inflation outlook and hope that the Federal Reserve will scale back its aggressive rate hike. As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 0.12%, and the S&P 500 Index (US500) lost 0.83%. The NASDAQ Technology Index (US100) fell by 1.54%.

San Francisco Fed President Mary Daly told CNBC that it is prudent for the Fed to raise the interest rate to the 4.75-5.25% range (the current level is 4.00%) by early next year and that pausing rate hikes is not part of the discussion. Money markets currently estimate a 93% chance that the Fed will decrease a step rate hike to 0.5% at its December 14 meeting and only a 7% chance of a 75 basis point hike. Goldman Sachs added another 25 basis point Fed hike to its forecast for 2023 and raised its forecast for the peak federal funds rate to 5.0-5.25%. According to GS analysts, policymakers will have to counter any premature easing because of high and persistent inflation.

Equity markets in Europe traded lower yesterday. Germany’s DAX (DE30) decreased by 1.00%, France’s CAC 40 (FR40) was down by 0.52%, Spain’s IBEX 35 (ES35) lost 1.06%, Britain’s FTSE 100 (UK100) closed down by 0.25% on Wednesday.

The European Central Bank (ECB) is likely to raise interest rates again in December to combat rising inflation, said Governing Council spokesman François Villeroy de Galhau. But two key ECB policymakers said Wednesday that while the European Central Bank should continue to raise interest rates, there are growing reasons for increased caution in tightening policy after a series of aggressive moves. Analysts forecast a 0.5% rate hike at the ECB’s next meeting.

Today, the inflation data will be published in Europe. Experts believe that the base Consumer Prices (excluding food and fuel prices) in Europe will reach a new record.

The UK Treasury Secretary Jeremy Hunt will unveil the government’s new budget on Thursday, which is likely to cut government spending and raise taxes. According to analysts, the UK is already in recession, with record inflation at 11%. A return to austerity would hurt millions of households and exacerbate the expected recession. But it would help slow borrowing costs, lower inflation, and restore investor confidence.

The European Commission called on the EU Council to include Bulgaria, Romania, and Croatia in the Schengen Agreement, as the countries effectively met all the conditions for joining the visa-free area. The EC believes that expanding the list of Schengen countries will make Europe safer through enhanced protection of common external borders and effective law enforcement cooperation.

Demand for gold as a safe haven has recently declined as fears of an escalating war in Ukraine subsided, while copper prices continued to fall on fears of a COVID-19 outbreak in China. Geopolitical fears in Europe eased slightly after Poland and NATO said Wednesday that Tuesday’s explosion, which killed two people in Poland, was probably caused by part of a Ukrainian air defense system missile and not a deliberate Russian strike. But Ukraine is asking for its representatives to be allowed into the investigation since the fragments of the rocket do not leave a hole with a depth of 5 meters.

Oil prices declined for the second day in a row as concerns over geopolitical tensions eased and rising COVID-19 cases in China increased fears over demand from the world’s largest oil importer. Crude inventories in the United States, the world’s largest oil consumer, fell by 5.4 million barrels over the week.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.14%, Hong Kong’s Hang Seng (HK50) decreased by 0.47%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.27%.

Japan’s imports more than halved year-on-year in October, eclipsing the growth in exports and widening the trade deficit. Thus, the trade deficit exacerbates the problems faced by households struggling to make ends meet as import prices rise. Businesses that depend on imports are also facing problems, so they are shifting risk and rising prices to customers.

Minutes from the November policy meeting of Australia’s central bank showed that the RBA is ready to either pause or return to a larger rate hike “if the economy demands it.” Australia’s unemployment rate fell from 3.5% to 3.4%, indicating that the RBA has room to maneuver as the labor market remains resilient.

S&P 500 (F) (US500) 3,958.79 −32.94 (−0.83%)

Dow Jones (US30) 33,553.83 −39.09 (−0.12%)

DAX (DE40) 14,234.03 −144.48 (−1.00%)

FTSE 100 (UK100) 7,351.19 −18.25 (−0.25%)

USD Index 106.31 −0.10 (−0.09%)

• – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
• – US FOMC Member Bullard Speaks at 15:00 (GMT+2);
• – US Building Permits (m/m) at 15:30 (GMT+2);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
• – US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+2);
• – US FOMC Member Bowman Speaks at 16:15 (GMT+2);
• – US FOMC Member Mester Speaks at 16:40 (GMT+2);
• – US Natural Gas Storage (w/w) at 17:30 (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.