Connect with us

Economics

Pendulum of Sentiment Swings Back against Imminent Recession Fears Despite Curve Inversion

High political drama in recent days included the assassination of former Japanese Prime Minister Abe and the resignation of UK Prime Minister Johnson. Yet,…

Published

on

High political drama in recent days included the assassination of former Japanese Prime Minister Abe and the resignation of UK Prime Minister Johnson. Yet, the capital markets in general, and the currency market in particular, were not roiled. This is because investors have their sights elsewhere.  

The dollar surged. It is partly a function of bad news elsewhere. Japan's easy monetary policy stance sticks out like a sore thumb, and the May data showed the economic recovery from the contraction in Q1 is faltering. Industrial output slumped by a stunning 7.2% in the month, and household spending unexpectedly fell. The euro has been driven to new 20-year lows as short-term interest rate differentials move against it. The energy shock is intensifying. Arguably, unreasonable expectations about a new ECB tool to minimize the divergence of interest rates have been deflated. The US economic news stream was somewhat better, with the flash PMI composite revised higher and the increase of nonfarm payrolls stronger than expected. 

Still, economists cut US Q2 GDP forecasts, and the Atlanta Fed GDPNow tracker stands at -1.2%. The market continues to price in not only a 75 bp hike at the FOMC meeting later this month but another 100 bp in the last three meetings of the year. The employment report showed the labor market remains strong, even if not quite as strong as before. The next series of data will also push the pendulum of market sentiment away from recession talk: headline consumer prices are expected to have accelerated, retail sales likely snapped back after falling 0.3% in May, and industrial output is expected to have edged a little higher. The leading hawks at the Fed may have preferred a different path (though there has been only one dissent for a larger hike), but the year-end rate of 3.25%-3.50% in the Fed funds futures is very much in line with what they advocate. The asymmetry of the Fed's path is evident in its unconditional commitment to restore price stability while hoping not too much economic harm is done in the process.  

Dollar Index:  A new 20-year high (~107.80) was set ahead of the weekend and before the US jobs report. Since the end of the first quarter, the Dollar Index has fallen in only three weeks and only once in the past six weeks. The next important technical area is seen in the 109.25-110.00 range. The MACD and Slow Stochastics are still increasing, but the rapid rise, almost 3% over the past two weeks, lifted DXY above its upper Bollinger Band (~107.15) over the past four sessions, though it finished last week inside it. A pullback into the 105.85-106.20 area may be a better opportunity for bulls.  

Euro: The selling has been intense. The immediate pressure subsided after it could not make new lows following the US jobs report. A bout of short-covering lifted it a little more than a cent off its lows. It had slid from the July 4 high near $1.0465 to almost $1.0070 ahead of the weekend.   Initial resistance is now seen in the $1.0200-$1.0220 area. The precipitous decline takes more than a small bounce to turn the momentum indicators, which are still headed lower even if stretched. It has spent most of the last three sessions below the lower Bollinger Band, which will begin the new week slightly above $1.0170. Another indication of the near-term over-extended condition is the euro's distance from the downtrend line connecting the February, March, and June highs. It is found slightly below $1.06 at the start of the new week. In this year's downtrend, the euro rarely trades more than five or six cents below the trend.  

Japanese Yen: Despite intense volatility in the US bond market, the dollar-yen exchange rate traded relatively narrowly in the past week (~JPY134.80-JPY136.60). In fact, the dollar has settled in between JPY135.85 and JPY136.05 for the past four sessions. The greenback has frayed the 20-day moving average (~JPY135.40) on an intraday basis but has not settled below it since late May. The sideways price action is seeing the momentum indicators gently drift lower. If the US 10-year yield continues to move higher after pulling back around 75 bp from mid-June's FOMC meeting, the dollar could be bid to new highs against the yen.  

British Pound: Sterling recorded a new two-year low in the middle of last week, near $1.1875. It recovered to set a three-day high ahead of the weekend by $1.2055. The stalling of its downside momentum is seen in the fact that higher lows and higher highs have been recorded for the past two sessions. The MACD has flatlined, while the decline in the Slow Stochastic has begun leveling off. There may be initial scope toward $1.2100, but it requires a move above the $1.2150-60 area that houses retracement objectives and the 20-day moving average to signal anything of note. Despite the UK political drama, the euro fell to almost GBP0.8440, its lowest level in about five weeks. It frayed the 200-day moving average by a handful of ticks ahead of the weekend. Although the euro bounced a little, it could not re-enter the Bollinger Band (~GBP08480).  

