InvestMacro

By JustForex

According to analysts at JPMorgan, the US stock market is ready for further growth, likely starting as early as the second half of this year. Easing inflation expectations and falling bond yields indicate that the peak of the hawkish sentiment has probably already passed, and for this reason, analysts at JPMorgan believe that the US economy will avoid recession, despite the negative GDP growth for two consecutive quarters. JPMorgan’s year-end target for the S&P 500 is 4,800 points, which represents a growth potential of 17% from current levels.

Cleveland Fed President Loretta Mester said yesterday that it would take some time to get inflation back to the 2% level and brushed aside concerns about a slowing economy, stressing that a slowdown is necessary. The comments came just hours after San Francisco Fed President Mary Daly said the Fed’s work on lowering inflation is far from over and that raising interest rates another 0.75% at the September meeting is also under active consideration by the Committee.

As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 1.22%, and the S&P 500 Index (US500) lost 0.66%. The NASDAQ Technology Index (US100) fell by 0.10%.

An American special flight carrying US House Speaker Nancy Pelosi landed in Taipei, the administrative capital of Taiwan. According to preliminary information, Taiwanese fighters escorting Nancy Pelosi’s plane opened warning fire on Chinese fighters that had entered the air defense zone of Taiwan. The Chinese Foreign Ministry summoned the US ambassador and protested about Nancy Pelosi’s visit to Taiwan. “China’s response will be powerful and strong,” the Chinese ambassador to the US said. The US military installations in the Indo-Pacific region are on high alert.

Geopolitical tensions rose higher during the day after Chinese battery giant CATL said it would suspend plans to invest billions of dollars in a new battery plant in the United States because of House Speaker Nancy Pelosi’s trip to Taiwan.

Uber Technologies (Uber) reported its first positive cash flow and earnings that beat expectations. The company’s stock jumped by 17% on the report. Pinterest (PINS) jumped more than 12% despite quarterly results missing the Wall Street estimates. Caterpillar (CAT) showed a drop in earnings as a business exit from Russia, higher costs, and a stronger dollar impacted performance. The company’s stock is down more than 4%.

Booking (BKNG), Moderna (MRNA), Regeneron Pharma (REGN), Nintendo ADR (NTDOY), MetLife (MET), eBay (EBAY), and others report today.

Stock markets in Europe were mostly down on Tuesday. German DAX (DE30) fell by 0.23%, French CAC 40 (FR40) lost 0.42%, Spanish IBEX 35 (ES35) gained 0.15%, British FTSE 100 (UK100) closed down by 0.06%.

Challenging summer conditions, including extreme heat and drought, led to new highs in European energy prices. Rivers are too warm to cool nuclear plants in France, and water levels are too low to deliver coal to power plants, limiting Europe’s electricity supply. This means countries rely even more on gas to meet additional electricity demand. Further cuts in Russian supplies to the continent will further exacerbate the situation. Analysts believe that electricity prices in Europe will rise even higher.

Energy stocks, meanwhile, remained flat amid uncertainty over whether major oil producers will decide to raise production at Wednesday’s meeting. Commerzbank said the outcome of the OPEC+ meeting is impossible to predict for now, but there is speculation that the current output will remain unchanged.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.42%, Hong Kong’s Hang Seng (HK50) ended down by 2.36%, and Australia’s S&P/ASX 200 (AU200) was up by 0.07%.

S&P 500 (F) (US500) 4,091.35 −27.28 (−0.66%)

Dow Jones (US30) 32,396.76 −401.64 (−1.22%)

DAX (DE40) 13,449.20 −30.43 (−0.23%)

FTSE 100 (UK100) 7,409.11 −4.31 (−0.058%)

USD Index 106.25 +0.80 (+0.76%)

• – US FOMC Member Bullard Speaks (m/m) at 01:45 (GMT+3);
• – New Zealand Unemployment Rate at 01:45 (GMT+3);
• – Japan Services PMI (m/m) at 03:30 (GMT+3);
• – Australia Retail Sales (m/m) at 04:30 (GMT+3);
• – China Caixin Services PMI (m/m) at 04:45 (GMT+3);
• – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+3);
• – German Services PMI (m/m) at 10:55 (GMT+3);
• – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
• – UK Services PMI (m/m) at 11:30 (GMT+3);
• – Eurozone Retail Sales (m/m) at 12:00 (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 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.

