Nkunzi Capital

20/12/2023

The S&P 500 Index ($SPX) (SPY) today is down -1.02%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.83%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.13%.

Stocks are lower on economic concerns due to weak profit results from FedEx, seen as a bellwether for the economic outlook. FedEx is down more than -10% after reporting Q2 EPS below consensus.

U.S. weekly MBA mortgage applications fell -1.5% for the week ended Dec 15. The home purchase sub-index fell -0.6%, and the refinancing sub-index fell -1.8%. The average 30-year fixed rate mortgage fell -24 bp to 6.83%, a 6-month low.

U.S. Nov existing home sales unexpectedly rose +0.8% m/m to 3.82 million, stronger than expectations of a decline to 3.78 million.

The Conference Board U.S. Dec consumer confidence index rose +9.7 to a 5-month high of 110.7, stronger than expectations of 104.5.

The markets are discounting the chances for a -25 bp rate cut at 12% at the next FOMC meeting on Jan 30-31 and 87% at the following meeting on March 19-20.

U.S. and European government bond yields today are lower. The 10-year T-note yield fell to a 4-3/4 month low of 3.870% and is down -2.1 bp at 3.911%. The 10-year German bund yield dropped to a 9-month low of 1.954% and is down -3.7 bp at 1.979%. The 10-year UK gilt yield fell to an 8-1/4 month low of 3.520% and is down -10.6 bp at 3.547%.

18/12/2023

Asian shares were mostly lower on Monday as the Bank of Japan began a 2-day meeting that is being watched for hints of a change to the central bank’s longstanding near-zero interest rate policy.

U.S. futures and oil prices gained.

Investors have been speculating for months that rising prices would push Japan's central bank to finally shift away from its lavishly lax monetary policy. But the meeting that ends Tuesday is not expected to result in a major change.

Tokyo's Nikkei 225 index lost 0.8% to 32,708.35, while the U.S. dollar edged higher against the Japanese yen, rising to 142.20 from 142.11.

The BOJ has kept its benchmark rate at minus 0.1% for a decade, hoping to goose investments and borrowing to help drive sustained strong growth. One aim is to get inflation to a target of 2%. But while inflation has risen, wages have failed to keep up, and central bank Gov. Kazuo Ueda has remained cautious about major moves at a time of deep uncertainty about the outlook for the global economy.

Renewed selling of property shares pulled Chinese stocks lower.

Hong Kong's Hang Seng lost 0.9% to 16,633.98 and the Shanghai Composite index edged 0.1% lower to 2,938.79.

Debt-laded developer Country Garden lost 2.4%, while China Evergrande declined 1.3%. Sino-Ocean Group Holding shed 2.2%.

Elsewhere in Asia, Australia's S&P/ASX 200 declined 0.3% to 7,420.30. South Korea's Kospi added 0.2% to 2,569.40 and Bangkok's SET was down 0.2%.

On Friday, the S&P 500 finished down less than 0.1% at 4,719.19. But it’s still hanging within 1.6% of its all-time high set early last year, and it closed out a seventh straight winning week for its longest such streak in six years.

The Dow Jones Industrial Average, which tracks a smaller slice of the U.S. stock market, rose 0.2% to 37,305.16 and set a record for a third straight day. The Nasdaq composite climbed 0.4% to 14,813.92.

16/12/2023

NEW YORK (AP) — Wall Street drifted through mixed trading on Friday to put a quiet end to another rocking week.

The S&P 500 finished nearly unchanged for the day, down 0.36, or less than 0.1%, at 4,719.19. But it’s still hanging within 1.6% of its all-time high set early last year, and it closed out a seventh straight winning week for its longest such streak in six years.

The Dow Jones Industrial Average, which tracks a smaller slice of the U.S. stock market, rose 56.81 points, or 0.2%, to 37,305.16 and set a record for the third straight day. The Nasdaq composite climbed 52.36, or 0.4%, to 14,813.92.

Costco helped lead the market with a 4.4% gain. It reported stronger results for the latest quarter than analysts expected and said it will send $6.7 billion in cash to its shareholders through a special $15 dividend. That helped offset a 3.6% slump for Lennar. The homebuilder reported stronger profit than analysts expected for the latest quarter, but it also gave a forecast for a measure of profitability in the current quarter that fell shy of analysts’ estimates.

