InvestMacro

Week Ahead: Robust US jobs data to restore USD Index to 1.28?

We’re about to enter the final quarter of what’s already been a tumultuous year for global financial markets.

And as it’s been for most of the year, it’s set to be yet another dollar-centric week for global markets.

Global investors and traders are awaiting the next US jobs report as well as potential policy clues by Fed officials who are scheduled to make public comments over the coming week:

Monday, October 3

Mainland Chinese markets closed this week
JPY: Japan 3Q Tankan
EUR: Eurozone September manufacturing PMI (final)
GBP: UK September manufacturing PMI (final)
USD: US September ISM manufacturing and manufacturing PMI (final)
USD: Speeches by Atlanta Fed President Raphael Bostic, New York Fed President John Williams

Tuesday, October 4

JPY: Tokyo September CPI
AUD: Reserve Bank of Australia rate decision
EUR: Eurozone August PPI
USD: Speeches by New York Fed President John Williams, Dallas Fed President Lorie Logan, Cleveland Fed President Loretta Mester, and San Francisco Fed President Mary Daly

Wednesday, October 5

NZD: Reserve Bank of New Zealand rate decision
EUR: Eurozone September services PMI (final)
Brent: OPEC+ meeting
US crude: EIA weekly oil inventory report
USD: Speech by Atlanta Fed President Raphael Bostic

Thursday, October 6

AUD: Australia August external trade
EUR: Eurozone August retail sales, Germany August factory orders
USD: US weekly initial jobless claims
USD: Speeches by Chicago Fed President Charles Evans, Fed Governor Lisa Cook, Cleveland Fed President Loretta Mester

Friday, October 7

EUR: Germany August retail sales, industrial production
GBP: Speech by BOE Deputy Governor Dave Ramsden
CAD: Canada September unemployment
USD: US September nonfarm payrolls, speech by New York Fed President John Williams

Recently, the equally-weighted USD index soared past 1.28, well above the 1.25 level cited in our previous Week Ahead article (posted every Friday). 1.25 also marked the early-April 2020 cycle high.

However, this dollar index then swiftly unwound gains, as it pulled away from ‘overbought’ conditions, with its 14-day relative strength index moving back below the 70 level.

The upcoming US jobs report may help determine whether this USD index can be restored to its recent peak above 1.28, or at least remain at these elevated levels.

Here are the market forecasts at present:

August nonfarm payrolls: 250,000 increase (median estimate)
If so, this would be the lowest monthly jobs growth since December 2019.
August US unemployment rate: 3.7% (median estimate)
If so, this would mark s slight uptick, but still hovering close to the pre-pandemic low of 3.5%.
75-basis point hike by the Fed in November: 69%

If the US labour market continues to demonstrate its resilience, either by way of a higher-than-expected headline NFP figure or a lower-than-expected unemployment rate, that should ramp up market expectations for yet another 75-basis point hike by the Fed at its next policy decision due November 2nd.

Such ramped-up expectations may then restore the USD Index back up to 1.28.

Also, keep an eye on the slate of Fed officials who are scheduled to make public comments in the coming week.

Should they offer fresh signs that they’re willing to take bolder measures to quell stubbornly elevated US inflation, that may translate into more USD strength as well.

Alternatively, if market fears over an ultra-aggressive Fed further subside, that may in turn see the US dollar unwinding more of its recent gains.

Article by ForexTime

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

Economics & Fundamentals Financial News

30 Sep

How bonds work and why everyone is talking about them right now: a finance expert explains

By David McMillan, University of Stirling

– The Bank of England is buying bonds again. Just as it was about to start selling the debt it had accumulated as part of its last effort to support the economy during the COVID-19 pandemic, the central bank has been forced to announce a new scheme to shore up investor confidence.

The bank’s £65 billion short-term spree aims to address the slump in bond prices caused by investors rushing to sell after the government’s recent mini-budget. This led to a surge in bond yields that hiked borrowing costs for the government and spread to pensions, housing and the general economy. So far, it has had a limited initial impact on the markets.

We asked an expert in finance to explain what’s going on in bond markets.

What is a bond and what is the difference between bond prices and yields?

A bond is essentially a tradeable IOU. It’s a loan that investors make to issuers such as companies or governments (UK government bonds are often called gilts). A bond has a price at which it can be sold and a yield, which is an annual amount the investor receives for holding the bond, a bit like interest on a savings account, and is expressed as a percentage of the current price.

When the price of a bond falls, it signals less demand for the bond because fewer investors want to own it. At the same time, the yield rises, which represents a higher cost of borrowing for companies or governments that issued the bond because this is what they have to pay to investors.

In the days since the government’s mini-budget, yields on 10-year Treasury bonds – which are issued by the UK government – increased from approximately 3.5% to 4.52% – the highest since the 2007-2008 global financial crisis. The expectation of continued increases prompted the recent intervention by the Bank of England.

UK government 10-year bond yields

Line chart showing UK 10-year bond or gilt yields, August - September 2022 — United Kingdom 10-year bond yield.
Investing.com / Tradingview

What causes bond yields to move?

