Financial Markets – Page 5 – Digital Finance Analytics (DFA) Blog

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

This is an edited version of a live discussion, in which I discuss the latest from the financial markets with Damien Klassen, Head of Investment at Nucleus Wealth and Walk The World Funds. How have earnings season turned out, and where might the markets go next. How will the tussle between Bonds and Stocks play out?

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Into The Storm: What Next?

This is my weekly market update, starting in the US, crossing to Europe, then Asia and ending in Australia plus commodities and crypto.

An unusually strong solar storm hit the Earth overnight producing northern lights in the US and Europe and southern lights across Australia, including Queensland. Bright auroras were visible at unusually low latitudes. The G5 geomagnetic conditions could potentially disrupt power and communications with warnings to governments and critical infrastructure operators about the potential impacts on infrastructure and essential services.

This reminded me that things can be unpredictable, and markets risk surprises in the weeks and months ahead, as Central Banks, who created the massive inflation storm by their own actions, try to reverse the effects through higher for longer interest rates. Meantime Government debt continues to rise, together with the costs of debt servicing, and many ordinary households are caught in the crossfire. Yet financial markets are still hopeful.

On Friday shares in New York were modestly higher, with techs somewhat lagging. But all three indexes were up for the week with the blue-chip Dow nabbing its largest Friday-to-Friday percentage advance since mid-December. The benchmark S&P 500 index is up over 9% for the year, up near its late-March record high, following a 5% pullback that occurred last month.

The question of how independently will other Central Banks move their base rates ahead of the FED comes more into view. More broadly is the U.S. exceptionalism trade fading?

And what does the demise of Perpetual, like the fall of AMP before it, also tells us about the changing nature of Australia’s financial services sector: the growing scale and power of the superannuation sector; the rise and rise of passive investing and private capital; and the global struggle to make the listed funds management model work?

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Are Central Bankers Becoming Political Animals?

This is our latest weekly market update.

Another wild week on the markets, driven by conflicting data, and a reactive FED, who has effectively given up on forward guidance, and who does not know where rates will go. But despite Powell’s protests to the contrary, some are suggesting Central Bankers are being swayed by political considerations from driving rates higher to quash inflation.

Apart from more strong big tech results this week, two events shaped the week. It started with fears of higher rates and inflation, driven by hot economic data, but turned after the FED held rates, and ruled out rate hikes, waiting for more data. Stubbornly high readings on inflation this year pushed Federal Reserve Chair Jerome Powell to say on Wednesday that it will likely take “longer than previously expected” to get enough confidence about inflation to cut interest rates.

But then in a “bad news is good news” swing, the Friday jobs report came is softer than expected in April, a sign that persistently high interest rates may be starting to take a bigger toll on the world’s largest economy.

In Australia the benchmark S&P/ASX 200 rose 0.55 per cent, to 7629 points to finish the week 0.7 per cent higher. The central bank on Tuesday is widely expected to keep the cash rate at a 12-year high of 4.35 per cent, but it may also reintroduce a soft tightening bias following last week’s hotter-than-expected inflation report.

But aT the end of another volatile and rudderless week, markets remain on edge, waiting for the next big shiny bit of news – of course big players benefit from these changes in sentiment, but ordinary investors will be perhaps rightly more cautious. Expect more rapid changes in trajectory in the weeks ahead, as data will continue to confuse. Meantime, the credibility of Central Bankers continues in my eyes to diminish, even as more ordinary households are being crushed. And more on that subject in my live stream on Tuesday.

http://www.martinnorth.com/

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What The FED? Higher For Longer As They Wait For More Data…Still…

On Wednesday we got the FOMC decision, and Federal Reserve Chair Jerome Powell’s roughly 50 minutes press conference, but it was hardly worth the watch as he said price growth will likely resume cooling this year, but avoided offering a timeline for rate cuts. It seems, the burst of inflation seen in the first quarter has reduced policymakers’ confidence that price pressures are ebbing.

The central bank’s preferred gauge, the personal consumption expenditures index, rose 2.7% in March from a year earlier. That compared to a 2.5% advance in January. Policymakers explicitly acknowledged that data by adding a line to their post-meeting policy statement noting the “lack of further progress” toward their inflation goal in recent months.

Powell’s remarks reflected a broader shift in thinking at the Fed toward holding borrowing costs at a two-decade high for longer.

Three points to make on all this.

First Central Bankers are still not admitting they caused the inflation breakout due to their dramatic rate cuts, and QE programmes, done in tandem with Governments providing massive financial support through COVID. This is the root cause of the problem, yet of course the US Treasury continues to run a larger deficit, which is costing more because of the higher rates.

Second Powel was explicit of not be influenced by the political context, US election and all, arguing the FED was independent. We know some politicians have a different perspective on this issue.

Third, being totally reactive to data means the FED is looking back not forward. This may well mean events will catch them out. They have yet to acknowledge that the so called R star or neutral rate is significantly higher than they think it is, so the road is wide open to potential policy failure.
Meantime, many Americans have run down their savings, are putting more or credit, and housing affordability continues to deteriorate for many.

Which sort of begs the question: who is the FED really working for? Is it all Americans as he suggests?

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The Scent Of Stagflation Hangs Over The Markets!

