November 29, 2018
Asia rises after Powell's comments boosted U.S. indices
Asian markets traded higher on Thursday, November 29. Following Powell's speech, the meeting between President Donald Trump and Chinese leader Xi Jinping, which is expected to help ease U.S.-China trade tensions, is now approaching.
The Japanese Nikkei 225 rose in the first part of the session. South Korean Kospi rose slightly. In Australia, the ASX 200 was positive, with progress in most sectors. The sub-index for energy, materials and the financial sector were all on the upside.
Powell causes a small earthquake in the markets.
The Dow Jones rose more than 600 points. Market reaction in the U.S. was stimulated by comments from the chairman of the Federal Reserve. In a prudent speech, he hinted that the Fed will try to meet its targets without weighing on the economy. If necessary, they will slow the rate hike. They have also made it clear that they are almost in neutrality and that they have tried to balance the risks.
The minutes of the November 7-8 Federal Reserve meeting, which will be released on Thursday, will now be evaluated with more interest from investors. These are expected to provide more information on interest rate movements in the near future.
Investors are also focusing on the G20 summit, to be held in Buenos Aires between Friday and Saturday, where Trump and Xi Jinping are expected to discuss controversial trade issues.
The US currency depreciated sharply after Federal Reserve Chairman Jerome Powell said interest rates are below neutral and the Central Bank is closer to the end of its rising cycle. The dollar has been under pressure in recent weeks due to signs of a slowdown in the pace of rate hikes amid the slowdown in global growth, peak corporate profits and escalating trade tensions. In addition, Trump has also expressed frustration with interest rate hikes.
On Wednesday, oil prices fell, continuing their downward trend, after US oil inventories rose for the tenth consecutive week. The market is also still nervous about whether producer countries, led by OPEC, will reach an agreement next week on production cuts. Saudi Arabia now says it will not make cuts on its own and Nigeria is not committed to giving new impetus to supply cuts.
Gold hit a two-week low during Thursday's Asian session, following the Federal Reserve Chairman's speech that interest rates are just below neutrality. This assertion calmed investors' concerns about the pace of the rate hikes.
European markets are expected to open Thursday's trading session higher.
Powell causes small earthquake in Markets
Given the reaction, Powell hasn't been as clear as he might seem. He has been quite cautious and you have to look hard to know what has happened.
The market has understood that the Fed is going to move between fulfilling its objectives and not stopping the economy. If necessary, they will stop the rate hikes. He also made it clear that they are almost neutral and that they have tried to balance the risks.
Therefore, if the rises start to slow down the economy they will stop. That is the conclusion that has been drawn and hence the stock markets have risen sharply. In addition, the dollar has fallen and US bonds have been bullish.
The futures on federal funds are rising, giving less possibilities for new interest rate hikes. In the end, Powell seems to have given a cautious and positive speech to the markets.
On Wednesday, November 28, a new home sales figure was released for the month of October in the United States, which was much worse than expected. It remains at a year low and the recovery trend has broken.
Demand is beginning to slacken because financing is too expensive, which at some point will end up taking its toll on the economy.
Session hovering around neutrality in the European market
The session on Wednesday 28 November ended far from the day's highs.
Since the holidays in the United States ended, there has been a lack of criteria in Europe. Monday was positive due to sales estimates at the start of the Christmas campaign, Tuesday Donald Trump was back in the spotlight and Wednesday was the result of Powell's intervention.
In Europe, consumer confidence in Germany is falling more than expected and has just topped off the worsening of other countries such as France and Italy.
If you look inside the market, you see that most of the supersectors in Europe are in negative.
U.S. economy slowing down
Experts warn that growth is unlikely to continue in the last three months of 2018.
The U.S. economy is in good health. The country's Gross Domestic Product grew by 3.5% in the third quarter of the year. The figure has not changed with respect to the initial estimate, although it remains below the forecasts of analysts.
However, although the GDP figure has not changed, the review that has been carried out does show notable changes in the behaviour of some segments of the economy.
For example, state and local governments spent better than expected. Business investment was not as weak as believed. However, the data reveal that consumer spending grew at a slower pace than expected.
Federal Reserve is a bigger problem for the United States than China, says Trump
Donald Trump lunged at the Fed again. He said he is unhappy with the president of the central bank, Jay Powell.
He believes that the gradual rise in interest rates is damaging the national economy.
The U.S. president says he is making trade agreements and yet the Federal Reserve is not acting accordingly.
Dombrovskis tells Italy that the correction presented is not enough
The Vice-President of the European Commission explained that in order to avoid possible sanctions against Italy it is worth a consistent correction and not a decrease of 0.2% of the deficit in comparison with the forecast of 2.4% of the GDP.
It is important for Italy to reconsider its budgets because this also hits the banking system. The situation of the Italian banking system is linked to the general economic situation of the country and there is concern with this systemic sector.
After the presentation of the Budgets, rejected by Brussels, Italy's risk premium has grown a lot. This has an impact on the real economy, access to finance for businesses, consumer credit and the banking system.
A Brexit without an agreement would hurt the British economy more than expected
The gross domestic product would be reduced by 9.3% in 15 years, while the agreement proposed by Theresa May would limit the impact to 3.9%.
In any case, the economy will suffer from any of the possible Brexit scenarios.
The government publishes its analysis when it tries to convince Parliament, and public opinion, about the benefits of the agreement on Brexit that it has negotiated with Brussels and which will be put to a vote in the House of Commons on 11 December next.
The so-called Long-term Economic Analysis states that, in the absence of a bilateral pact, the British state could be forced to borrow an additional 119 billion pounds (134.9 billion euros) by 2035.
[image] The exchange rate is always given for a currency pair. A currency by itself is worthless if it is not compared to another currency or other reference, such as gold. Therefore, whether in a flexible exchange rate or fixed exchange rate...
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