Category Archives: Silver

This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:Stocks finished last week under pressure.They began this week in the same state.When the closing bell rang on Wall Street on Monday, the Nasdaq (^IXIC) had shed 3.4%, deepening losses after tumbling into a correction last week.The benchmark S&P 500 (^GSPC) had lost 3%, while the Dow (^DJI) fell 1,034 points.The stars of the stock market show this year — the Magnificent Seven — lost some $652 billion in market capitalization on Monday alone.Overnight carnage in Asian markets that sent US stock futures off as much as 6% in the predawn hours on Monday created a new strain of worry about the state of yen “carry trade.”The price of cryptocurrencies captured the breadth of the risk-off move in markets, as bitcoin (BTC-USD) and ether (ETH-USD) tumbled toward some of their largest one-week losses since the collapse of FTX. And several US online brokers appeared to struggle with connectivity issues in the early going Monday as investors rushed to check their portfolios — or perhaps move in or out of positions during the early chaos.All manner of market commentators were in full flight on Monday. Some admonished those panicked about a return to prices seen just a few months ago. Others were spiking the football on an overhyped AI trade that appeared to finally be cracking under pressure.Wall Street strategists proffered all manner of explanations, ranging from the unwind of the aforementioned yen carry trade, to Vice President Kamala Harris’s better poll numbers against Donald Trump, to investors simply growing too complacent with concentration in the AI trade and low volatility. Even this weekend’s news that Warren Buffett had trimmed his holdings in Apple got some run as an explanation.But last week’s market turn had a clear catalyst: the Federal Reserve.Federal Reserve Chairman Jerome Powell takes a question from a reporter at a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31, 2024 in Washington, D.C. (Andrew Harnik/Getty Images) (Andrew Harnik via Getty Images)And this remains the cleanest way to understand why the stock market’s year of smooth sailing has come to an abrupt end. When the Fed held interest rates steady last week, investor reactions suggested the central bank had made a policy mistake by not taking the chance to lower rates before the economy showed signs of weakness.A soft July jobs report heightened worries that rather than lowering rates from a position of strength (having tamed inflation without harming the labor market), the Fed would end up cutting from a position of need with the labor market quickly softening.In a press conference last week, Fed Chair Jay Powell repeated the recent slowdown in hiring and uptick in unemployment is a “normalization” of the labor market. Investors appear less convinced.So, with more than six weeks between now and the Fed’s next regularly scheduled policy meeting, markets have been quick to put pressure on the central bank not to miss its next appointment.Talk has quickly shifted from whether the Fed should cut rates on Sept. 18 to by how much the Fed should cut. (50 basis points is the current market expectation.)Some even suggested Monday the Fed might consider cutting interest rates between its scheduled meetings, a move last made during the throes of the pandemic in March 2020.A 15% drop in the Nasdaq would seem to bring with it less urgency. But one can never be too sure.Click here for the latest stock market news and in-depth analysis, including events that move stocksRead the latest financial and business news from Yahoo Finance Continue reading →

(Bloomberg) — Stocks bounced back after selloff that erased about $6.5 trillion from global equity markets in the past few weeks.Most Read from BloombergEquities advanced after the worst S&P 500 rout in almost two years. Buying US shares after a slump of the scale witnessed over the past month has usually been profitable, according to Goldman Sachs Group Inc.’s. Since 1980, the US benchmark gauge has generated a median return of 6% in the three months that followed a 5% decline from a recent high.US Treasuries fell as demand for haven assets waned globally, with the market now turning to a $58 billion auction as the next test of investor appetite. Traders are also rowing back on expectations of deep cuts from the Federal Reserve. Swaps point to about 110 basis points of easing through this year, compared to as much as 150 basis points on Monday.“The Fed worries about systemic risk in financial markets, not disappointed investors,” said David Donabedian at CIBC Private Wealth US. “Thus the Fed is unlikely to change its course of action due to a stock market correction. Are we headed for a near term recession, or are markets overreacting? We believe slower growth is unfolding, not a recession.”The S&P 500 climbed 0.4%. Caterpillar Inc. said it expects its annual profit will be higher than previously projected. Uber Technologies Inc. reported better-than-expected orders in the second quarter. Yum! Brands Inc. posted weaker-than-anticipated sales.Treasury 10-year yields advanced two basis points to 3.81%. The dollar rose 0.3%.Key events this week:China trade, forex reserves, WednesdayUS consumer credit, WednesdayGermany industrial production, ThursdayUS initial jobless claims, ThursdayFed’s Thomas Barkin speaks, ThursdayChina PPI, CPI, FridaySome of the main moves in markets:StocksThe S&P 500 rose 0.4% as of 9:30 a.m. New York timeThe Nasdaq 100 rose 0.5%The Dow Jones Industrial Average fell 0.1%The Stoxx Europe 600 fell 0.4%The MSCI World Index rose 0.4%CurrenciesThe Bloomberg Dollar Spot Index rose 0.3%The euro fell 0.3% to $1.0918The British pound fell 0.7% to $1.2688The Japanese yen fell 0.1% to 144.33 per dollarCryptocurrenciesBitcoin rose 1.6% to $55,281.61Ether rose 1.1% to $2,463.31BondsThe yield on 10-year Treasuries advanced two basis points to 3.81%Germany’s 10-year yield declined five basis points to 2.14%Britain’s 10-year yield was little changed at 3.86%CommoditiesWest Texas Intermediate crude fell 0.9% to $72.29 a barrelSpot gold fell 0.7% to $2,394.21 an ounceThis story was produced with the assistance of Bloomberg Automation.–With assistance from Robert Brand and Aya Wagatsuma.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. Continue reading →

