The year 2022 on world markets will largely be determined by the tightening of monetary policy in the United States, and the first week of the new year confirmed this. The minutes of the Fed's December meeting published last week showed a significant tightening of the position of the regulator's representatives – Fed members believe that the rate can be raised as early as March, and also see a faster reduction in the balance sheet as appropriate. Representatives of the regulator believe that the current economic conditions are already in many ways conducive to tightening the labor market, some even noted the recovery of the labor market already sufficient for such actions, although the majority still expects further improvement in the labor situation. Against this background, it is worth noting the publication of December labor data in the United States, which came out ambiguous. On the one hand, employment in December increased by only 200 thousand. The Bloomberg consensus forecast assumed an employment growth of 450 thousand, and the actual growth rate of the indicator was the lowest since the beginning of 2021. Nevertheless, in many respects such weak employment growth is explained by seasonal adjustment, and the unemployment rate in December fell more than expected. Thus, the indicator has updated the next lows since the beginning of the pandemic, dropping to 3.90% against the expected 4.10%. The unemployment rate continues to approach a historic low of 3.40%, and labor statistics have further increased fears in the market of an imminent tightening of the PREP in the United States. As a result, on Friday, the yields of ten-year US treasuries at the moment exceeded 1.80% per annum - the maximum since the beginning of the pandemic. Today they have returned to these levels again.This week, the dynamics in the market will continue to be determined by expectations for the actions of regulators - investors will follow the statements of representatives of the Fed and the ECB, as well as the publication of price data in the United States for December. Statistics published last week showed an increase in inflation in the EU to 5.00% YoY. As a result, the topics of price growth in December updated the historical maximum, while analysts expected a slight slowdown in price growth. The situation on the supply side also has high inflation in the United States. The December business activity indices indicated a slight easing of logistical problems, however, the further deterioration of the epidemiological situation again intensified disruptions in logistics chains, which does not lead to a significant slowdown in price growth. The FAO World Food Price index fell in December for the first time since July, but food inflation remains at elevated levels. Against this background, US inflation data is likely to continue to bring the Fed rate hike closer, intensifying the negative in the markets.The main event for the oil market in early 2022 was the OPEC+ meeting. However, as expected, it was decided to stick to the current plan to increase production. Nevertheless, the cartel lowered its forecasts for a surplus in the oil market, which allowed Brent crude futures to exceed the level of $80/bbl. Moreover, against the background of interruptions in the supply of black gold from Kazakhstan and Libya, quotations were close to $83/bbl. However, at the end of the week they declined from these levels, today Brent futures are growing by 0.35% and are trading around $82.05/bbl. The main negative for oil this week may be related to the potential strengthening of the dollar amid expectations of a tightening of the PREP in the United States. However, in the absence of a significant strengthening of the dollar, Brent futures may still exceed the levels of $83/bbl– - the quotes may be supported by another weekly decline in oil ...
Trading idea for the Dollar Index (DXY) dated July 26, 2024During the Asian session on Friday, the dollar index (DXY) continues to consolidate around 104.00. The volatility of currency pairs is low, as traders expect the publication of important macroeconomic data from the United States, which may affect the prospects for monetary policy of the Federal Reserve.Yesterday's report on US GDP for the second quarter showed growth of 2.8%, which is significantly higher than the forecast of 2%. This raises concerns that rapid economic growth is capable of accelerating inflation, which in turn may force the Federal Reserve System (Fed) to postpone monetary policy easing. Also, weekly labor market data showed that the number of initial applications for unemployment benefits increased to 235 thousand, which was lower than the forecast of 237 thousand and the previous value of 245 thousand, while the total number of citizens receiving assistance decreased from 1.860 million to 1.851 million. Despite this, market participants are still confident that the Fed will cut the rate at the September meeting. According to the FedWatch Tool, the probability of such a scenario is almost 100%. William Dudley, former president of the Federal Reserve Bank of New York, believes that rates should be lowered as early as next week at the July 30-31 meeting, otherwise it may be too late in September.Today, traders' attention is focused on data on the Personal consumption Expenditure Index (PCE) in the United States, which is the Fed's preferred indicator for assessing inflation. The PCE index for June is expected to decrease from 2.6% to 2.5%. If the forecasts are confirmed, this will indicate a continuation of the downward trend in inflation, which will increase the likelihood of monetary policy easing at the next meetings. In this regard, DXY has the potential to decrease.Recommendations:Sale of DXY at the breakdown of the 103.80 levelTarget (TP): 103.00Stop Loss (SL): ...
