In the latest edition of our weekly update, we look across the markets and reflect on how households are being pushed under the bus by higher rates, and as the expectation for yet higher rates (and for longer) takes hold.
Locally the first signs of stress are showing on the banks.
CONTENT
0:00 Start
0:15 Introduction
1:00 US Markets
5:05 US Households And Debt
6:55 Oil and Gas
8:23 Europe
10:17 Asia
12:18 Australia
14:00 Bank Margins And Rising Exposures
21:00 RBA Under The Microscope
26:30 Crypto
26:40 Conclusion And Close
The latest edition of our finance and property news digest with a distinctively Australian flavour.
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The latest US inflation data suggests inflation is more intractable than the markets were hoping. So what are the consequences for rates and markets in the months ahead.
Opinion is divided, but more analysts are forecasting higher rates and for longer, and are becoming more aligned to the FED’s position.
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Our weekly market review and update, covering the US, Europe Asia and Australia.
CONTENT
0:00 Start 0:20 Introduction 1:30 Bonds 2:00 Markets 5:40 Oil Stronger On Russian Cuts 10:20 Europe and UK 12:08 China 13:00 Chinese Government Bonds 16:54 Rest Of Asia 18:00 Australia 21:00 RBA Hiding 25:35 Statement On Monetary Policy 26:00 Gold In Demand? 28:40 Crypto Commingling Funds 30:50 Conclusion And Close
A month is a long time for the markets, and after the stella rises in January, driven by hopes of inflation easing, and massive tax-driven trading, reality is now dawning, at least for some as strong jobs data and comments from Federal Reserve Chair Jerome Powell stoked worries about how much higher interest rates may need to climb.
“What has been going on for the last few days is that every other day there is a Fed governor going to talk hawkish,” said Kevin Rendino, chief executive of asset manager 180 Degree Capital.
In a note, JPMorgan said while it sees the potential for the 10-year US yield to edge somewhat higher, it thinks the two-year yield has hit a high and will pull back. Philadelphia Fed president Patrick Harker is optimistic about the US economy and the need for still higher interest rates. “We need to get above five — we’re really close to that right now — and then pause,” Harker said. “How much above five? We’ll see.”
So the Nasdaq ended lower on Friday as megacap growth stocks came under pressure after Treasury yields pointed to higher interest rates as yields on the benchmark 10-year Treasury note rose to their highest in more than a month following an auction on Thursday of 30-year bonds that saw weak demand. The yield on the US 10-year note rose 9 basis points to 3.743 while the two-year bill was at 4.53 per cent. And shares of ride-hailing firm Lyft plunged following a downbeat profit forecast.
The Nasdaq posted its first weekly fall this year, down 2.41%, while the S&P 500 ended the week lower 1.11% and the Dow Jones lost 0.17%, in a week dominated by hawkish commentary from U.S. Federal Reserve officials and earnings reports from more than half of the S&P 500 constituents.
But a rally in energy stocks as oil prices climbed on Russia’s plans to cut crude supplies helped push up the Dow and the S&P 500 The energy sector jumped 3.92% while the consumer discretionary sector fell 1.22%.
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While some market analysts are calling a significant rise as inflation is crushed, others are more negative, seeing a potential drop in the markets, before a pivot – but not for another year or so. Investment sentiment is out of line….
So, the question is, are further market falls likely? How low will corporate earnings go?
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Something weird is afoot. There is much talk of falling inflation, moderating wages, record-low unemployment and possible soft landings. Yet some on Wall Street says 2023 will likely turn ugly.
Sure, we had a beautiful January for investors – but what if this is only a mirage—a stock rally that’s already gone too far.
Well, this the warning from strategists at Bank of America, who said investors could face brutal declines if economic growth crumbles in the second half of the year. The risk is that inflation flares up again over the next few months, and that the US economy faces a deeper recession (than that initially predicted) after staying resilient in the first six months of 2023, they wrote. But with more experts seeing potential success for the Fed after a year of panicky recession calls, it may be a warning that’s hard for some to heed. The “most painful trade,” the bank’s strategists wrote, is always the “apocalypse postponed.”
The traditional favourable start to financial markets in 2023, due to investor fund inflows that typically accompany the new year, has been turbocharged by data pointing to a greater possibility of a soft landing for the US economy and, most recently, the signals coming out of the Federal Reserve.
So, underinvested investors need to assess their willingness to lose as valuations surge ahead of the consensus view on the economic outlook says Mohamed A. El-Erian is a former chief executive officer of Pimco, president of Queens’ College, Cambridge; chief economic adviser at Allianz; and chair of Gramercy Fund Management.
The generalised price rally has been so quick and so big for both stocks and bonds that it raises an interesting question for underinvested investors who have not yet put their money to work. What they should do correlates closely, but not entirely, to their economic and policy views.
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Today’s afternoon chat with journalist Tarric Brooker focuses on the question of whether inflation is really falling, or whether the markets are misreading the data streams.
You can follow along with Tarric’s slides at: https://avidcom.substack.com/p/charts-that-matter-3rd-february/
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The FED lifted by the expected 25 basis points overnight. In the press conference he was still underscoring the need to strangle inflation but was also sanguine on the markets – which traders took as a positive sign.
That said, the disconnect between the FED and the markets continues, suggesting further short-term strength, before reality sets in, or the FED really backflips.
Disinflation is now the new watch word!
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Join me for a live discussion with Head of Investments at Walk The World Funds And Nucleus Wealth, Damien Klassen as we look at the current market movements and what might be ahead.
You can ask a question live!
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Will the markets fade from their January start, signalling another bear market? Well Morgan Stanley says yes, as reported earning margins are getting squeezed.
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Things remain in interesting territory for now as leading indicators are all over the show, and many are betting against the FED which has indicated it is not ready to even consider cutting interest rates any time soon, meantime the US Treasury may have other ideas…
U.S. Treasury yields a year from now are forecast to trade sharply lower than the level expected by bond strategists polled by Reuters just one month ago, underscoring how much financial markets have diverged this year from the central bank’s view.
While the U.S. economy grew at an annualised 2.9% in the final quarter of last year, it is clearly losing momentum. Market traders and policymakers differ on the severity of the coming downturn, as well as the likely policy response.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