Stocks overall bolted higher this week after the Federal Reserve seemed to give a nod toward the hopes that have sent Wall Street screaming higher since Halloween. Fed Chair Jerome Powell at a press conference on Wednesday did not forcefully push back on traders’ expectations that inflation has cooled enough for the central bank to shift to cutting interest rates after yanking them dramatically higher since early last year.

The S&P 500 has jumped roughly 15% since late October on rising hopes for just such a pivot. Lower rates not only give a boost to prices for all kinds of investments, they also relax the pressure on the economy and the financial system.

Hopes for several cuts to rates from the Fed in 2024 have sent Treasury yields tumbling in the bond market, which in turn releases pressure on the stock market.

The 10-year yield eased further on Friday. It slipped to 3.91% from 3.92% late Thursday. It had been above 5% in October and at its highest since 2007.

With inflation down from its peak, Bank of America is forecasting 152 rate cuts from central banks around the world in 2024. That would be the first year since 2020 that cuts have outpaced hikes.

Of course, some more cautious investors say markets have gotten ahead of themselves in their ebullience. The big moves seem to be predicated on the Federal Reserve pulling off what was considered a nearly impossible task not long ago.

The Fed’s goal has been to slow the economy and grind down prices for investments enough through high interest rates to get inflation under control. It then has to loosen the brakes at the exact right time. If it waits too long, the economy could fall into a painful recession. If it moves too early, inflation could reaccelerate and add misery for everyone.

That’s a lot of ifs. Plus, many critics say the number of rate cuts that traders are expecting in 2024 doesn’t seem likely unless the U.S. economy falls into a recession.

With the huge rallies so far, “markets all-in on infallible Fed,” strategist Michael Hartnett wrote in a BofA Global Research report.

Those rallies may also be threatening the futures investors are banking on. Lower Treasury yields and higher stock prices can encourage businesses and households to spend more, which keeps the economy strong but can add upward pressure on inflation.

A preliminary report on Friday indicated growth for U.S. business activity may be ticking higher. It cited “looser financial conditions,” which is another way of describing market movements that could encourage businesses and people to spend more.

“Looser financial conditions have helped boost demand, business activity and employment in the service sector, and have also helped lift future output expectations higher,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Williamson also said a measure of pressure on inflation “remains sticky but at a level which is indicative of” inflation at the consumer level running only modestly above 2%. The Fed's goal is to keep inflation at roughly 2% while maximizing the job market.

In stock markets abroad, Hong Kong’s Hang Seng index jumped 2.4%, with stocks of property developers rising after some Chinese cities eased buying restrictions. The Hong Kong market has been one of the world’s worst this year on worries about property developers and the overall health of the Chinese economy.

Most other markets around the world have been strong in 2023 amid hopes for cooling inflation and anticipation for cuts to interest rates.

16/12/2023

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.52%.

Stocks on Friday finished steady to slightly higher, with the Dow Jones Industrials posting a new record high and the Nasdaq 100 climbing to a 2-year high. Fed comments on Friday dampened Fed rate cut expectations and limited gains in stocks. Also, Friday’s weaker-than-expected U.S. economic reports curbed hopes that the Fed will be able to engineer a soft landing for the U.S. economy. Lower bond yields on Friday were positive for stocks.

The U.S. Dec Empire manufacturing survey general business conditions index fell -23.6 to a 4-month low of -14.5, weaker than expectations of 2.0.

U.S. Nov manufacturing production rose +0.3% m/m, weaker than expectations of +0.5% m/m.

The U.S. Dec S&P manufacturing PMI unexpectedly fell -1.2 to 48.2, weaker than expectations of an increase to 49.5 and the weakest level in 4 months.

New York Fed President Williams said the question now is whether we're sufficiently restrictive. "We aren't really talking about rate cuts" now, and it is "premature" to be thinking about a March rate cut.

Atlanta Fed President Bostic said that policymakers still need "several months" to see enough data and gain confidence that inflation will continue to fall and that he has penciled in two 25 bp rate cuts in the second half of 2024, which is much less than the six 25 bp rate cuts the swaps market has priced in for 2024.

U.S. equity funds recently boosted their buying of stocks. Bank of America said EPFR Global data showed U.S. equity funds reported $25.9 billion of inflows in the week to December 13, the ninth week of inflows and the longest streak in two years.