By Amanda CooperLONDON (Reuters) – Global markets have kicked off the week in full selloff mode, with measures of volatility shooting up by the most on record in a single day, while equity futures and cryptocurrencies plummet, reviving memories of past crises.There is no lone trigger for these moves, but data on Friday that showed the U.S. economy did not generate as many jobs as expected in July has been a major catalyst.A rise in Japanese interest rates on July 31 has made bets on a cheap yen – many of which funded purchases of assets with better returns – less profitable. The unwinding of these trades has accelerated the decline across global stocks.Tokyo’s Nikkei index finished Monday with a 12% loss, the largest one-day drop since the aftermath of “Black Monday” in October 1987, when a stock market crash stripped nearly 15% off this index and 20% off the S&P 500.The excess volatility and the brutal nature of the selloff have prompted a number of comparisons with past market storms, – the 1987 Black Monday stock market crash, the global financial crisis of 2008, and the panic that the onset of COVID-19 lock-downs unleashed in 2020.A VOLATILE SITUATIONThe VIX index, which reflects changes in implied volatility on options on the S&P, is starting to signal distress. The index has shot up by 170% since Friday, set for its biggest one-day rise on record, after February 2018’s 115% gain on the back of spiking bond rates and the threat of a surge in inflation.The measure, often referred to as “Wall Street’s fear index”, did not rise that much in a day during the March 2020 COVID crisis – when it posted several 40%-plus daily jumps – or even during the depths of the global financial crisis, when it rose 35% a few days after the U.S. government stepped in to bail out Wall Street.TAKING STOCKThe S&P 500 and the Nasdaq Composite are down around 3% and 3.7% in early trading, respectively. Futures on the two indices fell between 4% and 5% before the market open. Monday’s drop marks a fairly hefty daily decline for the two indexes. The S&P has already lost 9% since hitting a record high on July 16, while the Nasdaq has shed 14% since its record high on July 11.On Oct. 19, 1987 – the Black Monday – the S&P lost 20% in a day, while the Nasdaq shed 11.5%. During the COVID crisis, the S&P lost 12% at one point, while the tech-heavy Nasdaq fell 12%.So the market is a long way from repeating what it has done during past bouts of turmoil.THE HEART OF THE MATTERThe Japanese yen is the star of the currency markets right now. Years of rock-bottom interest rates in Japan encouraged investors to borrow in it in order to fund other positions in a multi-trillion dollar bet known as “carry trades”. Now that Japanese rates are rising, many of those positions are getting closed, meaning that the cash the carry trades generated to buy other assets is now exiting those markets – the technology sector is one of the standout casualties, along with cryptocurrencies.The yen has its own thing going on, thanks in part to authorities in Tokyo stepping in to prop it up when it hit its weakest in 38 years in late July, at 161 to the dollar. It now trades around 142, having strengthened by over 7% in a week.It has also been a traditional safe-haven asset and strengthened around 7% on a weekly basis in both 2008 and in 1998, at the height of the Asian financial crisis. But the current move is likely more linked to an interest-rate play than down to risk appetite.The Swiss franc, a carry-trade funding currency and also a safe haven, has strengthened 4.2% since last Monday. But this kind of move is not uncommon in the currency.GOLD, OR SILVER LINING?Gold has come under pressure, even if it is perceived to be a safe haven. The price has risen by 16.5% so far this year and hit successive record highs. Typically, a lower U.S. rate environment favours gold, but intense volatility means it can get swept lower along with everything else.Back in 2020, gold had been down by 3% on multiple days, while during the financial crisis, it fell by more than 7% in October 2008, as failed bank Lehman Brothers finally imploded.Silver often moves in synch with gold, but lacks the same safe-haven appeal. It is down 5% on Monday, but, much like stocks and gold, this is a relatively modest decline compared with numerous double-digit down-days in 2020 and a near 16% fall in a single day in October 2008.(Reporting by Amanda Cooper; Graphics by Sumanta Sen and Kripa Jayaram; Editing by Tomasz Janowski) Continue reading →

