Economics and Banking – Page 14 – Digital Finance Analytics (DFA) Blog

Data Dependence Equals Volatility!

Our normal weekend market update, as incoming data is all over the show. No wonder things are volatile!

The S&P 500 and the Nasdaq Composite fell on Friday and posted their second straight weekly losses, as hotter-than-expected U.S. producer prices data pushed Treasury yields higher and sank rate-sensitive megacap growth stocks. Being data dependent, means markets will be highly volatile over the northern summer.

Data on Thursday showed U.S. consumer prices increased moderately in July, with the smallest annual increase in core inflation in nearly two years, lifting hopes that the Federal Reserve is at the end of its rate hike cycle.

However, San Francisco Fed Bank President and CEO Mary Daly said that more progress is needed before she would feel comfortable the Fed has done enough to rein in inflation.

US producer prices picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.

According to the Bureau of Labor Statistics the producer price index for final demand, as well as the core index which excludes food and energy, both rose by 0.3% in July, While those came in slightly more than forecast, downward revisions to the prior month tempered some of the strength.

Normalizing global supply chains, tepid demand abroad, and a broader shift in consumer spending toward services and away from goods have generally helped alleviate inflationary pressures at the producer level over the last year. But headwinds are building again as oil prices climb.

Service costs rose by the most in nearly a year, reflecting increases in categories including portfolio management, outpatient care and passenger transportation. Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Federal Reserve’s preferred inflation measure — that will be released later this month.

http://www.martinnorth.com/

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US Inflation IS Still A Thing!

A key measure of US consumer prices rose only modestly for a second month, bolstering hopes that the Federal Reserve can tame inflation without sparking a recession. But the results hardly moved markets at all, bearing in mind the next FED meeting is in September to more data will be to hand.
The core consumer price index, which excludes often-volatile food and energy costs, rose 0.2% for a second month, Bureau of Labor Statistics data showed Thursday. That marked the smallest back-to-back gains in more than two years.

Economists view the core measure as a better indicator of underlying inflation than the overall CPI, which also increased 0.2%. The annual CPI measure, however, picked up slightly due to a less-favorable comparison with the index a year ago.

Or in other words, the past help from the base effect is diminishing.
The progress on inflation, combined with solid economic growth and a healthy but gradually cooling labor market, represent another step in the right direction for the central bank. The highest interest rates in 22 years have played a role in calming price pressures but have yet to tip the nation into a recession many economists once thought was inevitable.

http://www.martinnorth.com/

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The UK Economy Is Delicately Placed!

The Bank of England, alongside other Central Banks say they are being data dependent as they try to balance interest rates, inflation, growth and employment.

So the latest from the UK ONS revealed that the UK economy delivered its strongest quarterly growth in more than a year, a surprising show of resilience that will keep pressure on the Bank of England to raise rates further to generate more weakness to bring inflation down in line with its forecasts.

The Bank of England is concerned that the economy’s pace, while sluggish by historical standards, is fanning upward pressure on wages and prices. While inflation has edged lower from last year’s high, it remains more than triple the BOE’s 2% target.

Gross domestic product rose 0.2% from the first quarter, the biggest increase since the start of 2022, the Office for National Statistics said Friday. The Bank of England had expected a 0.1% expansion. Output in June jumped 0.5%, more than double the 0.2% pace expected by economists.

Manufacturing and construction output were both stronger than expected in June, rebounding from the loss of a working day in May for King Charles III’s coronation. The figures point to momentum in the economy that’s likely to fan upward pressure on wages and prices, underpinning the case for more rate hikes.

Consumer spending during the quarter rose 0.7%, its biggest quarterly increase in more than a year. Business investment climbed 3.4%, a similar pace to the previous quarter. There was also a strong increase in government spending. Together, these factors offset a drag from net trade, as the volume of imports outpaced exports.

http://www.martinnorth.com/

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Is There Another Path To Beat Inflation?

Spain might be an example we should be looking at, as their inflation has fallen below 2%. How did they achieve this compared with the UK or Australia?

Simply put they went beyond the simplistic interest rate lever, and used effective fiscal measures as well.

So today we look at lessons we can learn from Spain, and suggest there is indeed an alternative path, but one which requires a different linkage between monetary (interest rates) and fiscal (taxes and spending).

And, don’t forget, Central Banks created the inflation monster in the first place!

http://www.martinnorth.com/

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Upcoming: A Soft Hard Landing Or A Hard Soft Landing?

In a choppy trading session indexes rose in the morning, then wavered before turning negative so Wall Street closed lower on Friday after a report of slowing U.S. labor market growth, and all three major indexes posted weekly losses as investors braced for more possible downside surprises a day after disappointing earnings from Apple.

A mixed July jobs report showing fewer than expected job gains in July, but an uptick in wages that threatens a re-acceleration in inflation and so more FED action. Still the markets are holding the faith on a soft landing for the economy as the FED tightens. It still though might feel like a hard bump.

The weekly percentage declines for the S&P and Nasdaq were the biggest since March, with some investors taking profits after five months of gains due to economic data, disappointing earnings and rising Treasury yields.

The Labor Department reported that U.S. employers added 187,000 jobs in July. Data for June additions was revised lower to 185,000 jobs, from 209,000 reported previously. Average hourly earnings rose 0.4% in July, unchanged from the previous month, exceeding expectations, taking the year-on-year increase in wages to 4.4%.

http://www.martinnorth.com/

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This Time Is Different! – With Tarric Brooker

My latest Friday chat with Journalist Tarric Brooker, as we deep dive into the latest charts and trends.

You can see the charts here: https://avidcom.substack.com/p/dfa-chart-pack-4th-august-2023?sd=pf

Japan article here: https://avidcom.substack.com/p/kamikaze-bank-of-japan-policy-and

http://www.martinnorth.com/

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Rates Higher For Longer Says The Bank Of England!

The Bank of England lifted rates again today by 0.25%. They also signalled rates would be higher for longer, and that they would be data driven (similar message to the FED and ECB).

http://www.martinnorth.com/

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DFA Live Q&A HD Replay: Investing Now With Damien Klassen

This is an edited version of a discussion with Head of Investments at Walk The World Funds and Nucleus Wealth, Damien Klassen. Has FOMO taken over as inflation eases down, or is this a head fake?

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