Market Update – Page 29 – Digital Finance Analytics (DFA) Blog

After The Monetary Binge: What?

The latest edition of our finance and property news digest with a distinctively Australian flavour.

In this week’s market review, consider the hangover coming as the punch bowel of cheap funds is taken away. We start as always with the US, go across Europe and Asia, and end in Australia. Why, because like it our not our fate will be largely determined by what happens in the US – which drives the price of money via the US dollar, and China, our main export partner.

The US FOMC raised interest rates in June by 75 basis points in June. And last month, the U.S. central bank also started reducing the size of its enormous balance sheet. Until September, the Fed will be cutting $45 billion a month from its massive holdings, and it will increase to $95 billion, almost twice as much as it did in the previous episode of quantitative tightening. So the value of the Fed’s assets has already peaked, reaching $8.95 trillion in mid-May 2022.

But, although the Fed is tightening its monetary policy, its stance remains accommodative. According to the Taylor rule, the federal funds rate shouldn’t be just between 1.50% and 1.75%, but at least above 5% .

So the U.S. central bank remains behind the inflation curve and would have to raise interest rates much further to combat high inflation. But in the previous Fed’s tightening cycle of 2017-2019 which led to the repo crisis, forced the U.S. central bank to reverse its stance and cut interest rates.

Given how fragile the financial system is and how much indebted the American economy is, it’s almost certain that the current monetary policy tightening will lead to a sovereign-debt crisis or another kind of financial crisis.

[CONTENT]

0:00 Start
0:15 Introduction
00:46 Removing The Punch Bowel
2:45 US Dollar
4:00 Economic Indicators
5:45 US Markets
08:00 Bonds
8:50 European Markets
10:25 Oil and Gold
12:40 Asian Markets
14:00 China Economics
15:30 China Property Bust
19:25 Australian Market
22:00 Crypto Crash
23:00 Conclusion

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

The Inflation Monster Runs Free…. [Podcast]

Stocks wobbled but ultimately ended lower on Wednesday, as the fastest pace of inflation in decades stoked bets that the Federal Reserve will be forced to deliver a much larger than expected 1% rate hike later this year.
The S&P 500 closed down 0.5%, the Dow Jones Industrial Average fell 0.7%, or 208 points, the Nasdaq fell 0.1%.

U.S. inflation rose 9.1% in June to hit a fresh four-decade high, topping economists’ forecast for a 9% rise, driven by an 11.2% leap in gas prices and a 1.0% increase in food prices.

This report will make for very uncomfortable reading at the Fed,” it added.
US inflation roared again to a fresh four-decade high last month, likely strengthening the Federal Reserve’s resolve to aggressively raise interest rates that risks upending the economic expansion.

The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs. The so-called core CPI, which strips out the more volatile food and energy components, advanced 0.7% from the prior month and 5.9% from a year ago, above forecasts.

The red-hot inflation figures reaffirm that price pressures are rampant and widespread throughout the economy and taking a bigger toll on real wages, which are down the most ever in data back to 2007. The inflation data will keep Fed officials on an aggressive policy course to rein in demand, and adds pressure to President Joe Biden and congressional Democrats whose support has slumped ahead of midterm elections.

“Rather than cooling down, inflation is heating up,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “While a pullback in gasoline costs in July and reported retail discounting will help tamp down the flames, the broad pressure in the core rate, led by plenty of inertia in rents, suggests inflation may not peak for a while, and might remain stubbornly high for longer than anticipated.”

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

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Digital Finance Analytics (DFA) Blog

The Inflation Monster Runs Free.... [Podcast]

00:00 / 00:22:12

The Inflation Monster Runs Free….

U.S. inflation rose 9.1% in June to hit a fresh four-decade high, topping economists’ forecast for a 9% rise, driven by an 11.2% leap in gas prices and a 1.0% increase in food prices.

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

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

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

No Escape! Recession Will Destroy Wealth. Period. [Podcast]

Apologies to our podcast users, we have had technical issues which stopped us posting – now fixed. We will upload archive recordings when we can!