By Harry Robertson and Ankur Banerjee(Reuters) – U.S. Treasury yields tumbled on Monday as traders moved to price in big rate cuts from the Federal Reserve, after weak jobs data stoked worries that the U.S. economy could be heading for a recession.The two-year U.S. Treasury yield, which is sensitive to Fed rate expectations, dropped to 3.691% in European trading, its lowest since May last year. It was last down 10 basis points (bps) at 3.77%.The yield, which moves inversely to the price, plunged 53 bps last week.Friday’s nonfarm payrolls data – which showed the U.S. unemployment rate unexpectedly rose in July and jobs growth slowed – followed a slew of disappointing earnings results from major tech firms, setting off a global stock selloff and driving investors to safe haven assets.Investors are also grappling with a dramatic rally in the Japanese yen which has rocked the country’s markets, helping send the Nikkei 225 stock index down 12.4% on Monday in its biggest one-day drop since 1987. U.S. S&P 500 futures were down 2.7%.The yield on the benchmark U.S. 10-year Treasury note was down 5 bps at 3.742%, having touched a one-year low of 3.678% earlier in the session. The yield sank nearly 40 basis points last week, the largest weekly fall since March 2020.Michael Weidner, co-head of global fixed income at Lazard Asset Management, said the rally in bond markets was being amplified by investors worrying about their positions in tech stocks and by thin summer markets.”The move over the last two days in particular, that’s not as much driven by fundamentals as it is by the correction in U.S. equity markets,” he said.”We believe still that a soft landing (for the economy) is more of a base-case scenario.”Markets are now anticipating around 125 bps of U.S. rate cuts this year, up from around 90 bps on Friday and 50 bps at the start of last week.Traders now think a 50 bp cut in September is a near certainty, according to derivative market pricing.The closely watched U.S. 2-year-to-10-year yield curve narrowed its inversion, to 2 bps, the least since July 2022, reflecting expectations for a sharp easing of short-term yields.(Reporting by Harry Robertson in London and Ankur Banerjee in Singapore; Additional reporting by Chibuike Oguh in New York; Editing by Kirsten Donovan) Continue reading →