Market volatility on Friday was higher than normal due to the expiry of monthly and quarterly options and futures contracts, in an event known as triple witching. There was also the rebalancing on Friday of many indexes. According to Tier1Alpha, about $3.1 trillion in notional open interest is scheduled to expire or roll into the new year.

The markets are discounting the chances for a -25 bp rate hike at 12% for the next FOMC meeting on Jan 30-31 and 79% for the following meeting on March 19-20.

U.S. and European government bond yields Friday moved lower. The 10-year T-note yield fell -0.1 bp to 3.920%. The 10-year German bund yield fell to an 8-1/2 month low of 2.007% and finished down -10.3 bp at 2.016%. The 10-year UK gilt yield fell -10.1 bp to 3.687%.

Overseas stock markets Friday settled mixed. The Euro Stoxx 50 closed up +0.23%. China’s Shanghai Composite Index closed down -0.56%. Japan’s Nikkei Stock Index closed up +0.87%.

14/12/2023

London — Oil prices rose on Thursday, extending the previous session’s gains, on a bigger-than-expected weekly withdrawal from US crude storage and a weaker dollar after the US central bank signalled lower borrowing costs for 2024.

Brent futures was up $1, or 1.3%, to $75.26 a barrel as of 9am GMT. US West Texas Intermediate (WTI) crude climbed 80c, or 1.1%, to $70.27.

14/12/2023

The rand extended gains on Thursday, a day after logging its biggest one-day gain against the dollar in a month, further boosting the outlook on inflation.

The rand’s recovery followed broad-based weakness in the dollar after the US Federal Reserve signalled the much-anticipated shift in its policy path, suggesting that its months-long campaign to fight inflation through higher interest rates had run its course...

14/12/2023

The JSE gained the most in over a year on Thursday, boosted by a strong showing for the precious metals and mining, resources and industrial metals indices.

Gold moved back above $2,000 an ounce and the rand recovered to its best level in four weeks as the US dollar eased after investors welcomed the Federal Reserve’s latest statement which signalled at least three rate cuts in 2024. ..

13/12/2023

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) -The Federal Reserve is widely expected on Wednesday to leave interest rates unchanged for a third straight time, but also signal that a pivot to monetary policy easing will neither come soon nor be sharp, even as inflation heads toward the U.S. central bank's 2% goal.

In quarterly economic projections due to be released at the end of a two-day meeting, U.S. central bankers are still likely to pencil in at least a couple of rate cuts by the end of next year, as they seek to strike the right balance between policy that's restrictive enough to slow spending and hiring but not so tight that it sends them into a tailspin.

Fed Chair Jerome Powell, however, is expected in a press conference to emphasize that any cuts in borrowing costs are contingent on further improvement on inflation.

On Wednesday, shortly before Fed officials convened for their final day of policy deliberations for the year, the central bank got just that, with the November read on producer prices signaling inflation is dropping faster than they had expected just three months ago.

"It will be hard for Powell to ignore it," Karim Basta, chief economist at III Capital Management, said of the PPI data, which he estimated puts the Fed's core inflation measure for the most recent three months exactly at its 2% goal.

The Fed chief is scheduled to begin speaking at 2:30 p.m. EST (1930), half an hour after the release of the policy statement and projections. Though the data on Wednesday suggested he could take the moment to declare victory and look ahead to a "soft landing" next year, most analysts think he'll skip a celebration.

"Powell will have to walk a fine line by recognizing the ground gained towards the normalization of the economy while pushing back on the idea of early rate cuts," and even warn that the Fed could yet raise rates again if needed, TD Securities analysts wrote as the Fed meeting got underway on Tuesday.

And, indeed, the economy has normalized a lot. Inflation by the Fed's preferred measure, the personal consumption expenditures price index, dropped to 3% in the latest reading, from more than 7% at its peak in the summer of 2022.

Meanwhile, the unemployment rate in November fell to 3.7%, barely above where it was when the Fed began raising interest rates from the near-zero level in March 2022.

Fed policymakers will give their views on where inflation, unemployment and GDP are likely to be in coming years as part of the updated projections.

A reminder of why Powell may be loathe to signal the end of the Fed's rate hiking campaign came on Tuesday after the Labor Department reported U.S. consumer prices unexpectedly rose and underlying inflation pushed higher in November.

