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Stock Rally Threatened by Falling Inflation and Declining Liquidity, Warns Morgan StanleyJun 21, 2023 - 05:51:11 PDT
Morgan Stanley warns of bearish forces as stock rally faces challenges. Lower inflation, potential earnings recession, government spending cuts, and liquidity tightening pose risks to stocks. Wall Street divided on rally's sustainability with recession risk looming.
FedEx's 2024 profit outlook fell short of expectations due to a decline in package demand, despite cost-cutting efforts. The company projected adjusted earnings of $16.50 to $18.50 per share, below analysts' average estimate of $18.31. Shares dropped 3.1% in premarket trading, and European courier companies also saw declines. FedEx aims to improve profitability in a challenging demand environment and reported lower sales and earnings for the fourth quarter.
Big investors like T. Rowe Price and AllianceBernstein are defying the Fed's view by betting on longer-term corporate bonds. They believe interest rates have peaked and that a potential US recession would lead to rate cuts. These longer bonds have outperformed shorter ones, with a 4.8% gain this year. Investors anticipate rate cuts in response to an economic slowdown.
Investors are favoring bonds in countries like Australia, Sweden, South Korea, Norway, New Zealand, and Canada, expecting faster and earlier interest rate cuts than anticipated. These nations have high household debt and their markets have not priced in rate relief as quickly as investors believe. In contrast, the US is viewed as having a stronger economy capable of enduring higher rates for a longer duration.
Britain ‘Requires Recession’ to Control Inflation, Bank of England WarnedJun 21, 2023 - 05:37:30 PDT
Economists warn that the Bank of England might have to trigger a recession to control rising inflation. With underlying inflation at a 31-year high and the consumer prices index remaining steady at 8.7%, creating uncertainty and fragility in the economy could be necessary to discourage price hikes and demands for higher wages.
Brazil's central bank is facing pressure to cut interest rates from President Lula's administration and senators. Concerns have grown about the bank's reluctance to ease rates, with remarks from board members causing alarm. The finance ministry is also cautious about the appropriate interest rate level. While some senators threaten action, the majority are unlikely to support removing the bank president. Lula has called for the senate to decide on the interest rate issue.
The European Central Bank (ECB) is close to the end of its interest rate increases, according to Bank of France Governor Francois Villeroy de Galhau. He believes the duration of tight monetary policy is more important than further rate hikes in combating inflation. Villeroy expects inflation to reach 2% by 2025. The Bank of France's June forecasts predict a slowdown in inflation and cautious economic growth.
Powell to Face Capitol Hill Hearing at a Time of Rising Uncertainty Over Fed’s Interest-Rate PlansJun 21, 2023 - 05:23:17 PDT
Fed Chair Jerome Powell is set to testify before Congress for two days, addressing the key question of how the central bank will proceed with interest rate hikes. Last week's Fed meeting yielded mixed signals, with policymakers predicting two more rate increases this year to combat inflation. However, they also revised their inflation forecast higher for next year. Surprisingly, they decided to hold off on a rate hike for the first time in 11 meetings, despite the gloomy outlook.
US equity futures are flat as global markets decline on rising bond yields and UK inflation data. S&P futures down -0.1% after back-to-back losses. FedEx Corp. shares drop 3% on weakened demand. Dollar strengthens, Treasury yields rise. Gold, oil, and Bitcoin show little change. Powell testifies today, more hawkish sentiment expected. 20-Year Treasury Bond auction at 1:00 p.m. ET.
The average person doesn't understand gold. Or even money for that matter.
Federal Reserve Chairman Jerome Powell testified before the House Financial Services Committee on Wednesday (June 21). The Fed chief engaged in some more open-mouth operations, trying to guide monetary with words instead of actions.To understand a few things he said, you have to read between the lines.Oh, and he also got at least a couple of things wrong along the way.
Jun 20, 2023 - 13:34:26 PDT
Market analyst Ted Butler raises concerns about the substantial increase in monetary metals derivatives positions held by JPMorgan, Chase Bank, and Bank of America. He suggests that these positions may belong to the U.S. government, with the banks acting as brokers. The disproportionate nature of these positions compared to trading on the New York Commodities Exchange raises suspicions of government involvement. Butler's analysis can be found at SilverSeek.
US National Debt Reaches $32 Trillion, TGA Refilling Drains Market LiquidityJun 20, 2023 - 13:04:15 PDT
The US national debt has spiked by $572 billion, surpassing $32 trillion. Concerns about inflation and interest rates emerge from fiscal stimulus and deficit spending. The Treasury is selling Treasury securities to replenish its checking account, but deficit spending may outpace tax receipts. Massive bond issuance is necessary to address the budget deficit. The previous drawdown of the Treasury General Account injected liquidity into the markets, while simultaneous quantitative tightening and TGA refilling are now draining liquidity with some lag effects.
Extremely Stretched Sentiment: S&P Positioning Is The "Most Extended Ever"Jun 20, 2023 - 12:55:12 PDT
Market sentiment has reversed from bearish to bullish, leading to extremely stretched positioning, as indicated by Goldman Sachs' Equity Sentiment Indicator reaching its highest level since April 9, 2021. The indicator measures aggregate positioning and risk sentiment in the US equity market.
FDIC proposes special assessment on large banks due to losses from uninsured depositors at Silicon Valley Bank. The real problem lies in banks' risky investments with these deposits. Solution: require safer investments and hold banks accountable. Transition to a 100% safekeeping bank to eliminate deposit risks and benefit depositors.
CPI and core CPI inflation cooled, but PCE inflation remains high. The Fed aims for 2% inflation but lacks a clear plan. Additional rate hikes were discussed. Rent is a key factor in core inflation. Global inflation persists, and the Fed faces a dilemma. The stock market bubble continues in an imbalanced economy.
The number of hours worked suggests a recession view according to Gross Domestic Income (GDI). Despite the addition of more workers, average weekly hours are lower compared to pre-pandemic levels. There is a significant discrepancy between job growth and employment levels. GDI data aligns with the picture portrayed by hours worked and full-time employment. Revisions to GDP and jobs are expected to be downward, indicating a potential recession.
The May 2023 New Residential Construction Report showed revisions and mixed results. Housing starts in April were revised downward by 4.4%, while building permits in May increased by 5.2% compared to April but decreased by 12.7% from last year. Housing starts in May were up 21.7% from the revised April estimate, with single-family housing starts showing an 18.5% increase. Caution is advised due to potential revisions, and future year-over-year comparisons are expected to be easier.
The US national debt has surged by nearly $600 billion in just thirteen days since the debt ceiling resolution was signed. With a debt-to-GDP ratio of 121%, it surpasses the threshold of concern. The notion that "we owe it to ourselves" is flawed, as various entities, including foreign governments, hold significant portions of the debt. Repayment is essential to avoid catastrophic consequences, but current policies hinder economic growth. Social Security is projected to run out of funds in a decade, emphasizing the urgent need for change.
Gold and silver prices have been fluctuating due to central bank decisions and the US Federal Reserve's monetary policy outlook. Despite the volatility, experts see favorable long-term opportunities for both metals. Silver is considered a better choice for investors seeking higher returns, while gold's price movement will provide further guidance. Economic growth risks and a weakening US dollar support the positive outlook for gold and silver.