Digital Finance Analytics (DFA) Blog – Page 42

Santa Rally Incoming?

This is our weekly market update. As always we start in the US, cover oil and gold, as well as treasuries, and then move through Europe and Asia before we cover Australian developments and crypto. A succinct summary of the weeks events.

A searing late-year rally has brought the S&P 500 to a fresh 2023 closing high, as investors bet the Federal Reserve is done raising interest rates and the U.S. economy will remain resilient in the face of tighter monetary policy.

Fed Chair Jerome Powell said the risks of hiking interest rates too much and slowing the economy more than necessary have become “more balanced” with the risks of not hiking enough to control inflation. He vowed to move “carefully” on interest rates.

Earlier this week Investor optimism about rate cuts surged after Fed Governor Christopher Waller – widely seen as a hawkish policymaker – flagged the possibility of lower interest rates in coming months if inflation continued to ease.

So, is the Fed is at risk of committing a major policy error if it begins to loosen monetary conditions too soon, which could see inflationary pressures begin to pick up again? If anything, the Fed has more room to raise interest rates than to cut them, presuming it follows the numbers. Indeed, U.S. government data released Thursday showed that the U.S. economy grew at a faster-than-expected 5.2% annual rate in the third quarter amid surprisingly robust consumer spending.

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Have Central Banks Done Enough To Grip Inflation?

The Centrals Bankers’ love in in Hong Kong this week was full of contradictions. Indeed, yesterday I featured the RBA’s new Governors comments, centered around her view households were largely coping ok with the 4.25% hike in rates. My reaction was how out of touch with real households she sounded.

The International Monetary Fund this month said the Australian economy was running above capacity, with low unemployment, “sticky” inflation and rising house prices and so forecast a delay in local inflation returning to the 2 per cent to 3 per cent target range until early 2026, slower than most other advanced countries. They also warned federal government that the nation’s infrastructure spending boom has helped push the economy beyond full capacity, requiring the Reserve Bank to increase interest rates further to tame inflation.

But also attending the conference, and a speaker later in the Day was Ex Governor Philip Lowe. He is worried central banks may not have increased interest rates high enough to control inflation and that cost of living help from governments adds to inflation.

The ABS, said: “The 4.9 per cent increase in CPI is down from 5.6 per cent in September and below the peak of 8.4 per cent in December 2022.” But as we will see, the number was lower, thanks partly to Government intervention, which of course means higher spending.

So perhaps the truth is, while inflation was down a little, it may be Central Banks still have more to do, so the game of political chicken on the inflation front is actually far from over. We will see.

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

Not Getting DFA Blog Alerts?

HI, a quick update to our followers. If you are subscribed to our blog, until about 10 days ago you would receive an email alert each time we posted here.

Unfortunately, WordPress, which is the platform the DFA Blog lives on, broke this functionality and as a result the alerts service has been suspended.

I am working to fix this, but it might need a coding update, so may take some time. In the interim, we still post on Twitter (@DFA_Analyst) and LinkedIn (https://www.linkedin.com/in/martin-north-6a799182/) each time we post a new entry.

Sorry for the break in service!

Its Edwin’s Monday Evening Property Rant!

More from Edwin, our property insider, as the trends in Sydney and Melbourne property diverge further. We also look at the latest news and political positioning around property and we update the WeChat news as well.

http://www.martinnorth.com/

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

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Markets Say Confused? You Will Be…

Our latest weekly markets update.

Overall, the trading week was marked by rising expectations that the Federal Reserve will shift to cutting rates sooner and faster next year, bolstering bets among bulls that equities are poised to reset record highs in 2024.

MSCI’s index of global shares added 0.12% and headed for a monthly gain of 8.7% after investors grew increasingly confident that U.S. interest rates have peaked, with the market narrative shifting to the timing of cuts.

Bank of America strategists, have laid out an optimistic forecast for the S&P 500, predicting the index will reach a new high of 5,000 by the end of 2024. This bullish outlook follows a notable monthly surge in the index, which saw its strongest gain since July of the previous year.

The bank’s equity team has identified a transition in market dynamics from broad macroeconomic concerns to a focus on individual company performance, dubbing the current climate a “stock picker’s paradise.” This shift is underscored by a significant increase in “idiosyncratic alpha,” which suggests that stock-specific dynamics are becoming more important for generating robust returns.

But, Investors are understandably having great difficulty determining where the economy is actually headed given it has not responded as it normally would to the extraordinary tightening of monetary policy.

Some of the major banks in the world expect global economic growth to ease further in 2024, squeezed by elevated interest rates, higher energy prices and a slowdown in the world’s two largest economies.

The global economy is forecast to grow 2.9% this year, a Reuters poll showed, with next year’s growth seen slowing to 2.6%. Most economists expect the global economy to avoid a recession, but have flagged possibilities of “mild recessions” in Europe and the UK.

http://www.martinnorth.com/

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