To understand this, it is important to bear in mind that, while people often talk about the interest rate, there are actually a number of rates. This includes the rate at which the central bank lends to commercial banks (the base rate), the rate that banks lend to each other (the interbank rate), the rate that the government borrows at (Treasury yields) and the rate at which households and firms borrow (commercial loans and mortgages).

When the Bank of England changes the base rate, this cascades through all these rates. As such, the Bank of England carefully considers the state of the economy – that is, growth and inflation – when deciding on the base rate.

When an economy is growing, interest rates and bond yields tend to rise. The occurs for several reasons. Investors sell bonds to buy riskier assets with better returns. Firms and households also look to borrow more money in a growing economy, for example, to invest in new machinery or to move home. More demand for borrowing means lenders can charge higher interest on their loans.

Higher inflation often accompanies economic growth because of the increase in demand for goods and services. This tightens supply and causes prices to rise (including wages for labour). The Bank of England, which is mandated by the government to try to keep inflation as close to 2% as possible, will respond to higher inflation by raising base rates, which, as noted, feeds through to the different rates.

Investors will often anticipate the increase in base rates and look to act before it goes up by selling Treasury bonds and buying alternative, higher return, assets. This causes bond yields to rise further. As a result, the Treasury bond yield is often seen as a predictor of future Bank of England base rate changes.

So, if yields are rising, does this mean that investors are expecting future economic growth in the UK?

No, not at the moment. When the government raises money by issuing bonds, it does so over a range of time periods (called maturities), from one day to 30 years. When an economy is expected to grow, the yield on longer-term bonds will be higher than the yield on shorter-term bonds.

This relationship between yields across different maturities is referred to as the term structure or yield curve. An upward sloping yield curve implies a growing economy. At the moment, the UK yield curve is flat, or even downward-sloping across some maturities. My research shows that a falling yield curve is a good predictor of a coming recession.

Yield curve for UK government bonds

Line graph showing downward-sloping yield curve for UK gilts — UK gilts 40-year yield curve. *The curve on the day of the previous MPC meeting is provided as reference point.
Bloomberg Finance L.P., Tradeweb and Bank of England calculations

It’s important to remember that these different yields act as a benchmark for commercial lending rates of equivalent lengths. The approximate jump to 4.5% in 2-year and 5-year yields has been reflected in mortgage rates, which is why some lenders have pulled available mortgage deals recently while they reassess the lending rates charged to households.

But if the UK economy is not expected to perform well, why have bond yields been rising after the chancellor’s mini-budget announcement?

The rising bond yields we are seeing relate to an additional factor: the amount of government debt. The mini-budget introduced tax cuts and increased spending and investors know the government will need to increase borrowing to meet these commitments. Some estimates put potential government borrowing at £190 billion due to this plan.

An increase in the amount a homeowner borrows versus the value of their home (called the loan-to-value) causes the mortgage rate charged to the borrower to rise. Similarly, an increase in the amount of bonds that the government will be looking to sell (the amount it wants to borrow) will push down the price of existing bonds, increasing yields. More importantly, more debt without growth raises the risk level of the UK economy.

Anticipating this, investors triggered a large-scale bond sell-off after the government’s mini-budget announcement. This contributed to the fall in the value of the pound as investors selling UK Treasury bonds bought US bonds instead, essentially swapping pounds for dollars.

So will the Bank of England’s plan work?

The intervention will have a short-term positive impact, which started as soon as it was announced. But the bank is really only buying time. Any ultimate success depends on the government restoring investor confidence in its economic plans.

Unfortunately, rising yields and borrowing costs for the UK economy is the price we are now paying for the government’s recent fiscal announcement.

About the Author:

David McMillan, Professor in Finance, University of Stirling

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

Bonds Opinions

30 Sep

The US economy is in recession. Inflation in Germany hit another record

By JustForex

According to the US Department of Labor, initial jobless claims for the week unexpectedly fell to 193,000, down from 209,000 the previous week. This is the lowest level in four months. Other data showed that US real Gross Domestic Product (GDP) declined at an annualized rate of 0.6% in the second quarter of 2022. In the first quarter, real GDP was down 1.6%. Thus, the US economy has already had two official quarters of declining GDP, indicating a recession in the economy. The Dow Jones Index (US30) decreased by 1.54% at the stock market’s close yesterday, and the S&P 500 Index (US500) lost 2.11%. The Technology Index NASDAQ (US100) was down by 2.07% by the end of the day.

Apple shares fell by 5% after Bank of America downgraded the company from “Buy” to “Neutral,” citing concerns about slowing consumer spending. The downgrade worsened the sentiment of all semiconductor stocks. Rising Treasury bond yields, the enemy of growth sectors such as tech stocks, also added pressure to the overall market.

Cleveland Fed President Loretta J. Mester said inflation was “unacceptably high” and reiterated the Fed’s willingness to return inflation to the 2% target, even if the economy slows.

