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.
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It is unbelievable that ASIC has started 2023 with an extraordinary attack on the Federal Parliament on the eve of a major inquiry about to examine ASIC’s investigation and enforcement performance.
Earlier this week, we had an extraordinary attack by ASIC on the Federal Parliament’s system of oversight.
Both outgoing Commissioner Sean Hughes and ASIC Chairman Longo has attacked Parliament’s oversight as inefficient and waste time!
ASIC will be appearing before Senate Estimates either on 15 or 16 February 2023, so this will be the next set of potential fireworks with Senators.
Senator Bragg and the Senate Economics References Committee has extending the deadline from Friday 3 February 2023 to Tuesday, 28 February 2023. Almost 4 weeks for submission relating to the ASIC Inquiry.
Our market update for the week, starting in the US, via Europe and Asia and ending in Australia, where markets are on a tear.
Is it possible for the US and other industrialized countries to bring inflation down without triggering huge jumps in unemployment that economists would otherwise have predicted prior to the pandemic?
Well, maybe, according to new research from the Federal Reserve Bank of Chicago. The research examines the Phillips curve – a measure of the inverse relationship between inflation and unemployment – for 29 countries in the seven years before Covid-19 and the six quarters of pandemic recovery for which there is data, beginning in January 2021.
The authors found that in each country, including the US, the curve steepened, meaning that a decline in inflation is leading to a smaller increase in unemployment than it did before the public health crisis. While the authors caution that their analysis is limited – there is only a year and a half’s worth of recovery data to examine – their conclusions bolster hopes that Fed rate hikes can curb high inflation without causing millions of Americans to lose their jobs.
If correct, that might improve the chances of seeing a unicorn-like “soft landing” for the US economy.
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Journalist Tarric Brooker and I chew over a range of audience questions in out Friday session today, from property prices and monetary policy to China demographics.
Thanks to all those who sent in questions. Tell us what you think of this format.
Wall Street’s main indexes closed lower on Wednesday after weak economic data and hawkish comments from Federal Reserve officials sparked worries that the central bank will keep tightening policy, perhaps enough to cause a recession. The S&P 500 fell 1.6%, the worst decline in a month, while the tech-heavy Nasdaq 100 snap a seven-day rally, after reversing gains of more than 1%. Earlier, stocks rallied as Treasury yields fell across the curve on bets weak data would prompt the Federal Reserve to downshift its tightening policy.
Before the market opened, U.S. economic data showed retail sales and producer prices declined more than expected in December. Also production at U.S. factories fell more than expected in December and output in the prior month was weaker than previously thought.
St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester stressed on the need to raise rates beyond 5% to bring inflation to heel.
Growth in US prices is expected to ease in the year ahead, contacts surveyed in the Federal Reserve’s latest Beige Book which is a based on anecdotal information collected by the Fed’s 12 regional banks through Jan. 9 and compiled by the Cleveland Fed.
“Selling prices increased at a modest or moderate pace in most districts, though many said that the pace of increases had slowed from that of recent reporting periods,” the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee. “On balance, contacts across districts said they expected future price growth to moderate further in the year ahead.”
The Fed commentary also highlighted the disparity between the U.S. central bank’s estimate of its terminal rate and market expectations, which were of the rate peaking at 4.88% by June. Traders are now betting on a 25-basis point rate hike in February with the Fedwatch rate probability for the next meeting in currently sitting at a 95.3% probability of a 25 basis point hike.
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The US Treasury is fast approaching the debt ceiling, which begs the question – what then? Will Government spending be crimped, will the ceiling be raised again, or will more unconventional strategies be deployed?
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U.S. stocks ended up sharply on Wednesday, with the S&P 500 and NASDAQ gaining more than 1% each as investors were optimistic ahead of an inflation report that could give the Federal Reserve room to dial back on its aggressive interest rate hikes.
Investors are holding their breath in anticipation of Thursday morning’s Consumer Price Index inflation report —arguably the most important piece of economic data so far this year. There’s a lot riding on the outcome—if inflation keeps falling, that could support a market rally, while higher-than-expected inflation could send stocks plummeting.
After a stormy 2022, the Federal Reserve’s battle against inflation has become the chief preoccupation on Wall Street —with investors ascribing significant meaning to any economic data that could indicate what the Fed does next.
Recent data has been muddy. December’s hotly anticipated jobs report had something for everyone —easing wage growth and easing unemployment. Fed meeting minutes, released last week, also didn’t offer much in the way of conclusive answers.
That’s why this CPI report will command attention and go a long way toward shaping market expectations for the first Federal Reserve policy meeting of the year. The Fed Funds Futures market still sees a high probability of a quarter percentage point rate hike on February 1, but the results of the CPI report could change that.
Yet inflation swaps, transactions in which one investor agrees to swap fixed payments for floating payments tied to the inflation rate, are indicating that investors believe inflation will come down to 2.5% in the next seven months, even as the Fed’s own projections say inflation will remain well above 3% until 2024.
Bets that the Fed will soon pivot away from elevated interest rates, even as officials say that they won’t, could mean more market volatility lies ahead.
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The latest edition of our finance and property news digest with a distinctively Australian flavour.
Any incoming data requires interpretation to make sense. And the truth is, factors like recency bias, expectations, and hopium can all influence how newsis interpreted, and decisions made. We saw this on Friday when US markets read the data as signs of a slowing economy, and immediately went to the FED easing rate rises, despite earlier news that they are keeping at the rate rising until inflation is crimped. Treasury yields fell sharply as investors continued to price in the step down in the pace of rate hikes at the Fed’s meeting next month.
But I think the central bank will need to see further slowing of price increases in the December inflation report, due out next week, before deciding whether to slow its next rate hike. It raised rates 50 basis points in December.And future earnings expectations are likely overdone for now, so perhaps markets were one sided in their interpretation of the data. In the minutes from the Fed’s December meeting [released] this week, it was unanimous among members of the FOMC group that they are going to keep interest rates high all year long. We will see.
CONTENTS
0:00 Start 0:15 Introduction 0:30 Data is not Neutral 1:30 US Jobs Report and Macro 3:40 US Markets 7:40 Oil Down 10:20 Gas Down 12:35 Europe 14:00 China and Asia 18:00 “N” Shaped Recovery 19:00 Australian Market 20:19 Gold too high? 21:40 Crypto Bearish 23:25 Summary and Close
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Significant news from the Federal Reserve (FED) and The Peoples Bank Of China (PBOC) shows how divergent their two monetary policy paths are. The FED is committed to lifting rates sufficient to snuff out inflation (despite the markets continually seeking a pivot) and withdrawing stimulus while the PBOC is seeking to provide additional support for the Chinese economy, including the property sector.
This divergence is striking and will have significant impact on exchange rates and global financial flows. Both though are talking about Central Bank Digital Currencies.
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This is an edited edition of my recent live show, where I discussed the outlook for 2023 investing with Damien Klassen, Head of Investments At Nucleus Wealth and Walk The World Funds.
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