caracterdesignIt would be concerning if it weren’t so predictable. When disinflation stalled during the first quarter of this year, the bear camp insisted that the Fed would have to keep short-term interest rates higher for longer. They raised doubts about any rate cuts this year, due to “sticky” inflation and an economy that was far too strong. The signs that growth would slow, and that the disinflationary trend had reasserted itself were clear then, but not convenient for those who had a more negative outlook for the markets and economy. Fast-forward to today, when both have come to pass, and the bearish narrative has pivoted to assert that the Fed has waited too long. Overnight, the economy is weakening so rapidly that a recession may have already started, and the summer pullback in stock prices is the beginning of a bear market. I could not disagree more, so let me persuade you otherwise, as I warned several months ago that fearmongering about inflation fears would shift to warnings about economic growth on the cusp of the Fed’s first rate cut. Finviz On Wednesday, investors celebrated the fact that Chairman Powell did not push back on market expectations for rate cuts to begin in September, and the major market averages soared. Yesterday, the major market averages gave back all those gains, plunging over concerns that the Fed did not cut rates this week. Bond yields also plunged, with the 10-year Treasury yield (US10Y) falling below 4%, while the 2-year (US2Y) fell to just 4.16% in response to two economic reports that were weaker than expected. Bloomberg Initial unemployment claims rose last week by 14,000 to 249,000, which was 5% above the four-week moving average of 235,000 and the highest number since last summer. Additionally, continuing claims rose by 33,000 to 1.877 million. This caused major concerns, but claims have been rising, as we should expect with a softening economy, which is necessary to bring the rate of inflation down to target. Regardless, this number instigated fears that the economy is now weakening too rapidly. DataTrek Those fears were compounded by another dismal reading on the manufacturing sector, which has been idle for months. The ISM Manufacturing Purchasing Managers Index (PMI) fell from 48.5 to 46.6 in July, which takes it back down to levels last seen in October and November of last year. This reflects contraction in the sector, but it only represents 10% of economic activity, and it has been below the 50 level that marks growth for 20 of the past 21 months. I don’t see this as a fresh warning sign of impending doom for the economy. TradingEconomics To the contrary, the S&P Global Services Purchasing Managers Index (PMI) rose to a 28-month high of 55.3 in June, and the service sector dwarfs manufacturing in terms of its importance to the economy. TradingEconomics Lastly, I’d rather focus on real economic activity to gauge strength than the surveys that are conducted. On that note, consider that the four-week average of gasoline demand in the US is running 4% higher than it was a year ago. That is a real-time pulse on consumer activity, and it shows strength rather than weakness. It also falls in line with the service sector survey conducted by S&P Global for July. EIA We are still in the process of a summer pullback instigated by the exodus from overbought technology stocks, due to disappointing earnings reports and outlooks from the Magnificent 7, as well as other AI-fueled momentum plays. This is coming at the same time the Fed is about to ease monetary policy, which is raising fears that the central bank has made a policy mistake and waited too long to ease. Yet, the selloff in technology stocks is not indicative of an economy in trouble, as investors have rotated from growth to value where earnings growth rates are just starting to improve. This morning’s jobs report carries tremendous weight in the short term, given the concerns about economic growth. Yet, this initial estimate of how many jobs were created last month is far less important than the consuming activities of the existing labor force of 168 million. Continue reading →

On Monday, Wall Street was ready to scour remarks from Jerome Powell for hints he might deliver a much-anticipated interest rate cut in September. The hint never came.Today, the stock market is feeling the consequences.This week the Federal Open Market Committee (FOMC) met to discuss the base interest rate, which currently sits at a more than two-decade high.While analysts were largely prepared to hear a cut of the rate—currently targeted at 5.25% to 5.5%—wouldn’t come this month, they were waiting on a veiled nod that the committee’s next meeting would bring such relief next month.Wall Street is hankering after a rate cut for a range of reasons, but the key concern is that if the Fed cuts rates too late — keeping the supply of money too tight for too long — it will stifle consumer spending and business capital expenditure, grinding the economy to a halt and leading to a rise in unemployment.On the flipside, lower rates would mean cheaper borrowing and higher levels of consumer consumption.But instead of Powell dropping hints about a Q3 cut, analysts got a “baby step,” said Santander’s chief U.S. economist, Stephen Stanley.”Chairman Powell emphasized in his press conference that recent data on inflation have ‘added to’ the Fed’s confidence that inflation will return to the 2% target, but the Fed is not there yet,” he wrote in a note seen by Fortune.While the market had priced in a September cut, Stanley believes the news will come in November. “I am skeptical that the key economic data over the next seven weeks are going to add to the FOMC’s confidence,” he wrote.Likewise, Bank of America—even prior to the Fed’s July meeting—is not pricing in a rate cut until December.Yesterday credit strategist Yuri Seliger wrote in a note seen by Fortune that while Powell’s comments “largely agreed” with a September cut, there is a key caveat: that timing is “assuming no big surprises on inflation.”A day prior, Seliger’s colleagues—U.S. economist Michael Gapen, rates strategist Mark Cabana, and FX strategist Alex Cohen—wrote: “In our view, the main message from the July FOMC meeting is that the Fed is getting closer to a rate cut, but needs more evidence that inflation is under control before it does.”[Powell] indicated that there was increased confidence within the committee that a September rate cut could happen, but data between now and then would have to validate the Fed’s expectation. We think the Fed can be patient and wait for more evidence.”The less emphatic evidence of a September cut is likely one of many reasons the global stock market took such a heavy hit over the last few hours.At the time of writing the S&P500 is down 1.4% over the past 24 hours, while the Nasdaq is down 2.3% over the same time period.While some of this slump may be given a lackluster earnings call from Magnificent 7 stock Amazon, traders are also likely getting the creeping sense that the Fed may hang on too long.’Hedging bets is standard practice'”We haven’t made any decisions,” Powell told reporters in a press conference following the FOMC meeting this week. “I don’t know what the data will reveal or how that will affect the appropriate path of our policy.”While such a statement may have taken the wind out of other analysts’ sails, Mike Pugliese, senior economist at Wells Fargo, told Fortune he had a more balanced outlook.”I am confident that the FOMC will cut rates in September,” he said. “It is true that Chair Powell and the rest of the FOMC are hedging their bets, but that is standard practice in this kind of situation. It would be highly unusual for them to explicitly commit to a rate cut a full meeting in advance.”When reading between the lines, the signals were there yesterday, and the recent data for both the labor market and inflation suggest that a rate cut will be warranted at the next meeting.”The stock market’s overnight tumble might look tame compared to the upset that could come in September if the cut doesn’t materialize.”It is hard to speculate on what the impact would be if the Fed did not cut rates in September because we do not have the economic data that will be released between now and then,” Pugliese added. “For example, if the employment reports to be released on August 2 and September 6 are exceptionally strong and the next two CPI reports are also very ‘hot,’ then that would have different implications compared to a scenario where the economic data were generally weak between now and the Sept FOMC meeting but the Committee still chose not to cut rates.”Based on what we know now, no rate cut in September would come as a major surprise to us and to financial markets. Financial conditions likely would tighten if the FOMC adopted an unexpectedly hawkish stance over the next seven weeks.”Over at UBS Brian Rose, senior U.S. economist, is maintaining a milder stance on his previous statement that the market is pricing in “a near-100% chance of a September cut.”Yesterday in a note seen by Fortune, Rose added: “Our view remains that the upcoming data will be soft enough for the Fed to start trimming rates by 25 basis points quarter, but not so bad that they would want to cut at a more aggressive pace. However, risks are asymmetric.”This story was originally featured on Fortune.com Continue reading →