Equity markets in Europe were also mostly down yesterday. German DAX (DE30) lost 1.71%, French CAC 40 (FR40) decreased by 1.53%, Spanish IBEX 35 (ES35) fell by 1.91%, British FTSE 100 (UK100) closed yesterday down by 1.77%

Germany continues accumulating gas in storage, with the occupancy level at 91.5% of capacity. But according to the German Federal Network Agency, the population is consuming too much natural gas, and it is recommended to reduce consumption to avoid shortages. In order to avoid a gas shortage this winter, consumption must be reduced by at least 20%, which is almost impossible to achieve when considering that the country’s total gas consumption last week was 14.5% higher than the 2018-2021 average.

Inflation data showed yesterday that consumer prices in Germany reached their highest level in decades. On an annualized basis, the inflation rate reached 10%, up from 7.4% the previous month. In Spain, on the other hand, the numbers were more positive. Spain’s annual inflation rate fell to 9.0% from 10.5%. According to analysts, the inflation data, along with 15 ECB speeches this week, bolstered expectations of a tentative 0.75% interest rate hike at the next meeting.

The Bank of England began a historic intervention to stabilize the UK economy by announcing a two-week buying program for long-term bonds and postponing planned sales of securities until late October. The bank said it would start buying up to £5 billion worth of long-term securities (with maturities of more than 20 years) on the secondary market from Wednesday until October 14. This helped stabilize the British pound.

The Russian-backed authorities organized elections in the occupied regions in eastern and southern Ukraine, which have been widely condemned as a bogus attempt to justify land grabs after recent military setbacks. The Kremlin announced Thursday that Russia is officially annexing four regions of Ukraine partially controlled by its military, a major political escalation. Kremlin spokesman Dmitry Peskov said Russian President Vladimir Putin would attend the annexation ceremony of the four Ukrainian regions on Friday. The Ukrainian Foreign Ministry called the referendums an illegal “propaganda show.” The United States and its Western allies also pledged not to recognize Russia’s claims to the occupied territories. During the voting, armed forces accompanied election officials who went door to door asking people to vote. The international community was concerned that Moscow might try to defend “its new” claimed territory with nuclear weapons. The US responded that any use of nuclear weapons by Russia would be met with a “catastrophic” response.

According to preliminary reports, OPEC+ countries will discuss production cuts at a meeting on October 5. Hurricane “Ian” did not touch oil production platforms on the US Gulf Coast, which caused oil prices to decline after two days of gains.

Asia’s major stock indices mostly strengthened yesterday. Japan’s Nikkei 225 (JP225) gained 0.95%, Hong Kong’s Hang Seng (HK50) ended the day 0.49% lower, while Australia’s S&P/ASX 200 (AU200) ended the day up by 1.44%.

The Chinese yuan broke an eight-day losing streak after the People’s Bank of China (PBOC) warned against speculative trading and large unilateral bets on the currency. The central bank also said that stabilizing the currency market is a top priority and reiterated that the yuan has a solid foundation to be basically stable.

S&P 500 (F) (US500) 3,640.47 −78.57 (−2.11%)

Dow Jones (US30) 29,225.61 −458.13 (−1.54%)

DAX (DE40) 11,975.55 −207.73 (−1.71%)

FTSE 100 (UK100) 6,881.59 −123.80 (−1.77%)

USD Index 111.95 −0.66 (−0.58%)

Important events for today:

– Japan Industrial Production (m/m) at 02:30 (GMT+3);
– Japan Unemployment Rate (m/m) at 02:50 (GMT+3);
– Japan Retail Sales (m/m) at 02:50 (GMT+3);
– China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
– Japan Consumer Confidence (m/m) at 08:00 (GMT+3);
– UK GDP (q/q) at 09:00 (GMT+3);
– Eurozone German Retail Sales (m/m) at 09:00 (GMT+3);
– Switzerland Retail Sales (m/m) at 09:30 (GMT+3);
– Eurozone French CPI (m/m) at 09:45 (GMT+3);
– Eurozone German Unemployment Rate (m/m) at 10:55 (GMT+3);
– Eurozone Italian CPI (m/m) at 12:00 (GMT+3);
– Eurozone CPI (m/m) at 12:00 (GMT+3);
– Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
– US PCE Price index (m/m) at 15:30 (GMT+3);
– US FOMC Member Brainard Speaks at 16:00 (GMT+3);
– US Chicago PMI (m/m) at 16:45 (GMT+3);
– US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3);
– US FOMC Member Bowman Speaks at 18:00 (GMT+3);
– US FOMC Member Williams Speaks at 3:15 (GMT+3).

By JustForex

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

29 Sep

Japanese Candlesticks Analysis 29.09.2022 (XAUUSD, NZDUSD, GBPUSD)

Article By RoboForex.com

XAUUSD, “Gold vs US Dollar”

As we can see in the H4 chart, XAUUSD has formed a Harami reversal pattern not far from the resistance area. At the moment, the asset may reverse in the form of a new descending impulse. In this case, the downside target may be at 1615.00. At the same time, the opposite scenario implies that the price may correct to reach 1660.50 first and then resume the downtrend.