In today’s show, we review the weeks market action, starting in the US – by far the most influential market, followed by Europe, Asia and Australia. There is no place to hide. Wealth is being destroyed. And there is no end in sight. Data is flagging recession, as central banks continue to raise rates and given the astronomical debt burden out there this is a big deal.

Even conservative investment strategies are being hit. “This is a train wreck,” says Alex Dunnin, executive director of research house Rainmaker Group. “When a traditionally conservative strategy is getting the worst returns then all bets are off. It doesn’t matter where you go, almost everyone will be in pain.”

The S&P 500 notched its worst start since 1970, plunging 20.6% between January and June. The Dow had its largest first-half drop since 1962, and the Nasdaq Composite had its largest percentage decline ever. And US Stocks slipped over the five days, with the S&P 500 erasing part of its rally in the previous week. Down more than 2%, the index just endured its 11th drop in 13 weeks.

All three indexes posted losses for the week. Despite this Wall Street rallied to close higher on Friday in light trading, with investors heading into the long holiday weekend and embarking on the second half of year looking for the next market-moving catalyst. All major groups in the S&P 500 rose, while the tech-heavy Nasdaq 100 underperformed. Treasuries surged after an ugly first half as weak economic data added to recession fears.

The US economic data was frankly horrid this week. An influx of data showing softer consumer spending, sagging sentiment and subdued manufacturing suggest a US economy with a more fragile foundation, prompting several forecasters to lower their estimates for growth.

Strategists at Goldman Sachs told clients on Thursday that stocks could keep falling later this year since “equities are pricing only a mild recession” and more companies will likely begin reducing their earnings expectations. In the event of a recession, Goldman’s team sees the S&P 500 dropping to 3,600, or 4.9% below Thursday’s close.

[CONTENT]

0:00 Start
0:15 Introduction
2:23 US Weak Economic Data
8:22 GDP Forecast: Down
9:00 Bond Yields
11:00 Buying The Dip
13:50 US Markets
16:00 Oil, Gold and Silver
17:00 Euro-zone Inflation Up
19:18 European Markets
20:00 Asian Markets And China Bonds
22:25 Australian Markets
24:40 Crypto Down
25:47 Tough Times Ahead

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

Digital Finance Analytics (DFA) Blog

No Escape! Recession Will Destroy Wealth. Period. [Podcast]

00:00 / 00:31:33

Is Cash Trash Now?

So, as we approach the halfway mark through the year, it’s important to note that U.S stocks are on track to mark their worst first half of the year in more than 50 years. The S&P 500 is down around 18% year-to-date, on track for its worst first half of any year since 1970, and the NASDAQ closer to 30% as the Fed tightens monetary policy in its fight against the highest inflation in decades. So relative to holding cash since the start of the year, stocks have been trashier.

Bonds, which investors typically count on to counterbalance stock declines in their portfolios, have fared little better: The U.S. bond market, as measured by the Vanguard Total Bond Market Index fund, is down 10.8% for the year to date, putting it on pace for its worst performance in modern history.

That said of course the value of cash is being deflated in real terms by high inflation, so its not perfect, but lessons from history suggest that sometimes it’s a reasonable holding place, until markets bottom. And with investor expectations fluctuating between continued high inflation and an economic downturn caused by a hawkish Fed, few believe the market’s volatility will dissipate anytime soon. Remember that on Thursday, Fed Chair Jerome Powell said the central bank’s focus on curbing inflation was “unconditional”, adding to fears about more interest rate hikes.

[CONTENTS]
0:00 Start
0:15 Introduction
1:15 Worst First Half
2:30 Inflation Control Unconditional
4:10 Leading Indicators
9:30 More FED comments
13:14 US Market
14:15 Oil
16:54 US Bank Stress Tests
19:30 European Markets
20:58 Asian Markets
23:10 Australian Markets
27:40 Crypto and Harmony
29:50 Conclusion and Close

The latest edition of our finance and property news digest with a distinctively Australian flavour.

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

Stormy Weather Kills The Wealth Effect!