Two separate data releases highlighted signs of softening in the economy on Thursday as the Federal Reserve mulls over when to cut interest rates.Weekly jobless claims once again rose more than expected last week in the latest sign of a cooling labor market. New data from the Department of Labor showed 249,000 initial jobless claims were filed in the week ending July 27, up from 235,000 the week prior and the highest level since August 2023.Meanwhile, the latest reading on activity in US manufacturing showed the sector sank further into contraction during July. The ISM’s manufacturing PMI registered a reading of 46.8 in July, down from June reading of 48.5 and the lowest reading since November 2023.“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions,” Chair of the Institute for Supply Management Timothy Fiore said in a press release.The weaker-than-expected economic data sent the 10-year Treasury yield (^TNX) down about 12 basis points to 3.98%. This marked the first time the 10-year yield has fallen below 4% since February. Meanwhile, all three of the major stock indexes turned lower.”The ongoing deterioration in the economic data as evidenced by today’s rising initial jobless claims, low unit labor costs, and abrupt slowing in global manufacturing activity suggest that we are getting to a point where bad economic news is bad for markets,” Renaissance Macro’s head of economics research Neil Dutta wrote in a note on Thursday. “Until the Fed begins cutting, they are going to look behind the curve. In my view, the upshot is that this is a small policy mistake that can be undone very quickly.”The data comes less than 24 hours after the Fed held interest rates steady at the conclusion of its latest policy meeting. Chair Jerome Powell noted the central bank is still seeking further confidence in inflation’s path lower but also acknowledged a September interest rate cut is “could be on the table.”Powell noted the Fed is now more attentive to not only the risk of inflation not falling, but also the risk of unemployment continuing to tick higher. For now, Powell said the Fed still believes the labor market is in the process of a “gradual normalization.””If we start to see something that looks to be more than that, then we’re well positioned to respond,” Powell said.Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board Building Tuesday, Wednesday, July, 31, 2024, in Washington. (AP Photo/Jose Luis Magana) (ASSOCIATED PRESS)The concern among economists remains that there are already signs of slowing in the labor market that warrant a closer look from the Fed. In Thursday’s ISM report, the employment index tumbled to a reading of 43.4 in July, down from 49.3 in June.Capital Economics North America economist Thomas Ryan wrote in a note on Thursday that the decline in the employment index will likely “raise some eyebrows.” He added, “it suggests there is a risk that the labour market softens beyond the normalisation we have already seen.”Jefferies US Economist Thomas Simons noted that the rate cuts could help the sagging manufacturing sector but “it is looking more and more like it’s going to take more than a handful of 25 basis point moves.”Investors appeared to agree with Simons, as markets are now pricing in a 20% chance of a 50 basis point interest rate cut in September, nearly double the odds seen just a day prior, per the CME FedWatch Tool. Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.Click here for in-depth analysis of the latest stock market news and events moving stock pricesRead the latest financial and business news from Yahoo Finance Continue reading →

It now looks like silver has completed a classic 3-wave correction from its May highs, following its strong advance in the Spring. On its latest 6-month chart we can see that it appears to be conforming to a classic Elliott wave pattern which consists of 5 waves up in the direction of the primary trend, as numbered, followed by a 3-wave correction or reaction that once complete is followed by another series of up waves.