NZDUSD, “New Zealand Dollar vs US Dollar”

As we can see in the H4 chart, NZDUSD has formed a Hammer reversal pattern close to the support level. At the moment, the asset is reversing in the form of a correctional wave. In this case, the upside correctional target may be at 0.5750. After that, the asset may rebound from the resistance area and resume moving downwards. However, an alternative scenario implies that the price may fall to reach 0.5560 without any pullbacks.

GBPUSD, “Great Britain Pound vs US Dollar”

As we can see in the H4 chart, GBPUSD has formed a Harami reversal pattern near the support level. At the moment, the pair is reversing in the form of a new rising impulse. In this case, the upside target may be the resistance area at 1.0970. Later, the market may rebound from this level and resume falling. Still, there might be an alternative scenario, in which the asset may continue falling to reach the support level at 1.0470 without testing the resistance area.

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

29 Sep

Murrey Math Lines 29.09.2022 (USDCHF, XAUUSD)

Article By RoboForex.com

USDCHF, “US Dollar vs Swiss Franc”

In the H4 chart, USDCHF is trading within the “overbought area”. The Relative Strength Index is heading towards 30 and is currently testing the support line, a breakout of which might signal a further downtrend. In this case, the pair is expected to break 8/8 (0.9765) and then continue falling towards the support at 7/8 (0.9643). However, this scenario may be cancelled if the price breaks the resistance at +1/8 (0.9887) to the upside. After that, the instrument may move upwards to reach +2/8 (1.0009).

As we can see in the M15 chart, the pair has broken the downside line of the VoltyChannel indicator and, as a result, may continue its decline.

XAUUSD, “Gold vs US Dollar”

As we can see in the H4 chart, XAUUSD is trading below the 200-day Moving Average, thus indicating a descending tendency. The Relative Strength Index has rebounded from the descending trendline. In this case, the price is expected to test 4/8 (1625.00), break it, and then continue moving downwards to reach the support at 3/8 (1593.75). However, this scenario may no longer be valid if the price breaks the resistance at 5/8 (1656.25) to the upside. After that, the instrument may reverse and resume growing towards 6/8 (1687.50).

In the M15 chart, the pair may break the downside line of the VoltyChannel indicator and, as a result, continue moving downwards.

Article By RoboForex.com

Financial News Forex and Currency News

29 Sep

The Analytical Overview of the Main Currency Pairs on 2022.09.29

By JustForex

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 0.9595
Prev Close: 0.9734
% chg. over the last day: +1.48 %

The euro broke a five-day losing streak. ECB spokesman Holzmann said yesterday that a 50 basis point interest rate hike is the minimum to be considered at the October meeting. The ECB is ready to raise the rate above the neutral level of 2%. The ECB’s Rehn yesterday indicated that the bank needs a significant interest rate hike in October by 75 or 50 basis points. Another ECB spokesman Kazimir pointed out that next year will be much more difficult than this, and high inflation is likely to persist for a long time.

Trading recommendations

Support levels: 0.9641, 0.9601
Resistance levels: 0.9808, 0.9865, 0.9949, 1.0111, 1.0162, 1.0230

From the technical point of view, the trend on the EUR/USD currency pair on the hourly time frame is bearish. But yesterday, the price formed a false breakdown zone. The MACD indicator became positive, and there is pressure from buyers. It is better to look for sell deals from the resistance level of 0.9808 or 0.9865. Buy trades can be considered from the level of 0.9641 or 0.9601, but only with confirmation.

Alternative scenario: if the price breaks out through the resistance level of 0.9808 and fixes above it, the uptrend will likely resume.

News feed for 2022.09.29:

– Eurozone Spanish CPI (q/q) at 10:00 (GMT+3);
– Eurozone German CPI (q/q) at 15:00 (GMT+3);
– US GDP (q/q) at 15:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US FOMC Member Bullard Speaks at 16:30 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3);
– US FOMC Member Mester Speaks at 20:00 (GMT+3).

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.0725
Prev Close: 1.0882
% chg. over the last day: +1.46 %

The sharp rise in long-term UK government bond yields prompted the Bank of England to intervene, easing investor fears. The Bank of England plans to buy as many government bonds as necessary to stabilize markets. The Central Bank explained that if yields rise higher, it could lead to an unjustified tightening of funding conditions and reduce the flow of credit into the real economy. In other words, higher government bond yields could cause a credit crunch, making it harder and more expensive for households and businesses to borrow money. The bank said in a statement, “the Bank of England’s Financial Policy Committee recognized the market risks, recommended an intervention, and proposed a plan to buy bonds as a matter of urgency.” At the same time, the Bank of England will postpone the start of its quantitative tightening program (QT).

