Category: Economoney

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The Dow closed 650 points higher Friday 26th July 2024 – lifted by a positive inflation data

U.S. stock charts and flag

On Friday 26th July 2024, U.S. stocks surged, and Wall Street concluded a volatile week on an upbeat note as investors considered the latest U.S. inflation data.

The Dow Jones Industrial Average soared 654 points to settle at 40589. The S&P 500 climbed to 5459 while the Nasdaq Composite advanced around 1% to close at 17357.

Dow Jones as at: 26th July 2024 – one day chart

Dow Jones as at: 26th July 2024 – one day chart

The upward movement was attributed to a mix of oversold conditions, a U.S. GDP report on Thursday 25th July 2024 that exceeded expectations, and the anticipation that the Federal Reserve will start reducing rates in response to the economy’s demonstrated resilience.

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U.S. rate cut looking more likely as Fed key inflation measure rose 2.5% in June 2024 over the year

U.S. Inflation

The personal consumption expenditures price index (PCE) increased 0.1% in June 2024 and was up 2.5% from a year ago, with the annual rate showing a slight decline from the prior month

Core inflation, which excludes food and energy, showed a monthly increase of 0.2% and 2.6% on the year, both also in line with expectations.

Personal income rose just 0.2%, below the 0.4% estimate. Spending increased 0.3%, meeting the forecast, while the personal savings rate decreased to 3.4%.

This PCE reading may encourage the Fed to cut rates now.

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U.S. economy grew by 2.8% in Q2 – better than expected

U.S. economy

In the second quarter of 2024, the U.S. economy expanded at a strong annual rate of 2.8%, exceeding economists’ forecasts.

This surge was fueled by positive consumer spending, substantial government expenditures, and increased inventories.

The personal consumption expenditures price index saw a 2.6% rise in the same timeframe, a decrease from the prior quarter’s 3.4% climb as core prices, which exclude food and energy, increased by 2.9%.

The data suggests a continued deceleration in the personal savings rate, standing at 3.5% for the quarter, down from 3.8% in the first quarter.

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UK national debt as a percentage of GDP is now 99.5%

UK Debt to GDP percentage

Highest ratio since the 1960’s and even higher than that reached during the Covid pandemic of 2020.

The UK’s national debt has reached its highest level since 1962.

Official figures from the ONS show that the total government debt amounted to 99.5% of the economy’s value in June 2024, surpassing the peak levels experienced during the coronavirus pandemic.

The current debt level is comparable to that last observed in the early 1960’s.

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Pound hits highest level versus dollar for a year

Pound Sterling

The pound reached its highest level against the dollar in a year on Wednesday 17th July 2024, as investors wagered that UK interest rates would remain elevated for longer.

New data released on Wednesday 17th July 2024 indicated that inflation was more persistent than some analysts had anticipated, leading traders to reduce their expectations of a rate decrease in August 2024, propelling the pound above $1.30 for the first time since the previous July.

Additionally, the pound’s strength has been supported by market optimism that the newly elected Labour government will provide economic stability.

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UK inflation holds at Bank of England’s 2% target but above projections

UK inflation

U.K. inflation matched the Bank of England’s target of 2% in June 2024, as calculated by data from the Official for National Statistics on Wednesday 17th July 2024.

The main figure was slightly higher than the 1.9% forecast by analysts surveyed by Reuters, aligning with May’s 2% figure.

Following the announcement, the value of Sterling increased modestly, reaching $1.2977 at 7:21 a.m. British Summer Time.

The Bank of England (BoE) closely monitors services inflation due to its significant role in the U.K. economy and as an indicator of domestic price increases, which remained at 5.7% in June. Service inflation remains a stubborn issue and a problem still for the BoE.

The core inflation rate, which excludes energy, food, alcohol, and tobacco, stood at 3.5%, consistent with the rate seen in May 2024.

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What the Fed said

Federal Reserve

Jerome Powell appears to be further paving the way for a rate cut at the next meeting in July 2024.

Federal Reserve Chair Jerome Powell reportedly said Monday 15th July 2024 that the central bank will not wait until inflation hits 2% to cut interest rates.

Powell referenced the idea that central bank policy works with ‘long and variable lags’ to explain why the Fed wouldn’t wait for its target to be hit.