Canadian Dollar:  As part of the broad US dollar rally, the drop in WTI below $100 a barrel, and softer commodity prices in general, the Canadian dollar made marginal new lows for the year on July 5 (~CAD1.3085) before recovering. The takeaway from the Canadian employment report was that there has been little net new job creation in the past two months, but full-time employment increased (~131k) as much as part-time work fell (~135k). While US average hourly earnings slowed for the third consecutive month, Canada's hourly wage rate for permanent workers continued to accelerate. Investors became more aggressive last week. The swaps shifted from a 60% chance of a 75 bp hike at the July 13 central to entirely discounting it. The US dollar found support ahead of the weekend near CAD1.2935, a (61.8%) retracement of the week's rally and the 20-day moving average. A break of that area could signal a return to the CAD1.2840-60 area.  

Australian Dollar: All last week, the Australian dollar traded in the July 1 range (~$0.6765-$0.6905). Still, last week, it was the only major currency to rise against the greenback. The momentum indicators have flatlined in their troughs. The 20-day moving average is near the upper end of the range and has closed above it in a month. A convincing move above this area would lift the technical tone. We have highlighted the technical significance of the lower end of the range: It is the halfway point of the Aussie's rally from the pandemic panic low near $0.5500. The next retracement (61.8%) is around $0.6465. Australia reports June employment data on July 14. Full-time job growth has averaged nearly 61.5k a month this year through May, which is about a third higher than in the same period last year. The unemployment rate is at a record low of 3.9% but may have slipped lower. The market is pricing around a 60% chance of another 50 bp hike when the central bank meets again on August 2. 

Mexican Peso: The greenback rose to almost four-month highs in the middle of last week near MXN20.7860. It pulled back in the subsequent two sessions, reaching MXN20.3650 before the weekend. The momentum indicators are giving contradictory signals. The MACD may turn lower from overbought territory, while the Slow Stochastic is headed higher. Provided that the MXN20.19 area holds, the bias may be to a higher dollar. That said, the dollar has not closed above the MXN20.68 area, which is the (61.8%) retracement of the decline from the year's high set in March near MXN21.4675. The JP Morgan Emerging Market Currency Index fell by almost 2.7% last week after a 1.3% decline in the prior week. Over the past two weeks, the peso has fallen by nearly 2.8%. Brazil has performed the best in the region, with BRL gaining about 1%. The Colombian peso has depreciated by 6.4%, the most in the region, and among emerging markets, only the South African rand (-6.5%) and the Russian rouble (-16.1%) have done worse.  

Chinese Yuan: Last week, the dollar was little changed against the Chinese yuan, slipping by 0.1%. The week before, it rose slightly more than 0.15%. For the better part of the past two months, the dollar has been forming a large wedge/triangle pattern. However, it is getting too close to the apex to be meaningful technically. Still, the takeaway is that the exchange rate is trending sideways, not up or down. The momentum indicators are not generating strong signals, and continued range trading may be the most likely scenario, perhaps between CNY6.6750 and CNY6.7250. By so tightly shadowing the dollar, Chinese officials are accepting a marked appreciation of the yuan against the euro, yen, and most other currencies.  

.

Disclaimer 

Read More

Continue Reading

Economics

Wyshbox Life Insurance study shows how the pandemic, inflation and looming recession has led to women worrying about their financial future.

Wyshbox Life Insurance study shows how the pandemic, inflation and looming recession has led to women worrying about their financial future.
PR Newswire
MILWAUKEE, Sept. 29, 2022

Through interviews and surveys of over 400 working women between the …

Published

on

Wyshbox Life Insurance study shows how the pandemic, inflation and looming recession has led to women worrying about their financial future.

PR Newswire

Through interviews and surveys of over 400 working women between the ages 20-45 years, the numbers aren't good for how women feel about their financial future.

MILWAUKEE, Sept. 29, 2022 /PRNewswire/ -- It's no surprise that women have had to deal with unprecedented volatility over the past few years. The (financially) unprotected sex by Wyshbox Life Insurance includes interviews and surveys of over 400 women and takes a deep dive into how much of a negative financial impact the pandemic, inflation and fears of a potential recession in the future has had on women of different ages and cultural backgrounds. We've discovered that 83% of women surveyed worry about high inflation in the future, which has increased their household expenses and has had a negative effect on their purchasing power. Shockingly, the biggest worry for women of color (35% surveyed) is that their wages are not keeping pace with rising expenses, a worry not shared as strongly by caucasian women.1

New study shows how the pandemic, inflation and looming recession has women worrying about their financial future.