Trading recommendations

Support levels: 1.0709, 1.0578, 1.03
Resistance levels: 1.1021, 1.1210, 1.1449, 1.1626, 1.1693, 1.1816, 1.1901

From the technical point of view, the trend on the GBP/USD currency pair on the hour time frame is bearish. The price is trading above the moving averages, and the balance is starting to form. The MACD indicator has become positive, indicating some buying pressure. Under such market conditions, it is best to look for sell trades on intraday time frames, the nearest resistance level is 1.1021. Buy trades can be considered from the support level of 1.0709, but only with confirmation and short targets.

Alternative scenario: if the price breaks out of the 1.1210 resistance level and fixes above it, the uptrend will likely resume.

There is no news feed for today.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 144.76
Prev Close: 144.10
% chg. over the last day: -0.45 %

The Bank of Japan kept interest rates unchanged, controlled the yield curve, and pointed to the need to maintain a strong easing policy. The pandemic program was extended for 3-6 months, depending on how loans were made. The difficulty for the BoJ is that the dollar index has fundamental support from the US Federal Reserve by aggressively raising interest rates. As a result, the diametrically opposite policies of the US and Japanese Central Banks contribute to the growth of USD/JPY quotes.

Trading recommendations

Support levels: 143.00, 140.60, 139.61, 138.78, 137.65, 136.80, 135.20
Resistance levels: 145.35

From the technical point of view, the medium-term trend on the currency pair USD/JPY is bullish despite last week’s intervention. The MACD indicator has become negative, and there is slight selling pressure. Under such market conditions, buy trades can be sought on intraday time frames from a support level of 143, but with confirmation. Sell deals can be considered from the resistance level of 145.35, but only with additional confirmation.

Alternative scenario: If the price fixes below 140.60, the downtrend will likely resume.

There is no news feed for today.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.3721
Prev Close: 1.3604
% chg. over the last day: -0.86 %

The Canadian dollar is a commodity currency, so it is highly dependent on the dynamics of the dollar index and oil prices. The dollar index declined yesterday, while oil prices rose on an unexpected drop in oil and fuel inventories in the United States. As a result, the Canadian dollar strengthened sharply yesterday. The Bank of Canada is holding rates at the same level as the US Fed, so the Canadian dollar will be the first currency to strengthen once the dollar is not rising.

Trading recommendations

Support levels: 1.3611, 1.3545, 1.3453, 1.3297, 1.3212, 1.3053, 1.2990, 1.2958
Resistance levels: 1.3755, 1.3858, 1.3968

From the point of view of technical analysis, the trend on the USD/CAD currency pair is bullish. The MACD indicator became negative, and the price fell below the moving averages. This indicates some selling pressure and a possible correction. Under such market conditions, buy trades should be considered on the lower time frames from the support level of 1.3611 or 1.3545. For sell deals, it is better to consider the resistance level of 1.3755, but only after the additional confirmation.

Alternative scenario: if the price breaks down and consolidates below the 1.3297 support level, the downtrend will likely resume.

News feed for 2022.09.29:

– Canada GDP (m/m) at 15:30 (GMT+3).

By JustForex

Financial News Forex and Currency News

29 Sep

Stock indices are showing signs of life. But economic indicators are still looking downward

By JustForex

The US and European stock markets rebounded slightly on Wednesday after the Bank of England said it would intervene in the bond market to curb the devastating rise in borrowing costs. Investors were alarmed last week, particularly by a sharp rise in bond yields. Central Banks sought to raise interest rates to rein in red-hot inflation before it sent the global economy into recession. As the stock market closed yesterday, the Dow Jones Index (US30) added 1.88%, and the S&P 500 Index (US500) increased by 1.97%. Technology index NASDAQ (US100) gained 2.39% on the day.

FOMC spokesman Bostick said yesterday that the baseline interest rate hike was 75 basis points at the November meeting and 50 basis points in December.

According to the US National Association of Realtors, pending home sales declined for the third straight month in August. Compared to a year ago, pending transactions were down 24.2%. The Index is now down to 88.4. The 100 Index is in line with contract activity in 2001.

Equity markets in Europe were also mostly up yesterday. German DAX (DE30) gained 0.36%, French CAC 40 (FR40) added 0.19%, Spanish IBEX 35 (ES35) declined by 0.05%, British FTSE 100 (UK100) closed yesterday at plus 0.30%.

The Bank of England announced Wednesday that it would buy as many UK government bonds as necessary to stabilize debt markets and delay the start date of its bond sales. The central bank explained that if yields rise higher, it could lead to an unjustified tightening of funding conditions and reduce the flow of credit to the real economy. The Bank of England said in a statement that “the Bank of England’s Financial Policy Committee recognized the market risks, recommended an intervention, and proposed a plan to buy bonds urgently.” At the same time, the Bank of England will postpone the start of its quantitative tightening program (QT).

The UK housing market could face a perfect storm as mortgage rates rise and house prices fall. Rising borrowing costs and a likely slowdown in economic growth threaten to trigger a sell-off in the British housing market, with consequences for personal wealth and the economy as a whole. Mortgage deals for new customers now have rates around 5%-6%, a sharp increase from the norm of around 2%.