By Christopher Decker, University of Nebraska Omaha 

The 9.1% increase in U.S. consumer prices in the 12 months ending in June 2022, the highest in four decades, has prompted many sobering headlines.

Meanwhile, annual inflation in Germany and the U.K. – countries with comparable economies – ran nearly as high: 7.5% and 8.2%, respectively, for the 12 months ending in June 2022. In Spain, inflation has hit 10%.

It might seem like U.S. policies brought on this predicament, but economists like me doubt it because inflation is spiking everywhere, with few exceptions. Rates averaged 9.65% in the 38 largely wealthy countries that belong to the Organization for Economic Cooperation and Development through May 2022.

What revved up those price increases starting in early 2021?

Scarcity put pressure on prices everywhere

When the COVID-19 pandemic began, demand for computers and other high-tech goods soared as many people switched from working in offices to clocking in at home.

Computer chip manufacturers struggled to keep up, leading to chip shortages and higher prices for a dizzying array of devices and machines requiring them, including refrigerators, cars and smartphones.

It’s not just chips. Many of the goods Americans consume, such as cars, televisions and prescription drugs, are imported from all corners of the world.

Supply chain strains

On top of problems tied to supply and demand changes, there have been major disruptions to how goods move to manufacturers and then onto consumers along what’s known as the supply chain.

Freight disruption, whether by ship, train or truck, has interfered with the delivery of all sorts of goods since 2020. That’s caused the cost of shipping goods to rise sharply.

These massive shipping disruptions have exposed the disadvantages of the popular just-in-time practice for managing inventory.

By keeping as little of the materials needed to make their products on hand, companies become more vulnerable to shortages and transportation snafus. And when manufacturers are unable to make their products quickly, shortages occur and prices surge.

This approach, especially when it involves the reliance on far-flung suppliers, has left businesses much more susceptible to market shocks.

Labor complications

The beginning of the pandemic also sent shock waves through labor markets with lasting effects.

Many businesses either fired or furloughed large numbers of workers in 2020. When governments began to relax restrictions related to the pandemic, many employers found that significant numbers of their former workers were unwilling to return to work.

Whether those workers had chosen to retire early, seek new jobs offering a better work-life balance or become disabled, the results were the same: labor shortages that required higher wages to recruit replacements and retain other employees.

Again, all of these dynamics are occurring globally, not just in the U.S.

War in Ukraine compounded these woes

Russia’s war on Ukraine, which began officially on Feb. 24, 2022, has also exacerbated inflation by interfering with the global supply of fuels and grains.

The conflict’s effects are reverberating around the globe and fueling inflation.

Russia is the world’s second-largest exporter of crude oil. Sanctions against Russian imports, combined with Russia halting oil shipments to European countries in retaliation, has led to disruptions in the global oil market.

As Europe buys more oil from the Middle East, demand for oil from that region increases, prompting price increases. Crude prices jumped from $101 per barrel in late February 2022, to $123 a month later. Prices stayed high for several months but by late July were around $100 a barrel again.

Food prices have increased substantially in the U.S. and elsewhere, partly due to this conflict. Ukraine possesses some of the most fertile soil in the world and is the third-largest exporter of corn.

Russia’s destruction of Ukrainian crops and its blockade of Ukrainian exports have led to significant price increases worldwide for agricultural commodities.

How will the world respond?

Support for globalization and international trade has waned in recent years. Given supply chain disruptions and the war in Ukraine fueling inflation, this trend will likely continue.

However, as an economist, I believe the benefits of free and open trade still outweigh current challenges.

In my view, there isn’t anything fundamentally wrong with the globalization that cannot be fixed. But, like quelling inflation and alleviating supply chain bottlenecks, it will take time.

About the Author:

Christopher Decker, Professor of Economics, University of Nebraska Omaha

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

By Meredith Oyen, University of Maryland, Baltimore County 

U.S. House Speaker Nancy Pelosi arrived in Taiwan on Aug. 2, 2022 – a highly controversial trip that has been strongly opposed by China.

Such is the sensitivity over the island’s status that even before Pelosi’s plane touched down in the capital of Taipei, mere reports of the proposed trip prompted a warning by China of “serious consequences.” In the hours before she set foot on the island, Chinese fighter jets flew close to the median line separating Taiwan and China, while Chinese foreign minister Wang Yi commented that U.S. politicians who “play with fire” on Taiwan would “come to no good end”.