‘The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,’ Powell reportedly said.

Instead, the Fed is looking for ‘greater confidence’ that inflation will return to the 2% level, Powell remarked.

‘What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,’ he reportedly said.

Powell also said he thinks a ‘hard landing’ for the U.S. economy was not ‘a likely scenario.’

It looks like it is time for that rate cut, he didn’t say that!

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China’s exports beat forecast – but imports drop

Bust container port

In June 2024, China’s imports fell by 2.3% year-on-year in U.S. dollar terms, missing the expected 2.8% growth forecast by analysts.

However, exports rose by 8.6%, surpassing the anticipated 8% growth. This resulted in a 2% increase in year-to-date imports and a 3.6% rise in exports for the first half of the year compared to the same period last year.

Additionally, China’s trade with the Association of Southeast Asian Nations (ASEAN) surged by 7.1% in the first half of the year, solidifying ASEAN as China’s largest regional trading partner, followed by the European Union.

Trade with Brazil grew rapidly in the first half of the year, with Chinese exports to the country surging by 24.4%.

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U.S. inflation falls 0.1% from May to June 2024 further adding to speculation of an imminent Fed rate cut

Sale

The Consumer Price Index (CPI), a comprehensive gauge for goods and services costs, saw a 0.1% decrease from May 2024, bringing the annual rate to 3%, which is near its lowest point in over three years.

When removing the unstable food and energy prices, the core CPI rose by 0.1% monthly and 3.3% annually. This year-over-year core rate increment is the least since April 2021.

Inflation for the month was tempered by a 3.8% drop in gasoline (petrol) prices, which balanced out the 0.2% rises in both food prices and housing costs.

Date: U.S. Bureau of Labor Statistics

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Federal Reserve chair Powell says keeping rates high for too long could jeopardize growth

Banker giving a speech

Jerome Powell on Tuesday 9th July 2024 reportedly expressed concern that holding interest rates too high for too long could jeopardize economic growth. This comment came ahead of the consumer price index reading due this week.

Preparing for a two-day session on Capitol Hill, the central bank chief stated that the economy and labour market continue to be robust, even with some recent slowdown. Powell noted a slight reduction in inflation, affirming that policymakers are determined to reduce it to their target of 2%.

“At the same time, in light of the progress made both in lowering inflation and in cooling the labour market over the past two years, elevated inflation is not the only risk we face,” he reportedly said. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

Sounds to me like he is paving the way for the first interest rate reduction.

The comment ties-in with the upcoming one-year period since the Federal Open Market Committee (FOMC) last increased the benchmark interest rates.

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China’s inflation data missed projections – rising 0.2% in June 2024

China CPI data

China’s consumer price inflation rose by 0.2% in June 2024 from a year ago, falling short of expectations. Meanwhile, producer prices remained in line with forecasts.

Main points

Consumer Price Index (CPI)

China’s CPI was expected to rise by 0.4% year-on-year in June, according to poll conducted by Reuters. However, the actual increase was only 0.2%. Lacklustre domestic demand has contributed to keeping inflation subdued in China, unlike major economies such as the U.S., where prices have remained elevated.

Producer Price Index (PPI) 

The PPI, which measures factory-gate prices, dropped by 0.8% from a year ago, aligning with expectations. This reflects the ongoing challenges faced by manufacturers and businesses.

Core CPI

Stripping out more volatile food and energy prices, core CPI rose by 0.6% year-on-year in June. While this is slightly slower than the 0.7% increase for the first six months of the year, it indicates a relatively stable inflation trend.

Pork and beef

Notably, pork prices surged by 18.1% in June compared to a year ago, while beef prices fell by 13.4%.

In summary, China’s inflation remains subdued due to weak demand, even as other global economies experience higher price pressures. Policymakers will closely monitor these trends to ensure economic stability.

Note: this information is based on data from the National Bureau of Statistics and reflects the situation as of 10th July 2024.

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S&P 500 and Nasdaq hit record highs again as job data raises chance of a Fed interest rate cut

U.S. market record highs

Markets respond positively to job data as the S&P 500 and Nasdaq break record highs, again!

