Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
This is my edit of my monthly economic discussion with Nuggets News.
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This week we get Central Bank Decisions from the Bank of England, The Federal Reserve and the Bank of Japan. The European Central Bank delivered a 10th consecutive hike last week, though signaled that the peak may have been reached. We also are getting further floods of data, and we know that Central Bankers are being data dependent, perhaps too much so.
For example, a Bank of Canada official said she sees evidence higher rates are working to cool the economy, blaming a hotter-than-expected inflation reading on monthly volatility driven in part by energy and rental costs.
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Central Bankers have been at pains to say they are being data dependant in setting monetary policy. But the problem now is markets are chasing every new scrap of news, and then trying to react, ahead of the Central Bankers, creating an uncertainty monster.
So an awful August gives way to an uncertain September, investors hope data this month will confirm that the seemingly relentless rise in interest rates will end soon, meaning respite for both stocks and bonds.
But there are a few snags. This September is chock-full of risk events, including central bank meetings, a G20 summit and make-or-break data, not to mention that it tends to be the worst month of the year for the mighty S&P 500.
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Our normal weekend market update, as incoming data is all over the show. No wonder things are volatile!
The S&P 500 and the Nasdaq Composite fell on Friday and posted their second straight weekly losses, as hotter-than-expected U.S. producer prices data pushed Treasury yields higher and sank rate-sensitive megacap growth stocks. Being data dependent, means markets will be highly volatile over the northern summer.
Data on Thursday showed U.S. consumer prices increased moderately in July, with the smallest annual increase in core inflation in nearly two years, lifting hopes that the Federal Reserve is at the end of its rate hike cycle.
However, San Francisco Fed Bank President and CEO Mary Daly said that more progress is needed before she would feel comfortable the Fed has done enough to rein in inflation.
US producer prices picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.
According to the Bureau of Labor Statistics the producer price index for final demand, as well as the core index which excludes food and energy, both rose by 0.3% in July, While those came in slightly more than forecast, downward revisions to the prior month tempered some of the strength.
Normalizing global supply chains, tepid demand abroad, and a broader shift in consumer spending toward services and away from goods have generally helped alleviate inflationary pressures at the producer level over the last year. But headwinds are building again as oil prices climb.
Service costs rose by the most in nearly a year, reflecting increases in categories including portfolio management, outpatient care and passenger transportation. Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Federal Reserve’s preferred inflation measure — that will be released later this month.
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My latest Friday chat with Journalist Tarric Brooker, as we deep dive into the latest charts and trends.
You can see the charts here: https://avidcom.substack.com/p/dfa-chart-pack-4th-august-2023?sd=pf
Japan article here: https://avidcom.substack.com/p/kamikaze-bank-of-japan-policy-and
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This is an edited version of a discussion with Head of Investments at Walk The World Funds and Nucleus Wealth, Damien Klassen. Has FOMO taken over as inflation eases down, or is this a head fake?
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Wall Street closed out another week with a quiet Friday on US markers as stocks found some stability after sliding the day before.
The S&P 500 edged up by less than 0.1 per cent, to 4,536.34 to cap its eighth winning week in the last 10. The Dow Jones Industrial Average added less than 0.1 per cent, to 35,227.69.
The blue-chip index was lifted by gains of more than 1% each in Procter & Gamble (NYSE:PG) and Chevron (NYSE:CVX) . It is now up over 6% in 2023, compared to the S&P 500’s 18% rise.
To be sure, the 18.1 per cent jump for the S&P 500 this year also has critics saying the rally has come too far, too fast. The risk of recession remains because inflation and interest rates remain high.
In Australia, The RBA does not expect inflation to return to the upper end of its 2 per cent to 3 per cent target band until mid-2025.
ASX company profits are on track to contract in the 2024 financial year for the first time since the pandemic, casting a dim light on the forthcoming earnings season which investors and strategists warn will translate to weaker returns for shares. Soaring wage bills, the rising cost of borrowing, and high energy costs are eroding profit margins and offsetting the bullish performance of Australia’s jobs market and robust house price growth.
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This is an edited version of our latest live show. This week Damien Klassen from Walk The World Funds and Nucleus Wealth discussed the markets and his latest analysis.
http://www.martinnorth.com/
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I caught up with Tony Locantro from Alto Capital in Perth , to discuss the current dynamics across markets, property and more. Managed to fill my bingo card again, but the messages are so relevant given the current state of play!
https://www.altocapital.com.au/about
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The financial markets have been fighting the Fed since October of last year, especially since the start of this year, in two ways. The first involves bidding-up stock prices in anticipation of a ‘Fed pivot’, which is probably a self-defeating strategy. The second involves factoring lower interest rates into bond prices.
The backdrop is mounting economic uncertainty as Finance leaders of the Group of Seven (G7) nations warned on Saturday in a subdued end to a three-day meeting overshadowed by concerns about the U.S. debt stalemate and fallout from Russia’s invasion of Ukraine.
The gathering in the Japanese city of Niigata came as global policymakers – already preoccupied by U.S. bank failures and efforts to reduce reliance on China – are now forced to grapple with a potential default by the world’s largest economy. While the communique made no mention of the U.S. debt ceiling stalemate, it figured constantly in discussions.
U.S. stocks ended slightly lower on Friday, led by weaker megacap shares following their recent rally, as data showed U.S. consumer sentiment dropped to a six-month low. The Dow was barely lower in its fifth straight day of declines, the blue-chip index’s longest losing streak in two months.
May consumer sentiment dropped to its lowest since November. The University of Michigan’s consumer sentiment reading for May came in at 57.7, much lower than the 63 expected and down from 63.5 in April.
Treasury yields rose in the bond market following the consumer-sentiment report. The yield on the 10-year Treasury erased an earlier dip and climbed to 3.46 per cent from 3.39 per cent late Thursday. It helps set rates for mortgages and other important loans.
The risks are building, and recession is becoming more likely!
CONTENT
0:00 Start
0:15 Introduction
0:50 G7 Warnings
4:44 US Markets
6:50 US Consumer Sentiment Crashes
7:50 Bonds
9:15 Debt Default?
11:22 Europe
13:40 Oil and Gold
15:40 Asia
17:45 Australia
21:20 Bitcoin Halving
23:16 Summary and Conclusion
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