At Friday's auction, the dollar index (DXY) rose again to the maximum levels of early May and is trading around 105.70, showing significant growth at the end of the week, whereas on Monday it was trading around the key level of 105.00.The growth of the dollar was facilitated by the macroeconomic reporting of the United States. The revised GDP figure for the first quarter came out at 1.4%, which is higher than the expected 1.3%. The number of initial applications for unemployment benefits amounted to 233 thousand, which is lower than both the forecast value of 236 thousand and the previous figure of 239 thousand. The volume of orders for durable goods increased by 0.1% in May, with a forecast decrease of 0.1%.Today, markets are waiting for the release of the key inflation indicator for the Fed — the price index of personal consumption expenditures (PCE). The base index is expected to decrease from 2.8% to 2.6% on an annual basis, and from 0.2% to 0.1% on a monthly basis. A decrease in price pressure may increase expectations of easing the Fed's monetary policy, which markets predict for September. If inflation remains high, it will support the dollar and boost U.S. government bond yields. In addition, on Friday, investors will be interested in the May data on personal income/expenses of consumers. The growth of consumer activity and income can have a positive impact on the dollar exchange rate.Fed officials are in no hurry to change current interest rates, expecting inflation to fall to the target level of 2%. Michelle Bowman, a member of the Fed's board of governors, said that if disinflation stalled, the Fed would have to re-tighten policy. With this in mind, DXY has the potential for further growth and, with the support of the PCE index, it can break above the 106.00 mark.Based on fundamental factors, indications of technical indicators and graphical patterns, we propose to place a pending order on DXY:Buy Stop 105.80Take Profit 107.00Stop Loss ...
The trading idea for the dollar index (DXY) dated June 26, 2024The dollar index (DXY) is growing for the second day in a row, and at the moment it reached the level of 105.50, maintaining an upward potential with the intention of overcoming the maximum of the beginning of May of 105.55. Support from fundamental factors contributes to the strengthening of the American currency.Investors still doubt the willingness of the US Federal Reserve (Fed) to lower its key interest rate several times this year. Although financial markets assume that monetary policy easing may begin in September, the Fed's further actions will depend on the dynamics of inflation and a number of other economic and political factors.Many representatives of the regulator insist on maintaining current rates until inflation reaches the target level of 2%. At a meeting in New York on Tuesday, Fed spokeswoman Michelle Bowman stressed that lowering rates is now impractical, and added that it is even possible to raise them if disinflation stalls. Mary Daly, President of the Federal Reserve Bank of San Francisco, noted the need to continue fighting inflation, while avoiding excessive pressure on the labor market and rising unemployment. The head of the Federal Reserve Bank of Chicago, Ostan Goolsby, said that it is necessary to wait for new evidence of a decrease in inflationary pressure before adjusting monetary policy.This week, on Friday, markets are waiting for the release of data on the basic price index of personal consumption expenditures (PCE) in the United States for May. The PCE index is one of the basic criteria for determining the dynamics of inflation for the Fed, and may clarify the prospects for the Fed's monetary policy. Data on gross domestic product, durable goods orders and initial applications for unemployment benefits in the United States are also expected on Thursday. If these figures meet expectations, the DXY may test resistance at 106.00 even before the publication of data on the personal consumption expenditure index on Friday.Taking into account fundamental factors and based on indicator readings and graphical patterns, we consider placing an order on DXY:Buy Stop 105.60Take-Profit 107.00Stop-Loss ...
Trading idea for the Dollar Index (DXY) on May 29, 2024The dollar index (DXY) is trading at 104.54 on Wednesday, showing mixed dynamics, after yesterday's growth momentum, when the dollar rebounded from the local low on May 20 at 104.24.Buyers of the US currency continue to doubt that the Federal Reserve System (FRS) will begin to reduce the interest rate at the September meeting. These doubts are caused by the uncertainty surrounding the disinflation process. Despite the slowdown in the consumer price index (CPI) in April after three months of growth, Fed officials believe that this decline is not a long-term trend. Yesterday, the president of the Federal Reserve Bank of Minneapolis, Neil Kashkari, noted that the US economy remains stable, and there is no need to rush to lower rates. In his opinion, it is necessary to see a stable slowdown in inflation over several months in order to be sure that price pressure will return to the target level of 2%. Neil Kashkari also stressed that the Fed should not rule out the possibility of a repeat cycle of monetary policy tightening. Against this background, the yield of 10-year US Treasury bonds updated local highs by 4.57%, which allowed the dollar index to strengthen its positioning among other forex currency indices.This week, investors will be closely watching the April data on the basic personal consumption expenditure (PCE) price index in the United States, which will be published on Friday. This indicator is a key indicator for the Fed's inflation assessment. The index is expected to remain at 2.8% in annual terms. A steady rise in inflation will increase the likelihood of interest rates remaining at high levels. At the same time, if the data exceeds expectations, the dollar may resume a bullish rally. In this context, the dollar index retains the strengthening potential, which may be realized before the end of this week.Recommendation: open long positions on DXY when the 104.70 level breaks up with a target of 106.00 and a stop loss at ...
