Articles

Fed’s Kaplan: Concerned about excess risk-taking in nonbank financial system

135029   April 30, 2021 22:29   FXStreet   Market News  

Dallas Federal Reserve Bank President Robert Kaplan said on Friday that is concerned about potential leverage, excess risk-taking in the nonbank financial system and added that they need more visibility, as reported by Reuters.

“If the world grows more slowly, the US economy will grow more slowly than it would otherwise,” Kaplan added. “Vaccinations are the primary economic development tool worldwide.”

Market reaction

These comments don’t seem to be having a significant impact on the greenback’s performance against its rivals. As of writing, the US Dollar Index was up 0.35% at 90.95.

US: UoM Consumer Sentiment Index improves to 88.3 in April vs. 87.5 expected

135028   April 30, 2021 22:09   FXStreet   Market News  

• Consumer Confidence in the US continued to strengthen in April.
• US Dollar Index extends daily rally beyond 91.00.

The Consumer Sentiment Index in the US improved to 88.3 (final) in April from 84.9 in March, the University of Michigan’s latest Surveys of Consumers showed on Friday. This reading came in better than the market expectation and the flash estimate of 87.5 and 86.5, respectively.

Further details of the publication revealed that the Current Economic Conditions Index improved to 97.2 from 93 and the Consumer Expectations Index edged higher to 82.7 from 79.7. Finally, the 1-year Inflation Outlook increased to 3.4% from 3.1%.

Assessing the data, “the renewed confidence is due to record federal stimulus spending, both recently passed and proposed, as well as the positive impact from a growing share of the population who are vaccinated,” noted Surveys of Consumers chief economist, Richard Curtin. “The largest and most important change in April was that an all-time record number of consumers expected declines in the unemployment rate during the year ahead.”

Market reaction

The US Dollar Index continued to push higher after this data and was last seen gaining 0.42% on the day at 91.02.

US UMich final April consumer sentiment 88.3 vs 87.5 expected

135027   April 30, 2021 22:05   Forexlive Latest News   Market News  

Consumer sentiment data from the University of Michigan

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Fed’s Kaplan: Fed should start talking about tapering bond-buying soon

135026   April 30, 2021 22:02   FXStreet   Market News  

Dallas Federal Reserve Bank President Robert Kaplan said on Friday that he expects to see a surge in prices of more than 2.5% or 2.75% in coming months, as reported by Reuters.

Additional takeaways

“Getting less-educated workers back to the workforce and back to jobs is a challenge during the recovery.”

“Factors pushing up inflation include base effects, demand-supply imbalances, fiscal policy.”

“Haven’t changed my view that rates should start to rise in 2022.”

“Seeing excesses and imbalances in financial markets.”

“Fed should start talking about tapering bond-buying soon.”

Market reaction

The US Dollar Index edged modestly higher on these remarks and was last seen gaining 0.33% on the day at 90.93.

United States Michigan Consumer Sentiment Index registered at 88.3 above expectations (87.5) in April

135025   April 30, 2021 22:02   FXStreet   Market News  

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Opinions expressed at FXStreet are those of the individual authors and do not necessarily represent the opinion of FXStreet or its management. FXStreet has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.Any opinions, news, research, analyses, prices or other information contained on this website, by FXStreet, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXStreet will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

What is the effect of inflation on trading?

135024   April 30, 2021 21:51   FXStreet   Market News  

Most traders around today are too young to remember the high inflation of the 1970s and the devastating effect it had on people’s livelihoods. There were several causes, including the staggering cost of the US involvement in the Vietnam War, the US withdrawal from the Gold Standard in 1971, and the quadrupling of oil prices by OPEC in 1973. Ultimately, US Federal Reserve Chairman Paul Volcker is credited with beating inflation by driving up interest rates. The cure was painful as it led to two recessions, high unemployment, and a stock market slump. However, it did the trick and inflation fell sharply, laying the foundations for strong growth over the next two decades. But what does all this have to do with trading?

Inflation in recent years

For the last 20 years or so, official inflation measures have been remarkably benign, particularly across the US, Eurozone, and Japan. Lower wages and increased productivity from globalization have helped keep inflation in check, while large financial shocks have also had a big effect. The banking bust of 2008/9 was a massively deflationary event, where asset prices collapsed and unemployment soared.

In response, the world’s major central banks hosed money into the global financial system. They slashed the cost of borrowing, with some central banks eventually adopting zero or even negative interest rates. In addition, they provided greater doses of monetary stimulus by buying government and then corporate bonds. The idea was that this extra liquidity would trickle down into the wider economy as banks lent out to businesses that would go out and spend, growing the whole economy.

But it didn’t work out like that. Rather than risk lending, banks and other financial institutions with access to cheap credit decided to hang on to these funds, instead of investing in real estate, equities, bonds, and other non-productive assets. Large corporations were also happy to take on more debt at cheap rates. But rather than looking to expand by investing this money in new employees, plant, and machinery, IT upgrades and staff training, they paid out dividends and engaged in stock buybacks. This helped drive up share prices and encourage further speculation. There was certainly plenty of inflation in global stock indices, property prices, and works of art, but none of this was picked up by standard inflation measures.