The correction phase is considered to be complete or very close to complete – while it could react back further short-term towards the support level shown in the vicinity of the 200-day moving average which would not cause any technical damage, the overall pattern is strong and given that we will soon enter a seasonally favorable time of year for the Precious Metals, there is a good chance that it won’t react back much further, if at all.

Thursday’s breach of support will have thrown some investors and triggered stops, and may turn out to be the sort of “head fake” that frequently precedes a sizable advance. The dynamic in play here is that “Big Money” whacks the price through a support level to trigger stops and then they mop up the disgorged holdings ahead of renewed advance. If this is what is going on then it is of course very bullish.

So, whilst acknowledging the possibility of a little more downside short-term, the main message here is that silver is now in buying territory again with a major advance to a point way above the May highs on the horizon.

End of update. Continue reading →

(Reuters) -The Federal Reserve held interest rates steady on Wednesday but opened the door to reducing borrowing costs as soon as its next meeting in September as inflation continues coming into line with the U.S. central bank’s 2% target.The central bank’s Federal Open Market Committee ended a two-day policy meeting by keeping its benchmark overnight interest rate in the 5.25%-5.50% range.Inflation, according to the Fed’s statement, was now just “somewhat elevated,” a key downgrade from the assessment that it has used throughout much of its battle against rising prices that inflation was “elevated.”MARKET REACTION:STOCKS: The S&P 500 held a 1.59% gainBONDS: The yield on benchmark U.S. 10-year notes ticked higher but was still down on the day at 4.122%. The 2-year note yield rose to 4.381%FOREX: The dollar index pared a loss to -0.13% with the euro slipping from unchanged to -0.09%COMMENTS:TRAVIS KESHEMBERG, SENIOR PORTFOLIO MANAGER FOR THE SYSTEMATIC EDGE MULTI-ASSET TEAM, ALLSPRING GLOBAL INVESTMENTS, SAN FRANCISCO“Our base case is for the Fed to make its first cut in September and remain neutral from a forward guidance perspective, analyzing incoming data to inform future rate-cut decisions. Growth and jobs are not yet at a point that justifies a prolonged cutting cycle and less-restrictive monetary policy. We expect to see conditions deteriorate and thereby support further rate cuts later in the fourth quarter of 2024.“We continue to favor bonds, which benefit from moderating growth and moderating inflation, particularly internationally. We also continue to like equities. We expect broadening of the equity rally, and any relief from perceived looser monetary policy would likely support equity prices in the medium term.“Geopolitical uncertainty in the U.S. has increased in July, and we expect the Fed will take this situation into account in its decision-making.”DON CALCAGNI, CHIEF INVESTMENT OFFICER, MERCER ADVISORS, DENVER, COLORADO”It’s certainly what the market expected which is the right thing for the Fed to do, to sit tight.””They’re not telling you timing. What I’m seeing here is the Fed acknowledging that the risks are balancing … if you were going to make a case to cut rates, those are the data points you better cite in order to manage market expectations.””The fact that they are emphasizing that data in their communications, tells me that we’re closer to interest rate cuts in the future and the next meeting naturally would be September.””The market reaction is positive. The expectation coming into today was that the Fed is going to signal it’s closer to cutting rates. The Fed today delivered everything the market expected. There’s nothing here that in any way suggests the Fed delivered anything other than what the market expected.”JEFFREY ROACH, CHIEF ECONOMIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA (in an email)”The Fed used today’s statement to prepare markets for upcoming rate cuts. As inflation rates improve and unemployment increases, the Fed can cut rates yet keep the nominal funds rate above the inflation rate. Markets will likely respond favorably to the subtle shift in tone.”BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“The Fed is tiptoeing towards being confident enough to cut. Adding that they are attentive to the risks to both sides of their dual mandate tees them up to cut in September if the next two CPI reports are well-behaved.”JAKE DOLLARHIDE, CEO, LONGBOW ASSET MANAGEMENT, TULSA, OKLAHOMA“It was the worst kept secret on the planet that the Fed was not going to cut in July. The Fed is going to have its day in the sun in September with a 25 or 50 basis point cut, but I would not be surprised if that is already priced into stocks. We may actually see the market down significantly the day the Fed actually cuts rates in September.”MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING AT TRANSUNION IN CHICAGO (in an email )“There continues to be positive indicators that this may be the last meeting before we see an interest rate reduction at the next Fed meeting in September, with the possibility of a second rate reduction for 2024 still on the table.“As it applies to consumer demand for credit around large purchases such as homes and autos, this will likely begin to increase if, and when rates eventually begin to fall. Indeed, we are even seeing some early indicators that consumers are becoming more interested in new mortgages. Until rates do drop meaningfully, however, consumers should continue to use credit wisely and only to the extent that they know they can make their minimum monthly payments on.”(Compiled by the Global Finance & Markets Breaking News team) Continue reading →

