Economics and Banking – Page 15 – Digital Finance Analytics (DFA) Blog

FOMO Grips Traders As Inflation Deflates (For Now).

Well, dangerous investor euphoria is now spreading like a rash on the belief, at least in the US, of a perfect soft landing as inflation is vanquished, without a recession. Cash and hedges are out, replaced by demand for everything from small caps to meme stocks. Industrial shares are on a tear, junk-bond spreads are narrowing, quants are ramping up Treasury shorts and everyone is piling into stocks.

How different from the recent talk about recession, as data on the surface at least suggests the US economy is thriving amid mounting evidence the Federal Reserve is beating inflation.

On Wednesday, Federal Reserve Chair Jerome Powell said the Fed was not forecasting a recession and did not rule out another rate hike, saying it would follow future economic data. But they would not hit their inflation target until 2025.

More than half of the firms listed on the S&P 500 have reported second quarter earnings as of Friday, out of which 78.7% have surpassed analyst expectations.

All the optimism has sent the S&P 500 to the brink of its sixth advance in seven months and pushed prices in the Nasdaq 100 to almost 35 times profit. It’s manna for bulls — even as it leaves them with precious little wiggle room should anything in the economy or monetary policy not unfold as hoped.

Economic data keeps defying bearish predictions — everything from gross domestic product to consumer confidence and hiring has beaten forecasts. Reports on Friday showed the employment cost index had its slowest advance since 2021 in the second quarter, while the Fed’s preferred inflation gauge posted the smallest increase in more than two years.

The personal consumption expenditures (PCE) price index increased 0.2 per cent last month after edging up 0.1 per cent in May, the Commerce Department said. Food prices dipped 0.1 per cent while the cost of energy products increased 0.6 per cent.

In the 12 months through June, the PCE price index advanced 3.0 per cent. That was the smallest annual gain since March 2021 and followed a 3.8 per cent rise in May.

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Another 2-Years Above Target Inflation Says The Fed!

The Fed lifted rates again on Wednesday to a 22-year high, and pretty much repeated the statement from last month. But there is an expectation of higher rates for longer, and that inflation would be above target for the next couple of years.

The market reacted as expected, given the hike was well signaled, but lifted the probability of another hike this year a little, but that will be determined by incoming data. The Fed meets again late September.

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Some More CPI Numberwanging Says Rates May Have Peaked (For Now)

The Consumer Price Index (CPI) rose 0.8 per cent in the June 2023 quarter and 6.0 per cent annually, according to the latest data from the Australian Bureau of Statistics (ABS).

CPI inflation slowed in the June quarter, with the quarterly rise being the lowest since September 2021. While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel.

This means Australia’s inflation rate eased more than expected in the three months through June, reflecting global trends and bolstering the case for the Reserve Bank to pause again at next week’s policy meeting.

The result was the second consecutive decline in the pace and the RBA currently expects inflation will return to the top of its 2-3% target by mid-2025.

The easing in prices will be welcomed by Governor Philip Lowe, who has put the central bank in data-dependent mode after raising interest rates 12 times over the past 15 months. Expectations that the result will allow the RBA to stand pat on Tuesday saw the Australian dollar extend losses and the yield on policy-sensitive three-year bonds fall, while stocks rose.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Gotcha! More Big Bank BS…

In evidence given in Parliament this week we had confirmation that at least NAB, one of Australia’s big four banks, is using partial interaction statistics to falsely justify their programme of Regional Branch closures. This is the data which is parroted by the Banking Association spokesperson to justify the unjustifiable.

In the light of this, Dale Webster, The Regional Journalist, and I (remember we got the Inquiry up in the first place!) have written to the Senate Inquiry on closures today asking for an audit of all statistics being used by the banks to justify their closure plans.

Worth also reflecting on CBA’s conditional 3 year freeze on closures, and Westpac’s pull back.

Once again, we shine a spotlight on disgraceful behaviour as banks continue to suck the life blood from so many regional towns in the interests of shareholder returns. This must change!

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Has The Inflation Hurricane Abated?

In another volatile week, the markets latest winning week closed with a mixed finish on Friday following stronger profit reports than expected from several big US companies and more benign inflation news from the US this week.

Hopes for an easier Fed also helped stocks worldwide to strengthen, though markets abroad were also mixed on Friday. The MSCI World Equity index was little changed, staying at its peak for the year and its highest level since early 2022.

For the week, the Dow was up 2.3%, the S&P 500 rose 2.4% and the Nasdaq advanced 3.3%. The S&P 500 remains up 17% for the year to date.

Data showed on Wednesday U.S. consumer prices growing at their slowest pace in more than two years, and on Thursday the smallest increase in U.S. producer inflation in nearly three years. On Friday, the government reported that U.S. import prices dropped 0.2% last month, and U.S. consumer sentiment jumped to the highest level in nearly two years.

The US earnings reporting season is just getting underway, and Wall Street’s expectations are low. Analysts are forecasting the worst drop in earnings per share for S&P 500 companies since the spring of 2020. If they’re right, it would also mark a third straight quarter where profits sank.

Such expectations are key for financial markets, because one of the biggest factors that set a stock’s price is how much profit a company produces.

And a preliminary reading on a University of Michigan survey showed consumer sentiment at its highest level since September 2021, though lower-income consumers weren’t feeling as positive.

The big recent gains for stocks on Wall Street have some critics cautioning investors not to get carried away by hopes for what’s called a “soft landing,” where high inflation can be vanquished without a painful recession.

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A New Old Era At The RBA!

The New RBA Governor has been announced, but will much change?

The Treasurer, Jim Chalmers has appointed Michele Bullock as Governor of the Reserve Bank of Australia for a seven-year term commencing 18 September 2023.

https://www.rba.gov.au/media-releases/2023/mr-23-17.html

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DFA Live: Update From Crypto Land With Adam Stokes 8pm Tuesday

Join me for a live Q&A on the state of the crypto markets, with Adam Stokes https://www.youtube.com/@UC_LynnVoF0RJV6BjNJW26Ig

The global cryptocurrency market cap today is $1.22 Trillion, a -0.15% change in the last 24 hours and 25.83% change one year ago.

We look at the latest trends and fads, and set this in a broader discussion about the nature of money.

You can ask a question live via the YT chat.

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Good News Is Bad News Again, As Rates Push Higher…

Once again, good news is bad news, as overall the US economy looks strong than expected, and the US economic surprise index kept by Citi, which tracks how much incoming data is exceeding or lagging expectations, jumped to its highest in more than two years. But this leads to the thought that rates will have to go higher, forcing markets lower.

Shares closed lower in New York, reversing earlier gains, in light volume on Friday. While the June jobs data helped to ease some concerns about the interest rate outlook, it also provided further justification for a July increase.

The U.S. economy added jobs at a slower-than-anticipated pace in June, but labor conditions remain largely tight as Federal Reserve officials prepare for an upcoming interest rate decision later this month.

http://www.martinnorth.com/

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Another Bad UK Inflation Print Signals Higher Rates Still: Recession Incoming?

Ahead of the Bank of England cash rate decision tomorrow, the latest CPI numbers were hotter than expected, with core CPI higher. As a result, expectations for rate hikes have taken off, with a prospective terminal rate of around 6%, the highest in years.

Added to the growing defecit and the prospect of a recession, and it seems the UK is at the worst end of the inflation drama!

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