For it’s part, the U.S. has distanced itself from the visit. Prior to the trip President Joe Biden said it was “not a good idea.”

As someone who has long studied the U.S.‘s delicate diplomatic dance over Taiwan, I understand why this trip has sparked reaction in both Washington and Beijing, given the current tensions in the region. It also marks the continuation of a process that has seen growing U.S. political engagement with Taiwan – much to China’s annoyance.

Cutting diplomatic ties

The controversy over Pelosi’s visit stems from the “one China” policy – the diplomatic stance under which the U.S. recognizes China and acknowledges Beijing’s position that Taiwan is part of China. The policy has governed U.S. relations with Taiwan for the last 40-plus years.

In 1979, the U.S. abandoned its previous policy of recognizing the government of Taiwan as that of all of China, instead shifting recognition to the government on the mainland.

As part of this change, the U.S. cut off formal diplomatic ties with Taiwan, with the U.S. embassy in Taiwan replaced by a nongovernmental entity called the American Institute in Taiwan.

The institute was a de facto embassy – though until 2002, Americans assigned to the institute would have to resign from U.S. State Department to go there, only to be rehired once their term was over. And contact between the two governments was technically unofficial.

As the government in Taiwan pursued democracy – starting from the lifting of martial law in 1987 through the first fully democratic elections in 1996 – it shifted away from the assumption once held by governments in both China and Taiwan of eventual reunification with the mainland. The government in China, however, has never abandoned the idea of “one China” and rejects the legitimacy of Taiwanese self-government. That has made direct contact between Taiwan and U.S. representatives contentious to Chinese officials.

Indeed, in 1995, when Lee Teng-hui, Taiwan’s first democratically elected president, touched down in Hawaii en route to Central America, he didn’t even set foot on the tarmac. The U.S. State Department had already warned that the president would be refused an entry visa to the U.S., but had allowed for a brief, low-level reception in the airport lounge during refueling. Apparently feeling snubbed, Lee refused to leave the airplane.

Previous political visits

Two years after this incident came a visit to Taiwan by then-House Speaker Newt Gingrich.

Similarly to the Pelosi visit, the one by Gingrich annoyed Beijing. But it was easier for the White House to distance itself from Gingrich – he was a Republican politician visiting Taiwan in his own capacity, and clearly not on behalf of then-President Bill Clinton.

Pelosi’s visit my be viewed differently by Beijing, because she is a member of the same party as President Joe Biden. China may assume she has Biden’s blessing, despite his comments to the contrary.

Asked on July 20 about his views on the potential Pelosi trip, Biden responded that the “military thinks it’s not a good idea right now.”

The comment echoes the White House’s earlier handling of a comment by Biden in which he suggested in May 2022 that the U.S. would intervene “militarily” should China invade Taiwan. Officials in the Biden administration rolled back the comment, which would have broken a long-standing policy of ambiguity over what the U.S. would do if China tried to take Taiwan by force.

Similarly with Pelosi, the White House is distancing itself from a position that suggests a shift in U.S.-Taiwanese relations following a period in which the U.S. had already been trying to rethink how it interacts with Taiwan.

Shifting policy?

In 2018, Congress passed the bipartisan Taiwan Travel Act. This departed from previous policy in that it allowed bilateral official visits between the U.S. and Taiwan, although they are still considered to be subdiplomatic.

In the wake of that act, Donald Trump’s Health and Human Services secretary, Alex Azar, became the highest-ranking U.S. official to visit Taiwan since 1979. Then in 2020, Keith Krach, undersecretary for economic growth, energy and the environment, visited Taiwan.

And in April 2022, a U.S. congressional delegation visited Taiwan. Pelosi herself was reportedly due to visit the island that same month, but canceled after testing positive for COVID-19.

Each of these visits has provoked angry statements from Beijing.

A high-profile visit – even one without the public backing of the White House – would signal support to the island at a time when the invasion of Ukraine by Russia has raised questions over the international community’s commitment to protect smaller states from more powerful neighbors.

Meanwhile, the erosion of democracy in Hong Kong has undermined China’s commitment to the idea of “one nation, two systems.” The principle, which allowed Hong Kong to maintain its economic, political and social systems while returning to the mainland after the end of British rule, had been cited as a model for reunification with Taiwan. The Chinese Communist Party also plans to hold its 20th congress in the coming months, making the timing sensitive for a Taiwan visit from a high-profile U.S. political figure such as Pelosi.

