Observe. Think. Chat. Do. Trade. Repeat…
This surge followed a rally in U.S. Big Tech stocks, fueled by optimism over a potential Federal Reserve rate cut moving ever closer.
The Nikkei climbed almost 1% to close at 42,224 driven by gains in technology shares, while the comprehensive Topix index advanced to finish at 2,929.
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.
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.
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.
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.
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.
Asia-Pacific markets witnessed highs on Tuesday 8th July 2024, mirroring the gains on Wall Street where the S&P 500 and the Nasdaq Composite ended at record highs. India’s Nifty 50 index also hit an all-time high of 24401.2
Investors are anticipating the forthcoming U.S. consumer price index release to discern the Federal Reserve’s direction on interest rates.
Pundits have moved this year from four 0.25% rate reductions to one and now maybe to two with the first in September 2024. The Fed trickles decisions out from its fickle stance and each time the markets move in anticipation like a lap dog eagerly awaiting a pat. It almost doesn’t matter what the Fed does – markets want to go up. However, a rate reduction and good economic and earnings news will drive the markets even higher, for a while.
Markets are currently anticipating earnings reports. The Federal Reserve, having considered the latest economic reports, has influenced the markets with a mix of indifferent decisions. AI and technology have significantly shifted the stock market landscape, with the potential for further growth – provided that earnings sustain the pace of AI investments and expenses.
Both the S&P 500 and the Nasdaq Composite achieved record highs again overnight, alongside Japan’s Nikkei and Topix reaching new highs too.
The Nikkei 225 climbed to settle at 41580.17 after hitting a new high of 41769.35. The Topix also gained, closing at 2895.55, having touched a peak of 2907.21.
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%.
Tungsten has the highest melting point among all metals, which makes it exceptionally suitable for high-temperature applications.
Tungsten is used in many industries where hardness, high density, high wear resistance, and high-temperature resistance are required. This includes mining, construction, energy generation, electronics, aerospace, and defence sectors. It is used in weapons, autos, electric car batteries, semiconductors and industrial machinery.
Metals are frequently alloyed with Tungsten to enhance their strength without substantially adding to their weight. This property is vital for uses like arc-welding electrodes and heating elements in high-temperature furnaces.
Tungsten is acknowledged as a critical metal because of its economic significance and the scarcity of its sources. It is reported that China produces the majority of the world’s tungsten, controlling approximately 80% of the supply of this rare earth metal.
Tungsten’s durability, flexibility, and resistance to corrosion contribute to its popularity across various industries and applications. It ranks among the hardest and most resilient materials found in nature.
These characteristics render tungsten not just crucial but also indispensable for numerous high-tech applications. The rarity of tungsten and the intricate nature of its extraction and refinement processes enhance its value even further.
According to Statista.com the global tungsten market was valued at over $5 billion USD in 2022. It’s projected to grow significantly, with estimates suggesting it could reach over $9.5 billion USD by 2030
The leisure and hospitality sector led the way with 63,000 new jobs, marking the largest increase among the categories tracked by the payroll processing firm ADP.
U.S. age growth slowed to 4.9% year-on-year, the smallest rise since August 2021.
Markets generally shrugged off the lacklustre figures as Tech and AI driven indices continued their march to achieve ever higher positions.
“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
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.
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.
Chinese brands such as BYD now at the forefront, reportedly sold 13.4 million new vehicles last year. In comparison, American brands sold approximately 11.9 million units. Japanese brands remained at the top with 23.59 million sales.
China’s sales growth rate surpassed that of the U.S., with a 23% rise from the previous year compared to the U.S.’s 9% increase.
The consistent high pricing by legacy automakers has inadvertently steered consumers towards more affordable Chinese alternatives.
No surprise here then as manufacturers milked profits from legacy lineups!
Tariffs have now been introduced on China to curb their automakers runaway success.
Non-farm payrolls surged by 272,000 for the month – a significant increase from April’s 165,000 and surpassing the consensus forecast of 190,000.
Concurrently, the unemployment rate increased to 4%, marking the first instance it has reached this level since January 2022.
Exports increased by 7.6% in May from the previous year, surpassing the analysts’ expectations of 6% growth. Imports, however, increased by 1.8% during that time, missing forecasts of an expected 4% growth.
According to analysts’ calculations based on official data, China’s imports and exports to the U.S. and EU declined during that period. However, trade with the Association of Southeast Asian Nations (ASEAN) increased, with a 4.1% year-on-year rise in China’s exports to the region from January to May.
China’s exports to Russia decreased, but its imports from Russia grew by 7.5%. Despite trade tensions with the U.S., China’s exports have remained robust, contributing to the country’s overall economic growth.
This expansion occurs as the European Union investigates subsidies provided to Chinese electric vehicle manufacturers, a situation that may lead to the imposition of tariffs.
In May 2024 Nio opened a new EV showroom in Amsterdam, while Xpeng introduced its G9 and G6 sports utility vehicles in France.