Inflation and Covid-19

What about now? The economic slump that followed the global coronavirus lockdowns was another deflationary event. Once again it was met with a package of coordinated rate cuts and bond purchase programmes from the world’s largest central banks. However, this time round governments also announced mind-boggling spending plans to shore up the economies that they shut down. The money that they are pumping into their respective economies is going directly to people whose livelihoods are at risk. Those same people have what economists call a ‘high marginal propensity to consume’. In other words, they generally spend the money they receive on essentials, so won’t be buying houses or US Treasury bonds with it. Could this be the trigger that finally sparks inflation?

Perhaps that’s no bad thing. Inflation is wonderful at reducing debt, so if it helps reduce the horrendous burden that many governments, corporations, and individuals are currently suffering, that is good news. Unfortunately, it’s terrible for savers and people on fixed incomes. Not only that, but once inflation takes hold, it can be very difficult to bring it back under control. The worry is that central banks, in particular the US Federal Reserve, will prove reluctant to raise rates as inflation picks up. In fact, there’s speculation that central banks could let inflation run as high as 4% — double their official targets — before raising interest rates to slow it down.

Inflation and trading

You can tell when investors and traders begin to worry about inflation by the movements of certain markets. Investors look to dump a depreciating currency by buying up hard assets. Precious metals and other commodities become increasingly popular, while property prices generally keep abreast of inflation. It can be a mixed picture for equities. Recently, we saw stock markets perform well in countries that have had episodes of high inflation or hyperinflation, even if ultimately, they couldn’t fully keep up. For example, Zimbabwe’s currency was crushed but its stock market soared. Some sectors fare better than others and companies that can pass along higher prices are generally doing well.

For individuals, their disposable income is squeezed by rising prices, meaning they must consider the importance of purchases. In the past, certain sectors have been resilient or even prospered in times of rising inflation. Pharmaceutical companies, miners, and consumer staples can all do well, for instance. They provide goods and materials that are vital for modern-day living, and in most cases, can pass on increased costs to their customers. Utility companies can be relatively safe too. For a start, the demand for water, electricity, and gas is relatively inelastic. Also, they require significant infrastructure to operate. While this is expensive to maintain, it also means there are large barriers for would-be new entrants to the market. Highly regulated, large utility companies should be fairly resilient in the face of inflationary pressures.

Although it may be relatively easy to identify companies and commodities that should do well during periods of inflation, it’s more difficult to guess how central banks will react. After all, if wages keep pace with inflation, most people are happy to start with. But once the inflation genie is out of the bottle, it can be very difficult to control. That’s when central bankers must bite the bullet and push up the cost of borrowing, and that’s rarely a popular decision. Time will tell who will face the same opprobrium as Paul Volker did forty years ago.

Gold Price Analysis: Three reasons why strong physical demand won’t stop XAU/USD falling – CE

135023   April 30, 2021 21:51   FXStreet   Market News  

Recent data have highlighted the strength of the rebound in physical demand for gold, especially in India and China. But strategists at Capital Economics don’t think this poses much of a risk to their forecast for the gold price to fall this year.

See – Gold Price Analysis: XAU/USD to wait until the end of the year to see new highs – Credit Suisse

Gold to drop back to $1,600 by the end of this year

“Consumer demand has historically been strong after a period of falling prices, reflecting the more price-sensitive nature of these purchases. The upshot is that consumer demand for gold responds to changes in the price (often driven by external factors) much more than the gold price responds to changes in consumer demand. So the recent rise in consumer demand is a symptom of a lower gold price, rather than a reason to think it will rise again.”

“Some of the increase in India’s gold imports in March appears to be due to temporary factors that should fade, rather than a longer-term shift. Imports may have been boosted by seasonal stockpiling and delayed purchases from earlier months given expectations for a cut to gold import duties, which was announced in February. In any case, the worrying resurgence in virus cases in India will probably also depress gold demand in the near term.”

“Two other factors, namely US real yields and the US dollar, are much more important drivers of the price, and we expect both to weigh on the price of gold over the next year or so. We think the recent rise in longer-term real yields in the US will resume before long, which would increase the opportunity cost of holding gold. Meanwhile, we also anticipate that a stronger US dollar will make gold more expensive to non-US investors.”

United States Chicago Purchasing Managers’ Index came in at 72.1, above forecasts (65.3) in April

135022   April 30, 2021 21:49   FXStreet   Market News  

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Opinions expressed at FXStreet are those of the individual authors and do not necessarily represent the opinion of FXStreet or its management. FXStreet has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.Any opinions, news, research, analyses, prices or other information contained on this website, by FXStreet, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXStreet will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

S&P 500 Index opens in red below 4,200, energy stocks underperform

135020   April 30, 2021 21:49   FXStreet   Market News  

• Wall Street’s main indexes opened lower on Friday.
• Energy stocks underperform pressured by falling crude oil prices.