This is our latest weekly market update, starting in the US, UK, then Europe, Asia and Australia, and also covering Gold. Oil and Crypto. A comprehensive round-up of what is happening!

We are, it seems entering the twilight zone, as the scent of stagflation is spreading, as inflation becomes increasingly sticky, especially in services, while growth slows, leading to increased market volatility and questionable consumer confidence. Hopes of rapid Fed rate cuts have receded following a series of U.S. inflation readings.

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Looking Past Hopium Towards Real Numbers…

The value of stocks are driven partly by momentum, through perhaps we should really call this hopium, as its really investors betting with their gut, and the cold hard realities of financial results. Markets have been leveraged higher by rate cut expectations and the prospects of AI. But when the numbers come in at results time, sometimes hopium goes away. Especially when bond yields take the discount rate higher, (the US 2-year is currently at 4.925 and the 10-year at 4.646) so reducing the future value of earnings.

Australian markets were closed for the ANZAC holiday. We will remember them.

Ahead, Markets were also awaiting more cues on the U.S. economy and interest rates from upcoming data prints. US Gross domestic product data is due later on Thursday, and is expected to show just how resilient the U.S. economy remained in the first quarter.

More closely watched will be PCE price index data- due on Friday. The reading is the Federal Reserve’s preferred inflation gauge, and is likely to factor into the central bank’s plans for interest rates.

As Warren Buffet says, when the tide goes out we can see who is swimming naked. To which I would add, when the tide of hopium goes out, we do indeed see reality below the water line and it may well not be pretty!

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Grab A Seat Belt As Market Volatility Shakes Confidence And Prices!

This is our weekly market update.

Another crazy week on markets, as geo-political worries collided with the stronger “higher for longer to fight sticky inflation” mantra, and big-tech looking over-valued. The brief latest flare-up in Middle East tensions seemed contained with a flight to bonds, gold and the US dollar waning. Oil fell.

The Dow Jones Index rose 0.6 per cent after Tehran downplayed reports of an Israeli strike on Iran. US Treasury 10-year yields dropped to 4.62 per cent. The US dollar was little changed.

The regional escalation also briefly sent the price of gold back near its record high above $US2400 an ounce and Brent crude rose above $US90 a barrel. Both commodities pared gains after the International Atomic Energy Agency confirmed there was no damage to Iran’s nuclear sites.

As I discussed yesterday, the drumbeat of downbeat comments from the US Federal Reserve and a flare-up in inflation worries have weighed heavily on sentiment, with investors trimming their bets on the keenly anticipated central bank pivot. Federal Reserve officials have said they will need to see more data to become confident enough that inflation is headed to the 2 per cent target before starting to cut interest rates. Atlanta Federal Reserve Bank President Raphael Bostic on Thursday said that if inflation does not continue to move toward the U.S. central bank’s 2% goal, central bankers would need to consider an interest-rate hike.

For some economists, the wont-get-fooled-again mindset is now in high gear. Bank of America economists, for instance, advise that there’s a “real risk” that rate cuts will be delayed until March 2025 “at the earliest,”.

The PCE price data for March US inflation is coming next week. Consensus forecasts are expecting a mixed bag for the one-year change: a slightly higher rise headline PCE to 2.5% and a tick down for core PCE to 2.7%. We will see.

And a sell-off in the so-called “magnificent seven” technology stocks dragged the Nasdaq down 2.05 per cent on Friday and traders remained cautious on riskier assets ahead of the weekend amid geopolitical uncertainties.

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Markets Rethink Rate Cuts As Central Bank Hawks Jawbone!

It’s become a bit of a ritual, as members of various committees linked to Central Bank interest rate decisions speak in the open spaces between policy meetings. This week, Washington has been the centre of gravity thanks to the IMF conferences.

Markets are hypersensitive at the moment, having been baying for rate cuts all year, and positioning accordingly, despite the data is pointing elsewhere. But now, Money managers and strategists on Wall Street have been forced to rethink their assumptions over the past two weeks in response to strong economic data and remarks by Fed officials.

For example, Federal Reserve Bank of New York President John Williams said that there’s no rush to lower interest rates and economic data will determine the timing.

And Bank of England policymaker Megan Greene speaking at an Atlantic Council event on the sidelines of the International Monetary Fund’s meeting in Washington, said the UK faces difficult trade-offs over whether to cut interest rates because underlying inflation remains high and growth is weak.

But Greene said rate cuts were not imminent and the combination of high inflation and weak growth means “we are sort of in trade-off territory.”

In Australia, after the latest jobs data rate cut expectations are also being pushed out. Andrew Lilley the chief Rate Strategist at Barren joey said “There’s no impetus for the RBA to cut rates as inflation is outside of the 2 per cent to 3 percent band. The RBA will be very comfortable to sit on hold.

But even if rates go no higher, the RBA says total scheduled household mortgage payments (comprising both interest and scheduled principal payments) have increased to around 10 per cent of household disposable income as of December 2023, exceeding the estimated previous historical peak in 2008. These scheduled mortgage payments are expected to increase further to reach around 10½ per cent of household disposable income by end-2024 as more fixed-rate loans expire and reprice at higher interest rates.

http://www.martinnorth.com/

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