Over the years, China’s electric vehicle industry has flourished due to the government’s incentives and support, raising concerns among politicians in Europe and the U.S.
Public marketing campaigns are unfolding against the backdrop of a European Commission investigation into subsidies provided to Chinese electric vehicle manufacturers. The outcome of this inquiry may result in EU tariffs being imposed on Chinese EV imports.
The United States has preempted such measures, with the Biden administration enacting a 100% tariff on Chinese EV imports.
Meanwhile, Chinese EV producers are intensifying their international expansion efforts, aiming to compete with Elon Musk’s Tesla on a global scale and secure an early advantage over traditional car manufacturers.
Following the agreement, firms from various nations, including the UK, China, Canada, the U.S., France, South Korea, and the United Arab Emirates, have pledged to voluntarily commit to the secure development of their cutting-edge AI models.
AI model developers who have not already done so agreed to issue safety frameworks that detail how they will address the challenges posed by their advanced models, including the prevention of technology misuse by malicious entities.
These frameworks will feature ‘red lines’ that tech companies will establish to delineate the types of risks associated with advanced AI systems that are deemed ‘unacceptable.’ These risks encompass, but are not limited to, automated cyberattacks and the potential for bioweapons.
In the event of such dire scenarios, companies have declared their intention to introduce a ‘kill switch’ that would halt the development of their AI models should they be unable to ensure the mitigation of these risks.
“It is unprecedented for so many prominent AI firms from diverse regions of the world to concur on identical commitments regarding AI safety,” Rishi Sunak, the UK Prime Minister reportedly said on Tuesday 21st May 2024.
He further noted that these commitments would guarantee that the world’s foremost AI companies will maintain transparency and accountability concerning their safe AI development strategies.
This agreement builds upon a prior set of pledges made in November 2023 by entities engaged in the creation of generative AI software.
The involved companies have consented to seek feedback on these standards from ‘trusted actors,’ which include their respective national governments when suitable, prior to their publication in anticipation of the forthcoming AI summit – the AI Action Summit scheduled to take place in France in early 2025.
This surge has sparked discussions among government and financial leaders, with a notable Wall Street firm questioning whether the associated costs could threaten the stock market’s upward trend. The Congressional Budget Office projects that the public debt will soon surpass any previously recorded levels relative to GDP.
Federal Reserve Chair Jerome Powell has emphasized the urgency for elected officials to address this issue promptly.
This was predominately due to a recovery in advertising revenue and a surge in demand for its AI-driven cloud products.
The company announced a revenue of 31.51 billion yuan ($4.37 billion) for the quarter ending 31st March 2024, exceeding the average analyst projection of 31.21 billion yuan, according to a latest dataset.
Shares of Baidu listed in the U.S. saw an approximate 3% increase in premarket trading.
The tech giant has been actively enhancing its sales efforts focused on AI-centric products and services.
The Producer Price Index (PPI), which tracks the average trajectory of selling prices received by domestic producers for their output, increased by 0.5% in April. It also showed a 2.2% rise on a year-over-year basis, representing the most significant annual gain.
The rise in services prices was a significant contributor to the overall increase in wholesale inflation, with a 0.6% uptick that represented approximately three-quarters of the total headline gain.
The core PPI, excluding volatile food and energy prices, also experienced a 0.5% increase, surpassing the estimate of 0.2%.
Since Ukraine’s invasion, there has been a roughly 12% drop in trade between the blocs, and foreign direct investments have decreased by 20% compared to those within the bloc’s constituents.
If these divisions persist, the IMF forecasts that the economic impact on global GDP could be as high as 7% in the worst-case scenario.
A senior International Monetary Fund official cautioned on Tuesday, 7th May 2024, that the rift between the U.S. led Western and China-aligned economic blocs endangers global trade cooperation and economic growth.
The unemployment rate increased slightly to 3.9%, contrary to expectations that it would remain at 3.8%. Additionally, a broader measure of unemployment rose to 7.4%, marking the highest rate since November 2021.
In line with recent patterns, the health care sector led job gains with an increase of 56,000. Notable growth was also seen in social assistance (31,000), transportation and warehousing (22,000), and retail (20,000).
In response to the job data update, market traders now anticipate a strong chance of two interest rate reductions by the end of 2024.
Stock markets jumped higher on the news.
The U.S. central bank has decided to maintain interest rates, reasoning a ‘lack of further progress’ in reducing inflation. This leaves the Federal Reserve’s key rate at its highest in over two decades, between 5.25% and 5.5%.
By maintaining high borrowing costs, the Federal Reserve seeks to decelerate the economy and reduce inflationary pressures. However, this also increases the financial burden on businesses due to elevated borrowing expenses and on consumers through higher mortgage and loan payments.
However, as U.S. inflation remains more stubborn than anticipated (and that is being generous), the Fed is now being closely scrutinized over its forthcoming actions.
Analysts, who had predicted rate reductions early this year, have had to delay their projections, with some even suggesting a potential rate hike.