S&P 500 record high

S&P 500 record high Friday 5th July 2024

Nasdaq Composite record high

Nasdaq Composite record high

Nasdaq 100 record high

Nasdaq 100 record high

U.S. non-farm payrolls increase

The U.S. economy added slightly more jobs than expected in June 2024 though the unemployment rate increased, the U.S. Labor Department reported Friday.

Non-farm payrolls increased by 206,000 for the month, better than the 200,000 Dow Jones forecast though less than the downwardly revised gain of 218,000 in May, which was cut sharply from the initial estimate of 272,000.

The unemployment rate unexpectedly rose to 4.1%, matching the peak since October 2021, presenting a conundrum for Federal Reserve officials as they consider their next steps in monetary policy. Projections had indicated that the unemployment rate would remain stable at 4%.

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Japan’s Nikkei passes 41000 – then trims gain slightly

Nikkei hits new record

On 5th July 2024, Japan’s benchmark Nikkei 225 index climbed above 41,000 before retreating from its record close of 40,913.65.

The Nikkei 225 serves as a crucial barometer for the Japanese stock market, representing the performance of prominent companies on the Tokyo Stock Exchange. It continues to stand at historically elevated levels.

Nikkei one year chart closes at 40912 after passing 41000 for the first time

Nikkei one year chart closes at 40912 after passing 41000 for the first time
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S&P 500 closes above 5500 for the first time

S&P Bull run record

On 2nd July 2024, the S&P 500 reached a significant milestone, closing above 5500 for the first time in its history.

This impressive achievement has prolonged the blistering rally of 2024, during which the index has reached 32 record highs. Since July 2023, the S&P 500 index has surged by more than 1000 points.

The rise in U.S. equities has been propelled by robust corporate earnings, the artificial intelligence (AI) boom, and the anticipation of interest rate reductions. Although some analysts warn that the market might be stretched too far, others are forecasting additional increases.

Many analysts have now raised their target for the S&P 500 to end the year at around 5700.

One year S&P 500 chart July 2023 to July 2024

One year S&P 500 chart July 2023 to July 2024
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The Fed says progress has been made in the fight against inflation

Federal Reserve Inflation

Federal Reserve Chair Jerome Powell has expressed satisfaction with the current progress in the inflation battle but indicated a desire for additional positive data before considering a reduction in interest rates.

“We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy,” he said.

While Powell acknowledges progress in inflation, he remains cautious about acting prematurely and jeopardizing the trend of decreasing prices.

Markets moved up after Powell’s comments.

Update: A Fed statement released after the market closed stated that – Fed says it’s not ready to cut rates until ‘greater confidence’ inflation is moving to 2% goal

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Euro zone inflation eases to 2.5% but core measure misses

EU inflation

Inflation in the euro zone dipped to 2.5% in June 2024, the European Union’s statistics agency said on Tuesday 2nd July 2024, in line with expectations.

However, core inflation, excluding energy, food, alcohol and tobacco, remained at 2.9% from the prior month, just missing the 2.8% forecast.

The rate of price rises in services also failed to move sticking at 4.1%.

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China manufacturing and Japan’s GDP contracts – Asia markets mixed

Economic data

Over the last weekend of June 2024, China released its official PMI figures, with the manufacturing PMI remaining at 49.5, the same as in May 2024, indicating a second consecutive month of contraction.

On Monday 1st July 2024, Japan adjusted its first-quarter GDP figures, showing a contraction of 2.9% year-on-year, a revision from the previously reported 1.8%.

Asia markets started the second half 2024 mixed as investors assessed June business activity data from China as well as Japan’s GDP revision.

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U.S. inflation at 2.6% in May 2024 from a year ago

U.S. PCE

The core Personal Consumption Expenditures (PCE) price index witnessed a modest increase of 0.1% (seasonally adjusted) for the month and has risen 2.6% from the previous year – broadly as expected by analysts.

May 2024 experienced the lowest annual rate since March 2021, the Federal Reserve’s inflation target is 2%.

Personal income grew by 0.5% for the month, surpassing the estimated 0.4%. However, consumer spending saw a 0.2% rise, falling short of the 0.3% expected.

Data according to U.S. Bureau of Economic Analysis

Note: PCE represents Personal Consumption Expenditures. It measures consumer spending in the United States by tracking expenditures on goods and services. The PCE price index particularly tracks variations in household living costs, serving as a primary indicator of inflation.