Found on our website at www.wyshbox.com/women, The (financially) unprotected sex white paper not only seeks to understand the emotional and financial burdens and worries of women of different racial backgrounds, but also their employment and childcare struggles when compared to men.

"An eye-opening learning we found was that 30% of caucasian women versus 42% of women of color had to quit their job over the pandemic," says Hetal Karani, Senior Strategist who led the research effort for Wyshbox. Those who had quit the workforce cited pursuing higher education opportunities, limited childcare availability and a lack of alternative schooling options as their main reason to exit the labor market—in addition to not wanting to risk their family's health after being denied remote working options by their employer.1 

Coupled with the importance of a mother's salary and a steep rise in dual income households, we found these learnings particularly troubling. "More than 70% percent of households with children under 18 years rely on the woman's salary, and 40% of moms are the primary breadwinner for the home,"1 added Hetal, "yet our emphasis on the importance of financial planning for the well being of women and their families has remained stagnant"

And when it comes to protecting their future, 70% of mothers said they were worried about what would happen to their families if they passed away.2 So it was no surprise that Wyshbox Life Insurance saw an unprecedented level of women applying for Life Insurance, well above the historical average. Applicants were looking to protect their children and spouse should they lose their salary unexpectedly, cover their mortgages to protect their family from losing their home pay out to a college tuition that they have been saving for.

Read The (Financially) Unprotected Sex white paper for insights and actionable takeaways for not only the insurtech industry, but for anyone looking to understand how women are taking on the new challenges in front of them.

About Wyshbox

Wyshbox life insurance is there to help make sure that life post-you is everything you want it to be. Wyshbox provides term life insurance tailored to everyone's specific needs with policies that can help take care of your family, kids, pets, friends, funeral arrangements, and so much more. It takes less than 10 minutes, is 100% online, and plans start at just $9 per month.

Media Contact:
media@wyshbox.com

Copyright © 2022 Wysh Life and Health Insurance Company
*Disclosures at: www.wyshbox.com/ad-disclosures 

1 Wyshbox Life Insurance. Quantitative Survey "Women during COVID and Recession". 400 participants. August 8, 2022
2 Wyshbox Life Insurance. Quantitative Survey "Thematic Survey". 1200 participants. November 2021

View original content to download multimedia:https://www.prnewswire.com/news-releases/wyshbox-life-insurance-study-shows-how-the-pandemic-inflation-and-looming-recession-has-led-to-women-worrying-about-their-financial-future-301636835.html

SOURCE Wyshbox

Read More

Continue Reading

Economics

EasyJet share price has collapsed by 53% in 2022. Is it a buy?

The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest…

Published

on

The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest level since November 2011. It has plummeted by more than 82% from its all-time high, giving it a market cap of more than 2.5 billion pounds.

Is EasyJet a good buy?

EasyJet is a leading regional airline that operates mostly in Europe. It has hundreds of aircraft and thousands of employees. In 2021, the firm’s revenue jumped to more than 1.49 billion pounds, which was a strong recovery from what it made in the previous year.

EasyJet’s business is doing well as demand for flights rises. In the most recent results, the firm said that forward bookings for Q3 were 76% sold and 36% sold for Q4. For some destinations, bookings have been much higher than before the pandemic.

EasyJet’s business made more than 1.75 billion in revenue in the first half of the year. This happened as passenger revenue rose to 1.15 billion while ancillary revenue jumped to 603 million pounds. The firm managed to make a loss before tax of more than 114 million pounds. It attributed that loss to higher costs and forex conversions.

As I wrote on this article on IAG, EasyJet share price has collapsed as investors worry about the soaring cost of doing business. Besides, jet fuel and wages have jumped sharply in the past few months. Also, analysts and investors are concerned about flight cancellations in its key markets.

Still, there is are two key catalysts for EasyJet. For one, as the stock collapses, it could become a viable acquisition target. In 2021, the management rejected a relatively attractive bid from Wizz Air. Another bid could happen if the stock continues tumbling.

Further, the company could do well as the aviation industry stabilizes in the coming months. A key challenge is that confidence in Europe and the UK.

EasyJet share price forecast

EasyJet share price

The daily chart shows that the EasyJet stock price has been in a strong bearish trend in the past few months. During this time, the stock has tumbled below all moving averages. It has also formed what looks like a falling wedge pattern, which is usually a bullish sign.