Following the declaration, the Fed Chair reportedly expressed his belief that a rate hike is ‘unlikely,’ reiterating the need for more assurance of subsiding inflation before considering a reduction.
‘The decision will truly be data-dependent; it’s going to take longer to reach that point of comfort. I don’t know how long it will take’, he reportedly stated.
The battle against inflation persists, gradually impacting the U.S. economy and presenting substantial challenges for the Federal Reserve.
Despite concerted efforts to control it, inflation remains stubbornly remains, leaving policymakers in a dilemma – to stimulate economic growth or to curb spiraling prices.
Recent data presents a concerning scenario. Indexes from the Commerce Department, used by the Federal Reserve as indicators of inflation, reveal that prices are rising at a rate significantly exceeding the central bank’s annual target of 2%. Consumer spending persists, encouraged by the excessive amount of money circulating in the financial system.
However, this spending spree isn’t sustainable, and consumers are dipping into their savings to fund purchases. The personal savings rate has plummeted to its lowest level since October 2022. Borrowing is up and debt is far too high!
The Federal Reserve’s primary inflation gauge, the personal consumption expenditures price index, rose to 2.7% in March, encompassing all items. The crucial core index, excluding the more volatile food and energy prices, remained constant at 2.8%. These figures highlight the ongoing inflationary pressures.
The Federal Reserve is navigating a precarious inflation situation. Should it shift towards rate reductions prematurely, there’s a risk that inflation might surge back in 2024. Conversely, persistent inflation could compel central bankers to not only sustain the present rates but also ponder additional increases. The aspiration for a gentle economic descent is at stake.
Forecasters anticipate inflation to dip below 2.5% in 2024, yet challenges persist. The Federal Reserve faces the difficult task of steering the economy towards stability and controlling inflation expectations. With the central bank’s policy meeting on the horizon, speculation abounds regarding their forthcoming strategy.
Will they maintain the current interest rates or implement more assertive measures? Their decision is set to influence the economic outlook for the foreseeable future.
U.S. inflation continues to be a persistent challenge, and the Federal Reserve’s efforts are ongoing. The path forward demands cautious steering, as policymakers must achieve a fine equilibrium to sustain economic stability while simultaneously curbing inflation.
And remember, the Fed said inflation was ‘transitory’.
The personal consumption expenditures (PCE) price index, crucial for the Federal Reserve’s inflation assessments, climbed at an annualised rate of 3.4% for the quarter, marking the largest increase in a year.
Meanwhile, consumer spending rose by 2.5% during the quarter, a decrease from the 3.3% rise in the previous quarter and falling short of the 3% expectation.
According to the latest World Economic Outlook released by the IMF, Russia’s economy is projected to expand by 3.2% in 2024.
This growth outpaces the anticipated growth rates for the U.S. at 2.7%, the U.K. at 0.5%, Germany at 0.2%, and France at 0.7%.
The forecast may be galling for Western countries that have endeavoured to economically isolate, restrict and punish Russia for its invasion of Ukraine in 2022.
Russia has demonstrated that Western sanctions on its industries have made it more self-sufficient and that private consumption and domestic investment remain resilient.
Oil and commodity exports to nations such as India and China, (two of the largest countries in the world by population) – as well as alleged sanction evasion and high oil prices, have allowed Russia to maintain strong oil export incomes streams.
Outside of Russia, the IMF has revised its forecasts for Europe and the UK, projecting a growth of 0.5% for this year. This positions the UK as the second-lowest performer within the G7 group of advanced economies, trailing behind Germany.
The G7 also includes France, Italy, Japan, Canada and the U.S.
However, UK growth is expected to improve to 1.5% in 2025, placing the UK in the top three best G7 performers, according to the IMF.
The IMF also reported said that interest rates in the UK will remain higher than other advanced nations, close to 4% until 2029.
This measure tracks services inflation, excluding food, energy, and housing, which has recently surged, rising 4.8% year-over-year in March 2024 and over 8% on a three-month annualised basis.
The situation is further complicated as some of the most persistent elements of services inflation include essential household expenses such as car and housing insurance, along with property taxes. Wall Street was unsettled by a recent consumer price index report that exceeded expectations, yet the focus is on the ‘supercore’ inflation reading within the data.
Economists also analysed the core CPI, which omits the volatile prices of food and energy, to discern the true inflation trend. The ‘supercore’ gauge goes a step further by also removing shelter and rent costs from its services calculation.
Federal Reserve officials find this measure particularly useful in the current environment, viewing the spike in housing inflation as a transient issue rather than a reliable indicator of underlying price trends.
Supercore inflation accelerated to a 4.8% pace year over year in March 2024, the highest in 11 months.
Adding complexity to the situation is the declining consumer savings rate coupled with rising borrowing costs, which may compel the central bank to maintain a restrictive monetary policy “until something breaks,” according to Fitzpatrick.
Analysts warn that the Federal Reserve may struggle to reduce inflation through additional rate hikes, as the prevailing factors are more persistent and less responsive to stringent monetary policy.