The annual compensation of CEOs in the United States is breaking records, despite a shortage of workers and inflation. According to MyLogIQ (a provider of analytical products of the U.S. Securities and Exchange Commission), the median salary of executives from the S&P 500 companies reached $14.2 million last year. The salary growth of the majority of company executives was at least 11%.Half of the companies also said that the salary of ordinary employees increased by 3.1% last year, and a third of the companies reported that employee compensation, on the contrary, decreased between 2020 and ...
The past year ended very successfully for the American market: the S&P 500 rose by 26.9%, although initially a more modest increase was expected. So, our optimistic (!) scenario included an increase in the broad market index to only 10%. However, the US stock markets got off to a good start and remained on top with the support of the adoption of infrastructure reform. The economic recovery also turned out to be more active than we expected, and this helped companies to increase revenue and profit more intensively. At the same time, the development of all these trends contributed to the acceleration of inflation, which went far beyond the expectations of the Fed, the market and our forecasts. It was inflation that became the most discussed topic last year and will absolutely remain at the top of the agenda in the first half of 2022.To bring inflation under control, the Fed thought about reducing the balance sheet only at the beginning of this year: even in December 2021, there was no talk about it. The reduction of the balance sheet, combined with a sharper than originally planned increase in rates, can act as a reliable way to curb inflation expectations. These expectations are formed mainly on stock exchanges, which excludes their negative impact on the economy in general and on the labor market in particular. A steady positive trend in the labor market is indicated by data for October, when the number of open vacancies reached a record 11.03 million, 1.5 times exceeding the number of applicants. This ratio was last observed 50 years ago. Together with an increase in logistics efficiency, the restoration of production capacities and the gradual opening of the economy, this will lead to a gradual decrease in inflation. Of course, we have repeatedly talked about the upcoming opening of the economy after the pandemic during the second half of 2021, but this event is delayed due to the appearance of new COVID-19 strains. And yet, the longer the pandemic continues, the closer its end is.After a negative start to the year for most securities in the technology sector and a general correction, investors should consider closing hedging positions that I advised opening at the end of last year. Now is the time to buy a wide range of stocks with a focus on "value" and "quality" companies. The intensive growth of the economy serves as the basis for optimistic expectations regarding revenue and profit. That is why the upcoming reporting season is the strongest driver of the growth of quotations of representatives of the real sector of the economy. Of course, there is also a trend to reduce the cash flows of companies, since there is no effect of a low base and economic growth begins to slow down. However, it is predicted that the S&P 500 companies will increase sales by almost 15%, and their earnings per share will increase by 21.5%. Among the leaders will be the energy, raw materials and industrial sectors, as well as the segment of secondary necessities. The momentum for an upward movement in their quotes will be provided by strong results for the fourth quarter and optimistic forecasts for January-March. Separately, I would like to note the financial sector, which will not be able to demonstrate a record increase in revenue and profit, but industry forecasts for 2022 may become one of the most optimistic, taking into account the plans of the Federal Reserve to actively raise the key ...
The German Statistical Office published the final data on the dynamics of consumer prices in October in accordance with European reporting standards. They indicate an acceleration of inflation to 4.6%. The indicator is calculated in relation to the prices that were fixed a year earlier. In monthly terms, consumer prices showed an increase of 0.5%. For comparison: in September, inflation in annual and monthly terms was 4.1% and 0.3%, respectively. The calculation of indicators according to German standards showed an increase in the inflation rate in Germany to a maximum for the period since 1993. It amounted to 4.5% in annual terms. Compared to September, prices rose by 0.5%. Both indicators correspond to the forecasts of the surveyed analysts. By the end of September, inflation was 4.1% compared to the same month last year. In monthly terms, it showed zero dynamics. The largest contribution to the growth of October inflation was made by energy carriers. They have risen in price by 18.6%. The cost of food increased by 4.4%. Prices for services increased by ...