The International Monetary Fund (IMF) and rating agency Moody’s criticized Britain’s new economic strategy announced Friday, which caused British asset prices to collapse.

Oil prices rose on Wednesday as production cuts caused by Hurricane Yang outweighed downward pressure from a strengthening dollar. About 190,000 barrels a day of oil production in the Gulf of Mexico, or 11% of total production, was halted because of Hurricane Yang, according to US government data.

The US will oppose parts of Ukraine from becoming part of Russia, including through the United Nations, and will impose additional economic sanctions.

Asia’s major stock indices fell sharply on Wednesday. Japan’s Nikkei 225 (JP225) decreased by 1.50%, Hong Kong’s Hang Seng (HK50) ended the day down by 3.41%, and Australia’s S&P/ASX 200 (AU200) lost 0.53% yesterday.

The New Zealand dollar fell to its lowest level against the US dollar in more than two years. The currency has fallen nearly 3% over the past week as financial markets reacted to sharp rate hikes imposed by central banks to fight inflation.

The ANZ Business Confidence Index showed that inflation in New Zealand and higher interest rates negatively affect business sentiment. The RBNZ currently holds one of the highest interest rates among major economies and ranks second behind the Bank of Canada and the US Federal Reserve at 3.25%. Analysts expect another 25 basis point increase from the RBNZ, but it is also possible that New Zealand’s Central Bank is nearing the end of its hiking cycle.

S&P 500 (F) (US500) 3,719.04 +71.75 (+1.97%)

Dow Jones (US30) 29,683.74 +548.75 (+1.88%)

DAX (DE40) 12,183.28 +43.60 (+0.36%)

FTSE 100 (UK100) 7,005.39 +20.80 (+0.30%)

USD Index 112.72 -1.39 (-1.22%)

Important events for today:

– New Zealand ANZ Business Confidence (m/m) at 03:00 (GMT+3);
– Eurozone Spanish CPI (q/q) at 10:00 (GMT+3);
– Eurozone German CPI (q/q) at 15:00 (GMT+3);
– US GDP (q/q) at 15:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– Canada GDP (m/m) at 15:30 (GMT+3);
– New Zealand RBNZ Gov Orr Speaks at 16:00 (GMT+3);
– US FOMC Member Bullard Speaks at 16:30 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3);
– US FOMC Member Mester Speaks at 20:00 (GMT+3).

By JustForex

Financial News Stock Market News

29 Sep

UPDATE: Is the worst really over for US stocks?

By ForexTime

Last month, we posed the question: “Is the worst over for US stocks?”

Answer: apparently not.

A week after that August 10th article, the S&P 500 did climb higher, only to be resisted by its 200-day simple moving average.

The blue-chip stock index even closed above the 50% Fibonacci retracement level, which was the key criteria for suggesting that the worst is over for the 2022 rout in US stocks.

As cited in the August article, according to data by the CFRA and S&P Global, in 18 of the 19 ‘bear markets’ seen since World War II, the S&P 500 then went on to a fresh bull run after closing above its 50% Fib retracement line.

But as the saying goes across financial markets: “Past performance is no guarantee of future results.”

And that track record (stated above) now needs to be updated to “18 out of the past 20 bear markets …”.

Since that August article, the S&P 500 has unwound all of its summer gains, even printing intraday prices not seen since end-November 2020.

In essence, we have seen “worse” levels this week for the S&P 500 compared to those June lows.

Why did the S&P 500 erase its summer gains?

Recall the premise for the S&P 500’s summer rally, as stated in last month’s article:

“Arguably, the primary reason is that markets believe that the Fed has done the largest chunks of its rate hikes already.”

Additionally, the S&P 500’s summer gains was based on the idea of a “dovish pivot” by the Fed.

That’s to say that markets had expected the Fed to be less courageous about sending US interest rates higher, for fear of triggering an economic recession.

But now we know better.

Since then, we have seen the US inflation data stubbornly printing near its highest levels in around 40 years.

Hence, many Fed officials, including Fed Chair Jerome Powell himself, have since sent a strong message to the markets:

The US central bank is hell bent on taming multi-decade high inflation by sending US interest rates even higher, and is willing to tolerate economic pain along the way.

Markets duly paid heed and raised their forecasted peak for this ongoing Fed rate hike cycle by about 90 basis points!

Back in August, markets expected that US rates won’t go higher than 3.6% in March 2023.
Today, that forecasted peak is now expected to reach nearly 4.5% by March.

What do higher US interest rates mean for the US economy?

Essentially, the Fed wants to see some “demand destruction”.

Policymakers want to see less money in an economy chasing after scarce goods and services.

That should, in theory, discourage businesses from ramping up their selling prices, hopefully resulting in slower inflation.

However, more economic pain could also bring about a shrinking economy i.e. a recession.

What do higher US interest rates mean for US stocks?

More downside likely.

With the US unemployment rate forecasted by the Fed to rise to 4.4% by end-2023, significantly higher from the 3.7% figure from last month, more jobless Americans should translate into less demand/spending in the US economy, which should also mean less earnings for companies.