Major equity indexes opened in the negative territory on Friday as investors may be looking to book their profits on the last day of the month. As of writing, the S&P 500 Index was down 0.5% at 4,189, the Nasdaq Composite was losing 0.62% at 13,883 and the Dow Jones Industrial Average was falling 0.38% at 33,930.

Among the 11 major S&P 500 sectors, the Energy Index is down nearly 1% after the opening bell as US crude oil prices are losing 1.6% on a daily basis. Moreover, the Technology Index, which managed to post strong gains during this week’s rally, is losing 0.9%. 

The Consumer Discretionary Index is the only major sector trading in the positive territory. Earlier in the day, the data published by the US Bureau of Economic Analysis showed that Personal Income and Personal Spending rose by 21.1% and 4.2% in March.

S&P 500 chart (daily)

AUD/USD retreats to 0.7750 area after US data

135019   April 30, 2021 21:45   FXStreet   Market News  

• AUD/USD is posting small daily losses in American session.
• Core PCE inflation in US rose to 1.8% (YoY) in March as expected.
• US Dollar Index clings to gains around 90.90.

The AUD/USD pair closed in the negative territory below 0.7800 on Thursday and seems to be having a difficult time staging a meaningful rebound on Friday. As of writing, the pair was down 0.07% on the day at 0.7757.

Earlier in the day, the data from Australia showed that Private Sector Credit in March increased by 0.4% and the Producer Price Index rose to 0.2% on a yearly basis in the first quarter, compared to analysts’ estimate of 0.8%. These figures failed to trigger a noticeable market reaction. Additionally, PMI reports from China confirmed that the business activity in the private sector continued to expand at a modest pace in April. 

DXY rebound continues on Friday

On the other hand, the US Bureau of Economic Analysis reported on Friday that the Core Personal Consumption Expenditures (PCE) Price Index climbed to 1.8% on a yearly basis in March as expected. Furthermore, the underlying details of the publication revealed that Personal Income surged by 21.1% in March.

The US Dollar Index preserved its bullish momentum after these data and was last seen gaining 0.3% at 90.90. In the meantime, Wall Street’s main indexes opened deep in the negative territory and provided an additional boost to the USD. Later in the session, the University of Michigan will release its final Consumer Sentiment Index for April.

Technical levels to watch for

Prospects of Bitcoin as a currency are uncertain – Rabobank

135018   April 30, 2021 21:40   FXStreet   Market News  

Bitcoin’s value has risen sharply on balance in recent months. Skeptics anticipate a collapse at some point, while true crypto believers see Bitcoin as the currency of the future. What is the biggest threat to Bitcoin? In the view of Wim Boonstra, Senior Advisor at Rabobank, central banks are not going to allow cryptocurrencies to take out their sovereignty.

Bitcoin faces a slightly contradictory threat that it could become too successful

“Central banks will not allow an uncontrollable type of alternative money to take away their control of domestic monetary developments. The same is true with stablecoins: central banks are now working hard on CBDC themselves, with the preservation of monetary sovereignty as the main reason.” 

“Bitcoin or any crypto should not become systemically important. Regulators have worked hard in recent years to strengthen the stability of the banking system and won’t be happy to see it now eroded by shadow banking.” 

“Overall, I get the sense that the DLT, the real innovation behind cryptocurrencies, is likely to become a permanent fixture in the financial system. However, the prospects of Bitcoin as a currency, like those of other cryptocurrencies, are a lot less certain.”

GBP/JPY refreshes session lows, risks breaking below 151.00 mark

135017   April 30, 2021 21:40   FXStreet   Market News  

• GBP/JPY witnessed some heavy selling on Friday and snapped five days of the winning streak.
• A softer risk tone benefitted the safe-haven JPY and was seen as a key factor exerting pressure.
• UK political noise, the Scottish elections risk weighed on the GBP and added to the selling bias.

The GBP/JPY cross continued losing ground through the early North American session and dropped to fresh daily lows, around the 151.00 mark in the last hour.

Having struggled to find acceptance above the 152.00 mark, the cross came under some heavy selling pressure on Friday and has now eroded a part of its weekly gains. This marked the first day of a negative move in the previous six sessions and was sponsored by a combination of factors.

Investors remain worried that surging COVID-19 cases in India, Japan and Brazil could derail the global economic recovery. This, along with the slowing pace of growth in the Chinese manufacturing sector, took its toll on the global risk sentiment and benefitted the safe-haven Japanese yen.

On the other hand, the British pound was pressured by the risk posed by the Scottish elections next week. Polls are pointing to a supermajority for pro-independence parties in Scotland’s parliament, which might intensify pressure for a referendum on independence and weigh on the sterling.

With the latest leg down, the GBP/JPY cross now seems to have stalled its recent strong rebound from the 149.00 mark. A subsequent break below the 151.00 mark will set the stage for the resumption of the recent corrective pullback from three-year tops touched earlier this April.

Technical levels to watch