FINANCIAL CONDITIONS

Economists polled by Reuters see the Fed holding its benchmark overnight interest rate steady in the 5.25%-5.50% range until at least July.

Meanwhile, financial markets continue to price in a full percentage point of reductions starting in May.

13/12/2023

Investing.com -- The Federal Reserve is widely tipped to leave interest rates on hold at a 22-year high for a third straight meeting, although observers expect the central bank to temper projections that it will begin to cut borrowing costs early next year.

Following the decision from the rate-setting Federal Open Market Committee at 14:00 ET (19:00 GMT) on Wednesday, markets will be keeping a close eye on a press conference held by Fed Chair Jerome Powell. Powell, who has previously stressed that the Fed will move "carefully" before pivoting away from a more restrictive policy stance, will likely push back against bets that officials will start to lower rates from their current range of 5.25% to 5.50% in the spring.

The Fed could also use the publication of its quarterly "dot plot," a rough outline of officials' rate expectations, to moderate hopes for a rate reduction sometime in the first two quarters of 2024. Some Fed members have suggested that they are starting to ponder whether policy is now sufficiently restrictive to quell inflation, while others have argued that several more months of slowing price growth may be needed before a cut is justified.

The likelihood that the Fed will assume a more hawkish outlook -- and ultimately choose to keep rates higher for a longer period of time -- was bolstered by inflation data earlier this week which showed that price growth, while cooling due in part to falling fuel costs, is still sticky. Easing inflation back down to its 2% target has been the central objective of the Fed's long-standing monetary tightening campaign, and policymakers will need to be confident that prices are on a downward trajectory towards that mark before rolling out a potential policy pivot.

A closely-watched payrolls report last week also found that the U.S. economy added more roles than anticipated in November. The data was interpreted as a sign that the labor market has remained resilient despite the rate-hiking cycle. Such a trend could theoretically lend unwanted upward pressure to wages and, by extension, inflation.

But the numbers still indicated that the Fed may be on track to achieve a so-called "soft landing," in which price gains are successfully tamed without sparking a meltdown in the broader economy. As a result, markets are becoming increasingly convinced that rates have likely peaked.

"Chair Powell and the FOMC post-meeting statement will technically reflect a hiking bias. But not one that is meant to be believed," analysts at Citi said in a note to clients.

According to Investing.com's Fed Rate Monitor Tool , the probability that the Fed will slash rates by a quarter percentage point in March next year stands at just under 43%, while there is a roughly 50% chance of an equally-sized cut in May.

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31/08/2022

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20/05/2022

While the US dollar typically strengthens when a recession is looming, all bets are off once it hits.

That’s according to Goldman Sachs Group Inc strategists including Zach Pandl, co-head of global FX and EM strategy, who cited historical data showing a more mixed performance for the greenback during an economic contraction.

Investors have pivoted to the greenback this year as a go-to haven, with Bloomberg’s dollar index swelling for each of the last six weeks and hitting a two-year high last Thursday. However, with Bloomberg economists ramping up the probability of a recession this year to 30%, that dollar strength could soon be threatened.

A historical guide is a period from 1999 to 2001, when the US economy mirrored current conditions of falling growth stock valuations, an active Federal Reserve and a rich dollar. Right now, the US dollar is currently “highly overvalued” by around 18%, according to the bank.

As Goldman sees it, there are two possible outcomes for the currency in coming weeks: if the global growth outlook improves, it will weaken as investors veer to riskier assets; if the world economy does enter a recession, the dollar’s path is murky.

In the former case, the dollar should be shorted against most currencies, with the bank particularly favoring commodity exporters like the Canadian dollar. In the latter, the Japanese yen will likely outperform the dollar as it usually does well during recessions. The analysts forecast an increase of as much as 20% for the yen if a recession strikes.

“The dollar’s performance in and around recessions is less clear-cut than for other assets — it depends on the exact timing of events across regions, how US asset markets fare compared to others, etc.,” Pandl and others wrote.

To be sure, whether the US will sink into recession is a matter of debate on Wall Street. Goldman’s Senior Chairman Lloyd Blankfein said on CBS’s “Face the Nation” on Sunday it’s a “very, very high risk.”

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19/05/2022