MicroStockHubBy Kevin Flanagan Once again, the Fed kept rates unchanged at the July FOMC meeting. As a result, the Fed Funds trading range remains in the 5.25%–5.50% band that was introduced exactly a year ago and still resides at a more than 20-year high watermark. For those keeping track, this represents the eighth consecutive FOMC meeting where the policy maker decided to take no action on the rate front. However, if the inflation and labor market data continue to “cooperate,” this may be the last meeting where rates are left unchanged, with expectations for the first rate cut building for the next FOMC gathering in September. This is exactly where U.S. monetary policy appears to be pivoting. While not explicitly stating that a rate cut is forthcoming at the September FOMC meeting, the voting members seem to be guiding the money and bond markets in that direction. Specifically, the FOMC is highlighting the Fed’s dual mandate of inflation and employment rather than solely centering on progress on the price pressure front. Indeed, the emphasis on “balance” when it comes to the risks going forward is the Committee’s way of providing forward guidance on the potential for a rate cut. Another rather important aspect of Fed signaling is Chairman Powell’s continued use of the notion of being “confident.” In other words, the renewed trend toward disinflation that became evident in the second quarter is providing the springboard for cutting rates without fear of easing policy too soon. By adding the employment aspect back into the equation, the Fed has reintroduced the concept that future decision-making is now data-dependent on not just inflation reports but upcoming labor market data as well. This is where things could get interesting. At the June FOMC meeting, policy makers dialed back their “dot plot” to show a forecast of only one rate cut rather than the three cuts that were in place beforehand. The release of better-than-expected CPI (and core PCE readings) rendered this “new” dot plot as being almost immediately obsolete. To be sure, heading into the July policy meeting, implied probabilities for Fed Funds Futures were now showing an expectation of moving toward three rate cuts in 2024. In fact, once we get that first rate cut out of the way, I continue to emphasize that the central part of the investment landscape going forward will quickly turn to what type of rate-cutting cycle this will look like. If future economic data (think labor markets) does not reveal any signs of visible weakening, then this easing episode will be based on the concept that the current restrictive policy stance is no longer warranted because of the progress on inflation. This backdrop would more than likely result in a more deliberate rate-cutting phase. However, if the Fed were to see higher unemployment rates and continued disinflation in the months ahead, this would arguably create the environment for a more aggressive easing stance. The Bottom Line An overarching theme from Powell & Co. in public appearances has been that while rate cuts seem like a reasonable case scenario in the months ahead, Fed officials would still like to see “more data” to get them over that final hurdle. If upcoming data does continue to “cooperate,” it is possible that Chairman Powell could provide such forward guidance at the Kansas City Fed’s Jackson Hole Symposium in the second half of August. There are risks involved with investing, including possible loss of principal. Foreign investing involves currency, political and economic risk. 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WisdomTree Funds are distributed by Foreside Fund Services, LLC, in the U.S. only. You cannot invest directly in an index. Kevin Flanagan, Head of Fixed Income Strategy As part of WisdomTree’s Investment Strategy group, Kevin serves as Head of Fixed Income Strategy. In this role, he contributes to the asset allocation team, writes fixed income-related content and travels with the sales team, conducting client-facing meetings and providing expertise on WisdomTree’s existing and future bond ETFs. In addition, Kevin works closely with the fixed income team. Prior to joining WisdomTree, Kevin spent 30 years at Morgan Stanley, where he was Managing Director and Chief Fixed Income Strategist for Wealth Management. He was responsible for tactical and strategic recommendations and created asset allocation models for fixed income securities. He was a contributor to the Morgan Stanley Wealth Management Global Investment Committee, primary author of Morgan Stanley Wealth Management’s monthly and weekly fixed income publications, and collaborated with the firm’s Research and Consulting Group Divisions to build ETF and fund manager asset allocation models. Kevin has an MBA from Pace University’s Lubin Graduate School of Business, and a B.S in Finance from Fairfield University. Original Post Continue reading →