The Relative Strength Index (RSI) has dropped below the oversold level while the Awesome Oscillator has moved below the neutral point.

Therefore, in the near term, the stock will likely continue falling as sellers target the support at 270p. In the long-term, however, the shares will likely rebound as the falling wedge reaches its confluence level.

The post EasyJet share price has collapsed by 53% in 2022. Is it a buy? appeared first on Invezz.

Read More

Continue Reading

Economics

August data shows UK automotive sector heading for a “cliff-edge” in 2023

With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly…

Published

on

With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly towards the tail end of the yield curve (details of which were reported on Invezz here).

Car manufacturing is a key industry in the UK. Recently, it registered a turnover of roughly £67 billion, provided direct employment to 182,000 people, and a total of nearly 800,000 jobs across the entire automotive supply chain, while contributing to 10% of exports.

Just after midnight GMT, data on fresh car production for the month of August was released by the Society of Motor Manufacturers and Traders Limited (SMMT).

Strong annual growth but monthly decline

Car production in the UK surged 34% year-over-year settling at just under 50,000 units. This marked the fourth consecutive month of positive growth on an annual basis.

However, twelve months ago, production was heavily dampened by a plethora of supply chain bottlenecks, work stoppages on account of the pandemic, and a worldwide shortage of microchips. The August 2021 output of 37,246 units was the lowest recorded August volume since way back in 1956.

Although the improvement in output is a good sign, equally it is on the back of a heavily depressed performance.

Source: SMMT

To place the latest data in its proper context, production is still 45.9% below August 2019 levels of 92,158 units, showing just how far adrift the industry is from the pre-pandemic period.

Since July, production in the sector fell 14%.

The fact that the UK is facing a deep economic malaise becomes even more evident when we look at full-year numbers for 2020 and 2021.

In 2020, total output came in at 920,928 units, while 2021 was even lower at 859,575. The last time that the UK automotive sector produced less than one million cars in a calendar year was 1986.  

Unfortunately, 2022 has seen only 511,106 units produced thus far, a 13.3% decline compared to January to August 2021.

In contrast, the 5-year pre-pandemic average for January to August output from 2014 – 2019 stands well above this mark at 1,030,527 units.

With car manufacturers tending to pass price rises on to consumers, demand was dampened by surging costs of semiconductors, logistics and raw materials.

The SMMT noted,

The sector is now on course to produce fewer than a million cars for the third consecutive year.

Ian Henry, managing director of AutoAnalysis concurred with the SMMT’s analysis,

It is expected that by the end of this year car production will reach 825,000, compared to 850,000 a year ago, but that’s 35% down on 2019 and a whopping 50% on the high figure of 2017.

Sector challenges

Other than the obvious fact that the UK’s economic atmosphere is in hot water, the automotive industry (including component manufacturers) has been struggling to stave off the high energy costs of doing business.

In a survey, 69% of respondents flagged energy costs as a key concern. Estimates suggest that the sector’s collective energy expenditure has gone up by 33% in the last 12 months reaching over £300 million, forcing several operations to become unviable.

Although the government enacted measures to cap the price of energy and ease obstacles to additional production, Mike Hawes, the CEO of SMMT, said,

This is a short-term fix, however, and to avoid a cliff-edge in six months’ time, it must be backed by a full package of measures that will sustain the sector.

Due to the meteoric rise in costs across the automotive supply chain, 13% of respondents were cutting shifts, 9% chose to downsize their workforce and 41% postponed further investments.

Bleak outlook

Uncertainties around Brexit and the EU trade deal are yet to be resolved.

Moreover, the energy crisis is poised to get even more acute unless Russia withdraws from the conflict, or international leaders ease restrictions on Moscow. Last week, I discussed the evolving energy crisis here

With global central banks expected to tighten till at least the end of the year, demand is likely to be squeezed further pressurizing British car manufacturers.

Electric vehicles made up 71% of car exports from the UK in August, but robust growth in the sector looks challenging in the near term, in the absence of widespread charging infrastructure, high electricity prices and globally low consumer confidence.

Although energy subsidies could provide some relief in the immediate future, the industry will remain in dire straits while investments stay low and the shortage in human capital persists, particularly amid the push for EVs.

Given the prevailing macroeconomic environment, and severe market backlash to Truss’s mini-budget (which I discussed in an earlier article), the sector is unlikely to turn the corner any time soon.

The post August data shows UK automotive sector heading for a “cliff-edge” in 2023 appeared first on Invezz.

Read More

Continue Reading

Trending