Lower earnings due to such “economic pain” should also lead to lower share prices, with such a narrative already dragging on the S&P 500.

Tech not spared

Also, higher interest rates mean its tougher for so-called “growth companies” to continue borrowing cheap loans to fund its expansion plans while forsaking profitability.

Hence, as higher interest rates chock some of the potential growth (and earnings potential) for these growth companies, that has led to lower stock valuations as well.

Keep in mind that, with many of these growth stocks concentrated in the tech sector, no surprise then that the tech-heavy Nasdaq 100 has a year-to-date decline of almost 30%, falling deeper than the S&P 500’s 22% year-to-date decline.

However, the Nasdaq 100 is still managing to not surpass its June lows … for now.

Also, note that tech-led declines would only exert more downward pressure on the S&P 500.

This is because IT stocks (think Apple, Microsoft, Nvidia, etc.) account for over a quarter (26.6%) of the S&P 500.

So, if you couple the S&P 500’s exposure to tech stocks with the weightage of consumer discretionary stocks (e.g. Amazon, Tesla, McDonald’s, etc. – which tend to take an earnings hit when customers have less disposable income during times of economic pain), then a US recession that’s triggered by higher US rates would only exert more downward pressure on the S&P 500.

NOTE: The S&P 500 index is widely used as the benchmark to gauge how overall US stocks are performing.

So where to next for the S&P 500?

Brace for the low-3000s.

In market fears surrounding a US recession continue ramping up, that may send the S&P 500 to as low as:

3400: around the pre-pandemic peak set in Feb 2020
3200: double-bottom from Sept/Oct 2020

Though for more immediate consideration, the S&P 500 is testing a crucial support level – its 200-week simple moving average.

This technical indicator has supported the S&P 500 in recent years, with such an episode last occurring at end-2018.

Athough the Fed was also busy raising interest rates back in 2018, those benchmark rates today have already surpassed those levels and are now standing at its highest since 2008 at 3.25%.

And US inflation is still around its highest levels since the early 1980s.

So if this 200-week SMA doesn’t hold, the S&P 500 is likely to then set course for the low-3000 region, dragged down by heightened fears over a potential US recession and higher-for-longer US interest rates.

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

29 Sep

Bear Market Rallies: Here’s a Key Insight

How investors get snookered into the belief of “a further market advance”

By Elliott Wave International

Nothing raises the hopes of the bullishly inclined like a rapid bear market rally. And there’s been several since the early January top in the Dow Industrials and S&P 500 index.

You may be interested in a key characteristic of most of these rallies.

The Sept. 12 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which provides near-term analysis of major U.S. financial markets, explains with this chart and commentary:

Sometimes the upward push will end at or near top tick of the daily range. A quick glance at the countertrend rallies since the January peak in the S&P shows at least five instances of this happening, indicated by the red arrows on the chart. The final trade of these daily ranges was at or very near the high of the day, creating belief in a further market advance when in fact it was the top of the rally.

Keep in mind that “not every strong up day that closes at top tick marks the end of the rally but the end of the rally is often attended by strong up days that close at top tick.”

That said, here are just a couple of examples in recent months of the lingering optimism:

Why There’s a Chance the Stock Market Has Hit Bottom (Barron’s, July 19)
Top Investment Ideas for a Market That Might Have Hit Bottom (Bloomberg, Aug. 4)

In other words, memories of the prior bull market die hard, even several months after the S&P 500’s record high near the start of the year.

And, regarding those July and August headlines about a market bottom, that didn’t turn out to be the case. Here’s a Sept. 16 headline (CNBC):

FedEx plunge could spell bad days ahead for market as bellwether Dow Transports index hits new low

The question is: Will other indexes — like the S&P 500 and Dow Industrials — also plunge to new lows?

Now is the time to familiarize yourself with the U.S. stock market’s Elliott wave pattern.

If you’re new to Elliott wave analysis or need a refresher, do know that the definitive text on the topic is Frost & Prechter’s book, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from this Wall Street classic:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott’s highly specific rules reduce the number of valid alternatives to a minimum. Among those, the best interpretation, sometimes called the “preferred count,” is the one that satisfies the largest number of guidelines.

If you’d like to read the entire online version of Elliott Wave Principle: Key to Market Behavior, you may do so for free after you join Club EWI, the world’s largest Elliott wave educational community (about 500,000 worldwide members and growing rapidly).

A Club EWI membership is free and allows you free access to a wealth of Elliott wave resources on financial markets, investing and trading without any obligation. Those resources include exclusive videos and articles from Elliott Wave International’s analysts.

Just follow the link, and you’ll be on your way to becoming a Club EWI member: Elliott Wave Principle: Key to Market Behavior — get instant and free access now.