tadamichiThe US stock market is on a tear. Since the start of this year, January 2024, the Dow Jones , S&P 500, and Nasdaq have each repeatedly set new all-time records. Indeed, the trend in stocks has been strongly upward for the last two or three years. For instance, the S&P 500 is about 40% above where it was in January 2021, when Joe Biden became President [43% higher]. The price of gold has also shown a strong upward trend, reaching $2,470 an ounce on July 17, the highest in history. Why are these assets so elevated? The stock market and gold An increase in perceptions of risk due to recent political and geopolitical uncertainty, could explain the rising gold price. But it cannot explain the stock market. Anyway, the VIX has been declining during this period, not rising. That could explain the stock market, but not the price of gold. Prices for chip-maker Nvidia and other high-tech stocks have risen the most rapidly and have gotten the most attention, particularly inspired by the rapid emergence of artificial intelligence since late 2022. But even the rest of the stock market, with tech companies excluded, has seen a steady rise in prices. Prospects of an easier monetary policy in the future could, in principle, explain both the high stock market and the high gold price. It is well known that the stock market depends inversely on the interest rate, holding other things constant. One way to think about it is that an increase in the interest rate reduces the presented discounted value of future corporate earnings. (Another way to think about is that an increase in the interest rate induces investors to shift out of equities and into bonds.) Conversely, lower interest rates would explain the higher stock market. The real price of gold also depends inversely on the real interest rate, both in theory and practice. Prospects of easier monetary policy should raise demand for gold. But interest rates, including long-term rates, rose during this period, which works to lower stock prices and commodity prices, not to raise them. So, where should we look to explain recent financial markets, the rise in real interest rates that has taken place over the last two to three years, or the likely prospects of reductions in the near future? For an answer, let’s turn to the foreign exchange market. The foreign exchange market The foreign exchange market provides the most convincing evidence that recent movements in financial markets have come at a time when monetary policy is, if anything, tighter than had been expected two or three years ago, not looser. The dollar is 14% stronger than it was three years ago [=log 117/102, for the index of advanced-country currencies.]. If real interest rates during this period were low or expected to fall, the currency should be weaker, not stronger. One explanation that has been given for the run-up in gold prices is that many countries are diversifying out of dollars and into gold. This is likely to be especially true of the People’s Bank of China and other central banks of countries that don’t have good geopolitical relations with the US (for example, as reflected in voting patterns in the UN) and thus may fear future sanctions. But, again, the foreign exchange value of the dollar should have been weakening, if that were the explanation, which it is not. Furthermore, recent econometric evidence shows surprisingly little support for the hypothesis that geopolitical disaffection vis-vis the US is driving the global shift out of dollars. GDP growth can explain it all What can explain simultaneously high prices in all three markets, gold, stocks, and the dollar? The answer is strong demand for these three assets coming from a strong US real economy. Two or three years ago, professional forecasters as well as the general public thought there was a high chance of recession in the near future, if indeed the economy was not already in one. But, contrary to those expectations, real GDP over this period has continued to grow. Admittedly, in the case of the price of gold, one should look at global growth, not US growth. (Growth in Europe and China has lagged; but the IMF says that global output gaps are now closing in these places.) US consumer demand has been strong. Growth in 2021 and 2022 was boosted by the CHIPS Act, Infrastructure Investment Act and the Inflation Reduction Act. Members of neither political party are prepared to reverse the fiscal expansion in order to confront the rising national debt. And a global safe-haven demand for US assets, so far, has continued as strong as ever. True, US economic growth, registering 2.5% in 2023, has slowed relative to the rapid pace of 2021. But it is still higher than has been usual so far this century. (The average GDP growth rate since 2001 was 2.0%.) And, most relevant for asset prices during this period, economic activity has been stronger than had been expected at the beginning of Biden’s term. Not only was growth in 2021 unusually high, but observers’ forecasts that growth would disappear in 2022 and again in 2023 were repeatedly surprised on the upside. The advance GDP estimate for the 2nd quarter of 2024 last week came out, yet again, stronger than expected: a growth rate of 2.8% per annum. Presumably, each time that economic activity was higher than expected, the demand for American stocks, gold, and the dollar rose. This would explain the upward trends in all three sorts of assets. Whether this pattern of strength will continue after the November presidential election is anyone’s guess. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →