March 22, 2018
Asian markets have been mixed following the Federal Reserve's rate hike. The U.S. Dollar is dropping and the Pound reaches a seven-week high before the Bank of England announcement
Asian markets traded mixed on Thursday, March 22, in what turned out to be a hectic session after the U.S. Federal Reserve raised interest rates for the first time this year.
The Japanese Nikkei 225 was up 0.74%. South Korea's Kospi benchmark rose by 0.6 per cent. China's markets gave up initial gains and the Hang Seng index declined by 0.63 percent. Most of the sectors fell, with the technology sector being the worst, although oil producers reaffirmed their position. The S&P/ASX 200 fell by 0.26 percent in a session that saw widespread declines less in the energy, materials and gold producing sectors.
The rates have been raised, as expected, and this was heavily discounted. The decision was taken unanimously. The market here was hesitant, but it remains at three total rises in the year. By 2019, the average projection rate will rise three more times.
The Federal Reserve is changing the outlook for inflation by raising it to a 'moderate pace', as it used to say at a 'solid pace'. As for economic growth, it now says 'moderate pace', whereas until now it said 'solid pace'. These two nuances are important.
The Dollar accelerates losses when Powell says he doesn't see clear inflation gains easily. Market interpretation is confused and the dollar is weakening. However, the yield on the 10-year U.S. bond was tightened to 2.93%, while the stock market rose. All at once is impossible.
It seems that the statement has definitely been taken as less harsh, given Powell's doubts about inflation growth. The dollar's decline seems to be exaggerated, but the market is in control. Powell doesn't expect the labour market to slacken. He has also been asked about Trump's issue and has answered that he doubts that changes in U.S. trade policy will affect his economy.
Oil prices held firm during Thursday's Asian session. They were driven by a surprise drop in U.S. crude oil inventories, as well as continued supply cuts led by OPEC. Nevertheless, the relentless increase in U.S. oil production threatens to undermine efforts to adjust the market.
Gold rose sharply on Thursday, adding to the gains made in the previous session after the U.S. Federal Reserve partially disappointed investors.
European markets are expected to open lower on Thursday.
Cycle of interest rate hikes
Cycle of interest rate hikes threatening to accelerate more than expected.
The downside is the implementation, within a few days, of the tariffs by the United States. They are going to provoke reprisals of the same magnitude from other countries. Specifically, the tariffs to China are expected to be made public on Friday.
China has everything ready to shoot with the same cannon, but with a little more mischief. The U.S. products they want to harm are part of Donald Trump's voting barn.
Technology has been the focus of attention on Wednesday, March 21, because Facebook has had a hard time getting in slightly positive. Criticisms continue to mount, not only about its management of its users' data, but as a real problem for global stability. It is being used as a double-edged sword that the company's managers are unable to control what they have created.
The United States has been able to breathe a little, thanks to the fact that crude oil has reached its peak of several weeks ago, reaching almost 65 dollars a barrel, due to a further reduction in weekly crude oil reserves.
Pound Reacts Strongly to UK Unemployment Data. Unemployment in February rose by 9,200 people in the UK, reversing the 1,600 drop from the previous month and much worse than expected which was a reduction of 3,100.
The Weidmann and Guindos tandem makes for a more aggressive rate increase than the discounted rate increase
The General Council of the European Central Bank will meet on Thursday in Frankfurt. A meeting that will have on the table the candidacy of Luis de Guindos, who is supported by Germany.
Analysts believe that Spain will support the German Jens Weidmann for the presidency of the bank.
The German-Spanish alliance at the European Central Bank will continue, as we do not see a high probability of elections in Spain before June 2019 or of Germany sacrificing its candidate for the presidency of this institution.
Experts improve German GDP forecast, but warn of U.S. tariffs
The German government's council of experts, the 'Five Wise Men', slightly raised their economic growth forecasts for Germany as a result of an improvement in the international situation.
However, they warned about the new uncertainty factor arising from the new US tariff measures.
Brussels presents its plan to tax technology in the midst of a tax battle with the United States
The European Commission adopts a proposal to tax the sales of the giants of the digital economy.
The measure would mainly affect US companies such as Google, Facebook, Apple or Amazon and comes in the middle of a commercial and fiscal battle between Washington and Brussels.
The EU executive proposes a tax of between 1% and 5% on the turnover of any multinational in the digital economy. It should be remembered that they have overall sales of EUR 750 million and EUR 50 million in the European Union.
However, it recommends that this be 3%, which, according to its estimates, would raise 4.8 billion euros.
The aim would be to temporarily correct what in Brussels is considered an anomaly, as digital ecosystem companies pay an effective corporate tax rate of 9.5%, compared to 23% for traditional firms.
The Big Mac index has become a global standard
The Big Mac Index is an index published by The Economist magazine. It is based on non-scientific research to compare the purchasing power of different countries where McDonald's Big Mac burgers are sold.
The index bases its system on the theory of purchasing power parity, which supports the concept that 'the dollar should buy the same amount of goods or services in all countries'.
The purpose of the index is to compare the cost of living in the countries where the Big Mac burger is sold, using the reference sales value of the Big Mac burger. It also establishes whether local currencies are overvalued in relation to the US dollar.
The fact is that this index has become very famous and is looked at by many serious people in the world of economics.
According to this curious indicator, the dollar is overvalued against the euro, as it is now trading at just over 1.22, while the implied value that comes out, according to the index, would be 1.34.
So the first sign that the euro could still have a longer run. If there are no political problems, a high euro can have a long life.
The research covered in this report should not be construed as a recommendation to operate. All opinions, news, research, analysis, prices or other information are provided as general market comments and not as investment advice.