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Japanese yen slumps to fresh 38-year low against the U.S. dollar

Yen slumps against dollar

On Friday 28th June 2024, the Japanese yen dropped to its lowest point in 38 years, surpassing the 161 threshold against the dollar reached for the first time since December 1986.

The yen has faced challenges, slipping beyond the 160 mark again.

Since the Bank of Japan concluded its negative interest rate policy and reportedly abandoned its yield curve control policy in March 2024, the yen has been on a consistent decline.

After this policy change, the yen breached the 150 level against the U.S. dollar and hit 160 in late April 2024, which prompted intervention by the country’s finance ministry.

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Have you heard of the ‘Sahm Rule’ recession indicator?

Rules in a book

The ‘Sahm Rule’ serves as a heuristic indicator employed by the Federal Reserve to ascertain the onset of a recession in the economy.

The Sahm Rule is a real-time evaluation tool based on monthly unemployment data from the Bureau of Labor Statistics (BLS). Named after economist Claudia Sahm, it forecasts the onset of a recession when the three-month moving average of the national unemployment rate (U3) increases by 0.50% or more compared to its lowest point in the preceding 12 months.

This simple yet effective indicator helps policymakers monitor economic cycles and respond accordingly

Time to cut according to the ‘Sahm Rule’

Sahm has reportedly stated that the Fed is taking a significant risk by not implementing gradual rate cuts now. Last week, Federal Reserve officials significantly reduced their forecasts for rate cuts this year, shifting from three anticipated reductions noted in the March 2024 meeting to just one.

According to the creator of a well-established rule for predicting recessions, the Federal Reserve is risking an economic contraction by not lowering interest rates immediately.

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No change as Bank of England holds interest rate at 5.25%

UK interest rate

UK interest rates have been left unchanged at 5.25% by the Bank of England (BoE)

The Bank has maintained the interest rates at 5.25% for the seventh consecutive time to combat inflation, resulting in increased mortgage repayments and higher savings rates.

The interest rates, at their peak for the past 16 years, have been sustained at 5.25%. Currently, there are indications of a shift in stance, with a growing consensus for a potential reduction in August 2024.

UK interest rate and inflation chart June 2021 – June 2024

UK interest rate and inflation chart June 2021 – June 2024
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UK hits 2% Bank of England’s inflation target for the first time since 2021

THERE ARE TWO I'S IN INFLATION!

Inflation has reached the Bank of England’s target for the first time in nearly three years, having soared to 11.1% in October 2022, the highest in over four decades – driven by a spike in energy and food prices following the pandemic and Russia’s invasion of Ukraine.

In the year leading up to May 2024, prices increased by 2%, a decrease from the 2.3% rise in the previous month, according to official statistics.

The economy remains a central issue in the lead-up to the general election on July 4th, with all major parties discussing strategies to manage the cost of living.

This discussion precedes the Bank of England’s upcoming decision on UK interest rates this due on 20th June 2024.

The bank is anticipated to maintain the rate at 5.25% – a peak not seen in 16 years – for the seventh consecutive meeting, with the market not expecting a reduction until August 2024.

The decline in May’s inflation rate was attributed to slower price increases for food and soft drinks, recreation and culture, and furniture and household items.

Fuel pump prices remain high.

The inflation target has been achieved – it must be time for a reduction in interest rates.

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UK GDP flatlines – not so helpful for Sunak and his election campaign

UK GDP slows

In April 2024, the U.K.’s economic growth came to a standstill, figures released on Wednesday 12th June 2024 indicated, putting a pause on the subdued recovery from the previous year’s recession just weeks before the UK election.

Analysts had anticipated growth a levelling off following a 0.4% expansion in March 2024.

Over a longer period however, the outlook was slightly more positive, with a 0.7% increase in gross domestic product (GDP) in the three months leading up to April 2024.

The construction sector saw a 1.4% decrease, marking its third consecutive decline, and production output fell by 0.9%. However, the U.K.’s dominant service sector witnessed growth, with a 0.2% increase.

The UK had managed modest growth each month in the first quarter of the 2024 as the country emerged from a mild short technical recession.