This article was syndicated by Elliott Wave International and was originally published under the headline Bear Market Rallies: Here’s a Key Insight. 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

28 Sep

Solar geoengineering might work, but local temperatures could keep rising for years

By Patrick W. Keys, Colorado State University; Curtis Bell, US Naval War College; Elizabeth A. Barnes, Colorado State University; James W. Hurrell, Colorado State University, and Noah Diffenbaugh, Stanford University

Imagine a future where, despite efforts to reduce greenhouse gas emissions quickly, parts of the world have become unbearably hot. Some governments might decide to “geoengineer” the planet by spraying substances into the upper atmosphere to form fine reflective aerosols – a process known as stratospheric aerosol injection.

Theoretically, those tiny particles would reflect a little more sunlight back to space, dampening the effects of global warming. Some people envision it having the effect of a volcanic eruption, like Mount Pinatubo in 1991, which cooled the planet by about half a degree Celsius on average for many months. However, like that eruption, the effects could vary widely across the surface of the globe.

How quickly might you expect to notice your local temperatures falling? One year? Five years? Ten years?

What if your local temperatures seem to be going up?

As it turns out, that is exactly what could happen. While modeling studies show that stratospheric aerosol injection could stop global temperatures from increasing further, our research shows that temperatures locally or regionally might continue to increase over the following few years. This insight is essential for the general public and policymakers to understand so that climate policies are evaluated fairly and interpreted based on the best available science.

Why local temperatures might continue to rise

In an article published in the Proceedings of the National Academy of Sciences on Sept. 27, 2022, we explore how the effectiveness of stratospheric aerosol injection could be hidden by the natural variability of Earth’s climate.

Natural climate variability refers to variations in climate that are not driven by humans, such as chaotic, unpredictable interactions within and between the ocean, atmosphere, land and sea ice. One example of natural climate variability is the El Niño Southern Oscillation phenomena. During an El Niño year – or its opposite, La Niña – many parts of the world experience warmer or cooler conditions than they might otherwise. These are inescapable features of Earth’s climate system.

We looked at 10 climate model simulations that include stratospheric aerosol injection and analyzed the temperatures that people might experience over a 10-year period if enough aerosols were added to limit the rise in global temperatures to 1.5 degrees Celsius (2.7 F) above preindustrial levels, the U.N. Paris climate agreement goal.

Illustration shows effects of blocking solar energy at different layers of the atmosphere. — Some potential methods limiting the amount of solar energy in the atmosphere.
Chelsea Thompson, NOAA/CIRES

We found that a substantial fraction of the Earth’s population could experience continued warming even as average temperatures decreased at a global scale, with as much as 55% still experiencing rising temperatures for a decade after stratospheric aerosol injection begins.

This could be true in parts of the largest and richest countries in the world, including the United States, China, India and parts of Europe. The very countries that have the ability to attempt stratospheric aerosol injection in the future could be those most likely to still see temperatures rise.

Consequences are still poorly understood

Many different types of solar radiation modification have been proposed, but most experts consider stratospheric aerosol injection to be both the most effective and least expensive approach.

The basic idea would be to produce tiny, reflective particles in part of the stratosphere between about 12 and 16 miles (20 and 25 kilometers) in altitude – which is above where airplanes typically fly. While some science fiction stories suggest that rockets might be used to do this, most experts think that modified aircraft would be required to distribute aerosols both high enough and consistently enough.

In 2021, the U.S. National Academies of Sciences, Engineering, and Medicine released a report on the topic of solar radiation modification, including stratospheric aerosol injection. The report was written by a committee of climate scientists, economists, lawyers and others. The group came to the conclusion that the U.S. should fund research on the topic. It recommended this in part because the consequences of solar radiation modification were still poorly understood.

This lack of understanding is quite a risk, since it remains unknown what might happen if the world pursues strategies like stratospheric aerosol injection, let alone if a specific country or organization decides to pursue these interventions by itself.

Pros and cons of solar geoengineering. The Economist via YouTube.

In our view, research into the potential consequences of stratospheric aerosol injection should include studies to examine potential changes in crop yields, shifts in global rainfall patterns or changes in critical regions of the Earth’s biosphere, like the Amazon rainforest. The fact is that we don’t know very well what would happen with stratospheric aerosol injection – which is why research on this topic is so critical.

Reducing emissions is fundamental to curb climate change

We want to be absolutely clear that we are not advocating for the actual use of stratospheric aerosol injection.

The most direct way to avoid the uncertainty of solar radiation modification strategies like stratospheric aerosol injection is to address the root cause of global warming. That, as documented by many scientific studies, will require the aggressive reduction of emissions of carbon dioxide, methane and other greenhouse gases into the atmosphere.

About the Authors:

Patrick W. Keys, Assistant Professor, Department of Atmospheric Science, Colorado State University; Curtis Bell, Associate Professor of Maritime Security and Governance, US Naval War College; Elizabeth A. Barnes, Professor of Atmospheric Science, Colorado State University; James W. Hurrell, Professor and Scott Presidential Chair in Environmental Science and Engineering, Colorado State University, and Noah Diffenbaugh, Professor of Earth System Science, Stanford University

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

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