FUNDAMENTAL NEWS AND TECHNICAL ANALYSIS REPORT – 14 FEBRUARY 2023

14 Feb 2023

At least two additional Fed rate increases are anticipated this year, with no decrease

Asian stock market closes in red on Monday. The Shanghai Composite is in green 0.72% at 3284.16. Overall, the Singapore MSCI is down 0.53% at 303.58. Over in Hong Kong, the Hang Seng Index is down 0.12% at 21164.42. In Japan, the Nikkei 225 is down 0.88 at 27427.32. While the Topix index is up 0.47% at 1977.67, South Korea’s Kospi is down 0.69% at 2452.70. Australia S&P/ASX 200 down 0.21% at 7417.80.

Top News of the Day: –

The U.S. Federal Reserve will raise interest rates at least twice more in coming months, with the risk they go higher still, according to a majority of economists in a Reuters poll who see no cut by year-end.

This brings the majority of private-sector forecasters in line with the central bank’s own projections and rhetoric, leaving financial market traders alone in clinging on to hopes rates will start falling later this year.

Thanks to much stronger than expected U.S. jobs data earlier this month, Fed policymakers, including Fed chair Jerome Powell, have reiterated a higher-for-longer mantra that market traders have been fighting for months.

With inflation still at more than twice the Fed’s 2.0% target, 46 of 86 economists in the Feb. 8-13 Reuters poll predicted the U.S. central bank will go for two more 25 basis point hikes, in March and May, not just March.

Market Summary as per 13/02/2023:

European equities Monday closing. The DAX futures contract in Germany traded up 0.58% at 15397.34, CAC 40 futures up 1.11% at 7208.59. UK 100 futures contract in the U.K. up 0.83 at 7947.60.

In the U.S. on Wall Street, the Dow Jones Industrial Average Closed up 0.81% at 34144.70. The S&P 500 up 0.86% at 4125.52 and the Nasdaq 100 up 1.43% at 11885.28, NYSE 0.89% closes up at 16052.25.

Top Market News Today:

In the Forex market, GBPUSD up 0.05% at 1.2141. The USDJPY down 0.20% at 132.09, The USDCHF down 0.08 at 0.9183. EURUSD up 0.14% at 1.0733. EUR/GBP up 0.06% at 0.8837. The USD/CNY down 0.02% at 6.8199 at the time of writing.

In the Commodity market U.S. Gold futures up at 0.32% $1,859.05. Elsewhere, Silver futures down 0.42% at $21.88 per ounce, Platinum up 0.36% at $957.50 per ounce, and Palladium down 1.15% at $1546.50.

Brent Crude Oil down 0.42% at $86.20 per barrel.

In the Cryptocurrency Markets, Bitcoin at 21767.10 down at 0.10%, Ethereum down 0.07% at 1505.18, Litecoin at 91.40 up 0.30%, at the time of writing.

Top Market Segment to Watch Out Today:

GOLD– Gold prices rose slightly from a one-month low on Tuesday, but saw little trading action as investors kept to the side-lines ahead of more economic cues from U.S. consumer inflation data due later in the day.

Most other metal prices also stuck to tight trading ranges, while the dollar steadied amid fears that inflation could surprise to the upside, inviting more interest rate hikes by the Federal Reserve.

Gold prices were battered by rising interest rates in 2022, as the opportunity cost of holding non-yielding assets rose in tandem with U.S. Treasury yields. While the yellow metal did see some respite in the first few weeks of 2023, resurgent fears of the Fed reversed a bulk of gold’s recent gains.

Economic News:

US: – U.S. President Joe Biden is expected to name Federal Reserve Vice Chair Lael Brainard to the White House’s top economic policy position as early as Tuesday, a source familiar with the matter said on Monday.

Brainard would replace White House National Economic Council (NEC) Director Brian Deese, who has announced his resignation.

In addition, Biden confidant Jared Bernstein is expected to replace Cecilia Rouse as chair of the Council of Economic Advisers, the source said. Rouse has announced plans to depart.

The White House declined to comment.

Bloomberg News first reported the changes.

Markets’ response was muted in Asia hours, with bonds and the dollar steady along with U.S. futures, and analysts said the implications of the appointment weren’t very clear.

“We don’t know what to infer from this,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

“Under normal circumstances I would have thought that her advice to Biden would be very pro stimulus,” he said.

“(But) the inflation backdrop will probably dampen if not check some of her underlying tendencies…I suspect that a lot of her input may be on the supply side.”

Biden is making over his top economic team as the Fed continues to hike interest rates but the U.S. labor market remains tight, raising the prospect of an unusual recession without significant job losses.

The next NEC director and CEA chair will help shape the Democratic Biden administration’s economic policy, from executive orders to congressional spending bills and raising the debt limit, in the face of a more hostile U.S. House of Representatives, now controlled by Republicans.

Brainard is a Harvard-educated Democrat who has been at the Fed for nearly a decade and served as Treasury’s top international affairs expert under President Barack Obama. She was an economic adviser to then-President Bill Clinton.

Euro Zone: Rapid euro zone inflation will weigh on public finances over time, a European Central Bank (ECB) study showed on Monday, confounding some views that governments might benefit as debt is inflated away and nominal tax revenues rise.

In a more normal bout of inflation and without automatic spending adjustments, the bloc’s debt ratio would indeed fall, the ECB argued. But the energy shock, the subsequent slowdown in growth, and rigid spending rules mean that governments’ fiscal position is negatively affected already after a year.

“In subsequent years, however, spending pressures intensify and more than offset the benefits on the revenue side, leading to nearly 0.5% of GDP deterioration in the budget balance level in 2024,” the ECB said in an Economic Bulletin Article.

While inflation normally boosts tax revenue, the energy shock’s income boost is modest, weighs on corporate profitability, reduces overall growth and puts pressure on nominal public spending.

“Moreover, the monetary policy reaction required to avoid this inflation shock leading to undue second-round effects is being translated into an increase in interest payments on government debt,” the ECB added.

The ECB has raised interest rates by 3 percentage points since July and markets expect at least another percentage point of increases before rates peak.

About a third of government spending is also indexed, mostly to inflation, so high price growth automatically forces governments to spend more, the ECB said.

The ECB added that excess government spending aimed at curbing the harmful effects of inflation was only temporary and would be reversed, so inflation was merely pushed out over a longer period.

“The impact on growth (of discretionary spending) is assessed to be positive only in 2022, before turning mildly negative in 2023 and more strongly negative over the 2024-25 period,” the ECB said.

Top Economic Releases Today:

USD: Core CPI (MoM) (Jan) Forecast 0.4%, Previous 0.3% at 19:00
USD: CPI (YoY) (Jan) Forecast 6.2%, Previous 6.5% at 19:00
EUR: GDP (QoQ) (Q4) Forecast 0.1%, Previous 0.1% at 15:30
GBP: Average Earning Index + Bonus (Dec) Actual 5.9%, Forecast 6.2%, Previous 6.4% at 12:30
JPY: GDP (QoQ) (Q4) Actual 0.2%, Forecast 0.5%, Previous –0.2% at 05:20