This week, The U.S. Federal Reserve announced an interest rate hike of 75 basis points, its largest increase since 1994, the Swiss National Bank unexpectedly lifted rates by 50 basis points on Thursday, while the Bank of England on the same day raised its interest rates by 25 basis points, hiking for its fifth consecutive meeting. The main outlier is the Bank of Japan, which stuck with its strategy of pinning 10-year yields near zero at its policy meeting earlier Friday. However, this has done little to ease worries that inflation and rate hikes are going to curb economic growth for years to come.

And It was one of the most dramatic weeks in the short history of the cryptocurrency market, bookended by the type of announcements investors fear the most from a counterparty: We’re sorry, but we just can’t return your money right now. It all started late Sunday, when a sort of crypto shadow bank called Celsius Network suspended withdrawals from depositors who had been enticed by sky-high interest rates that, in retrospect, were likely too good to be true. By the end of the week, on the other side of the world in Hong Kong, the digital-asset lender Babel Finance also froze withdrawals.

Just as Bear Stearns’s hedge funds were among the first to reveal problems from the subprime mortgage crisis, the “cockroach theory” springs to mind: If you see one of those nasty bugs scurrying across the floor, chances are there are plenty more hiding behind the fridge or under the sink. Wealth destruction is now a thing.

[Content]

0.00 Start
0.15 Introduction
2:10 Federal Reserve Inflation Battle
3:30 GDP Forecast Down
7:25 US Markets
10:00 European Markets
11:20 Asia Pacific Markets
11:40 Japan Bond Crisis
13:05 Australian Markets
18:00 Crypto Winter
23:30 Crypto Traders Turn On Each Other
29:05 Conclusion and Close

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

The Bears Have It!

As expected, U.S. equities tumbled on Monday, with the S&P 500 confirming it is in a bear market, thanks to expected aggressive interest rate hikes by the Federal Reserve that would push the economy into a recession. Markets have been under pressure this year as climbing prices, including a jump in oil prices due in part to the war in Ukraine, have put the Fed on track to take strong actions to tighten its monetary policy, such as interest rate hikes. The Fed is scheduled to make its next policy announcement on Wednesday and investors will be highly focused on any clues for how aggressive the central bank intends to be in raising rates.

The latest pickups in consumer prices and inflation expectations will probably spur Federal Reserve officials to consider the biggest interest rate increase since 1994 when they meet this week, after chairman Jerome Powell previously signalled a smaller move was the likely outcome.

In fact The benchmark S&P index has fallen for four straight days, with the index now down more than 20% from its most recent record closing high to confirm a bear market began on Jan. 3, if you use the standard definition.

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

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

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Expect More Shock And Awe From Central Banks…

My latest market update as inflation grinds higher forcing more Central Bank rate hikes. The collateral damage will be significant, but they are now set on this “shock and awe” strategy, designed to unwind many years of too lose policy. How long they stay that course is an open question, but we must expect markets to slide further, and correct into this new higher rate environment.

[Content]

0:00 Start
0:15 Introduction
1:15 US Inflation Higher Than Expected
5:35 Interest Rates Hiked Higher
6:50 Sentiment Drops
8:22 US Market Summary
10:35 Oil
12:45 Gold
14:10 Europe Summary
16:55 Asia Pacific Summary
18:23 Australian Summary
20:27 Crypto and Bitcoin
22:19 Summary and Close

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

An Opera Of Canaries: Market Update for 4th June 2022

Yes, folks, the collective noun for a collection of Canaries is an Opera, and it seems fitting given recent events, and data. In this weeks market review we start with the US – I am often asked why I focus here, and it is because as the USD is so dominant and the US Markets so big, our markets follow like a playful puppy, we hardly think for ourselves, but ape what the US did. And we will also cover Europe and Asia, where several markets were closed on Friday before coming back to Australia.

US stocks resumed their trend of weekly losses after strong hiring data cleared the way for the Federal Reserve to remain aggressive in its fight against inflation. Treasuries fell and the dollar strengthened against peers.
The Dow Jones Industrial Average slipped 1.7%, or 349 points, the Nasdaq fell 2.5% and the S&P 500 fell 1.7%.

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