Editor’s note: This is an updated version of an article originally published on July 26, 2022.

About the Author:

Meredith Oyen, Associate Professor of History and Asian Studies, University of Maryland, Baltimore County

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

By JustForex

According to the latest ISM report, economic activity in the US manufacturing sector rose in July, with the economy posting its 26th consecutive month of growth. But it should be noted that there is a downward trend in growth, and the PMI indicator is approaching the level of 50. Going below 50 is usually a harbinger of recession.

At the close of trading yesterday, the Dow Jones (US30) decreased by 0.14%, and the S&P 500 (US500) lost 1.28%. The NASDAQ Technology Index (US100) was down by 1.13% on Monday.

Twitter (TWTR) lost about 2%, even as Greenlight Capital announced a new stake in the social media giant, betting that the latter will emerge victorious in a legal battle with Elon Musk to force the billionaire to fulfill his $44 billion deal. Boeing (BA) shares jumped by 6% after reports that the Federal Aviation Administration cleared the maker to resume delivery of the 787 Dreamliner.

Companies reporting today include AMD (AMD), Caterpillar (CAT), PayPal Holdings Inc (PYPL), Starbucks (SBUX), Gilead (GILD), Airbnb (ABNB), Marriott Int (MAR), Uber Tech (UBER), Ferrari NV (RACE), Electronic Arts (EA), and others.

On the political front, US House Speaker Nancy Pelosi is expected to visit Taiwan as part of her tour of Asia, despite hostile threats from China. This adds significantly to the nervousness in the financial markets.

Stock markets in Europe were mostly down on Monday. German DAX (DE30) decreased by 0.03%, French CAC 40 (FR40) lost 0.18%, Spanish IBEX 35 (ES35) was 0.87% lower, British FTSE 100 (UK100) was 0.13% lower.

European manufacturing PMI dipped below the level of 50 in July. This usually means that a country is approaching a recession. It is a preliminary and rough indicator, but the statistics show that a drop of 50 triggers recessive processes in the country. The Central Bank has begun to work toward easing monetary policy. In Spain, the Index fell from 52.6 to 48.7, Italy from 50.9 to 48.5, France from 49.6 to 49.5, Germany from 52 to 49.3, and the overall Eurozone PMI fell from 52.1 to 49.8. With the ECB just starting to tighten monetary policy and raise interest rates, Europe will slowly deepen into recession. Winter will not be easy for Europe.

Oil is down nearly 5% due to negative Chinese data. Chinese factory activity declined in July amid new blockages related to COVID. China is the world’s largest importer of crude oil. OPEC+, Organization of Petroleum Exporting Countries, will meet Wednesday to decide on September production quotas for the group’s members. Analysts believe that OPEC+, which includes 23 countries, will likely leave production unchanged and only raise it slightly in September. Most importantly, OPEC+ should not cut production at this point.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.69%, Hong Kong’s Hang Seng (HK50) ended down by 0.05%, while Australia’s S&P/ASX 200 (AU200) was up by 0.69%.

Australia’s Central Bank raised its interest rate by 50 basis points to 1.85% and noted further tightening. The Bank said in a statement that it attaches great importance to getting inflation back into the 2-3 percent range over time while keeping the economy stable. The outlook for global economic growth has been worsened by pressure on real income due to higher inflation, tighter monetary policy in most countries, Russia’s invasion of Ukraine, and COVID containment measures in China.

Japan’s planned record minimum wage hike paves the way for sustained GDP growth. Japan’s average minimum wage is rising at a record pace this year. The government said Tuesday, a positive development for Prime Minister Fumio Kishida’s efforts to protect households from global inflation. Kishida expects the increase to contribute to his flagship policy of distributing wealth to the broader population to put Japan’s economy on a sustainable recovery path.

S&P 500 (F) (US500) 4,118.63 −11.66 (−0.28%)

Dow Jones (US30) 32,798.40 −46.73 (−0.14%)

DAX (DE40) 13,479.63 −4.42 (−0.033%)

FTSE 100 (UK100) 7,413.42 −10.01 (−0.13%)

USD Index 105.41 −0.49 (−0.47%)

• – Australia RBA Interest Rate Decision (m/m) at 07:30 (GMT+3);
• – Australia RBA Rate Statement (m/m) at 07:30 (GMT+3);
• – Switzerland Manufacturing PMI (m/m) at 10:30 (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.