Fundamental News Facts for 8th April, 2024

Fundamental News Facts for 8th April, 2024

[Quick Facts]

1. Japan’s real wages decline may keep BOJ on hold for now.
   2. Fed’s Bowman says higher rates may be needed if inflation remains stubborn.
   3. Weak employment data will keep the Bank of Canada cautious.
   4. Strong U.S. non-farm payrolls in March dampen expectations of Fed rate cuts.
   5. Gold Holds Up High As Geopolitical Tensions Outweigh USD Strength
   6. RBNZ Seen Pushing Back Against Bets On Early Interest-Rate Cuts
   7. UK Rent Rises Forecast to Outpace Wage Growth for Three Years
   8. World Food Prices Rise for First Time in 7 Months
   9. Israel Faces Tough Call on Rates As War Clouds Economic Outlook
   
   [News Details]
   
   Japan’s Money Situation:
   In Japan, the money that workers are taking home after considering the cost of living (real wages) has been decreasing for 23 months. This might cause the Bank of Japan to pause any changes to its policies. However, there’s hope that workers’ wages might start to increase later this year.
   Inflation Expectations: A measure of investor expectations for Japan’s inflation has reached a record high due to the weak yen, which is increasing the cost of living.
   Yields Difference: The difference in yields (returns on investment) between regular 10-year government notes (bonds) and securities linked to changes in consumer prices has increased to 1.418%. This matches a record high set in November.
   Breakeven Inflation: The increase in breakeven inflation (the rate of inflation at which an investment will break even) is likely due to rising energy costs and the weak yen. If inflation doesn’t decrease, it could pose risks to nominal yields (the stated interest rate or coupon rate of a bond).
   Yen Value: The yen reached a 30-year low against the dollar last month, even after the Bank of Japan (BOJ) ended its negative-interest-rate policy and yield-curve control (a strategy to influence interest rates).
   BOJ’s Stance: The BOJ Governor, Kazuo Ueda, said that he will closely monitor exchange rates and their impact on the economy and inflation. He also stated that the BOJ’s monetary policy isn’t targeting foreign exchange (the global market for trading national currencies).
   Market Predictions: Markets are likely to push breakeven levels higher before feeling comfortable about the timing of the next BOJ interest rate hike. The increase in wages from recent negotiations and the upcoming tax cut in June are expected to boost activity and consumption.
   Inflation-Linked Notes: Inflation-linked notes (bonds that help protect investors from inflation) worth ¥11.5 trillion ($75.8 billion) are currently in circulation. About 29% of these are owned by the nation’s Government Pension Investment Fund and 41% by the BOJ. The Ministry of Finance regularly buys back and cancels these securities.
   Linkers: The Ministry of Finance didn’t sell so-called linkers (another term for inflation-linked notes) for five years through 2013 due to low demand.

Fed’s Bowman’s Talk:
Mr. Bowman, who helps decide how much it costs to borrow money in the U.S., said that if prices keep rising too quickly, they might have to make borrowing money more expensive. He’s being very careful about this and will keep a close eye on the data.

Dallas Fed President Lorie Logan’s Speech:
Ms. Logan also talked about the economy. She mentioned that the cost of living has been high recently, and it doesn’t seem like the cost to borrow money is slowing down the economy as much as they thought. Because of this, she thinks it’s too early to make borrowing money cheaper.

Canada’s Job Market:
In Canada, fewer people were employed in March compared to February. This might make the Bank of Canada cautious about making any changes to its policies. They’re happy that people are working the same amount of hours even though the economy was doing better in January and February.

U.S. Job Market:
In the U.S., more people got jobs in March than they expected. This might mean that the Federal Reserve (the Fed) will wait a bit longer before making it cheaper to borrow money. After this news came out, people started to think that the Fed might not lower borrowing costs as soon as they thought.
Job Growth: In March, the number of jobs in the U.S. (also known as nonfarm payrolls) grew more than expected, with 303,000 new jobs added. This has brought the average number of jobs added over the past three months to 276,000, the highest level in a year. The unemployment rate also fell to 3.8%.
Labour Supply: The percentage of people who are working or looking for work (known as the participation rate) rose to 62.7%, the highest in four months. This increase in labour supply helps companies find workers and keeps wages from rising too quickly, which can cause inflation.
Wage Growth: Despite the increase in jobs, the rate at which wages are growing slowed down to a three-year low of 4.1% compared to the same time last year.
Federal Open Market Committee (FOMC): The FOMC, which decides U.S. monetary policy, had initially planned to lower interest rates by 1% this year. However, given the strong job market, they are now leaning towards a more cautious approach and are waiting to see if inflation progresses before making any changes.
Job Market by Sector: In March, the healthcare, government, and leisure & hospitality sectors saw significant job growth. The construction and retail trade sectors also grew, contributing to a strong job market overall. However, there are concerns about whether this rapid growth can continue.
Future Outlook: While the job market is currently strong, there are signs that companies may slow down their hiring and that there may be a slight increase in layoffs. This suggests a more balanced job market in the future. However, the FOMC needs to be vigilant in case of a sudden downturn.
Inflation Target: The main goal of the FOMC is to get inflation back to their target of 2%. They are waiting for further progress before considering any changes to monetary policy. As analysts wait for upcoming reports, such as the Consumer Price Index (CPI) and the Employment Cost Index, the strength of the job market suggests that the FOMC will take a measured approach in deciding the next steps.

Gold Holds Up High As Geopolitical Tensions Outweigh USD Strength
Gold Prices: The price of gold has been increasing and even reached a new record high of over $2,300. This could be influenced by upcoming data about inflation (the rate at which the general level of prices for goods and services is rising) in the US.
Gold’s Performance This Week: Gold’s value increased at the start of the week due to some data that was released on Easter Friday. However, when some positive data about manufacturing was released, the US dollar gained some strength which limited gold’s increase. Despite this, gold continued to increase in value throughout the week.
Comments from Fed Officials: Some officials from the Federal Reserve (the central bank of the US) made comments that suggested they might not lower interest rates this year if inflation continues to be stable. This caused gold to decrease in value briefly.
US Jobs Report: A report showed that more jobs were added in March than expected. This caused the US dollar to maintain its value, but gold still managed to increase in value.
Geopolitical Tensions: There are some tensions between Iran and Israel that could be causing gold’s value to increase. There are also rumors that China might be selling US Treasury bonds to buy more gold, but this hasn’t been confirmed.
Upcoming Data Releases: There are some important data releases coming up next week that could influence gold’s value. If the data shows that inflation is increasing more than expected, the US dollar could increase in value and gold could decrease. However, if inflation is lower than expected, this could lead to expectations of lower interest rates and decrease the US dollar’s value.
Gold’s Technical Outlook: Currently, gold is considered to be overbought, meaning its price is higher than its intrinsic value. If gold’s price starts to decrease, it could go down to around $2,230 or $2,200. However, as long as gold’s price stays above $2,300, people might still be interested in buying it.

RBNZ Seen Pushing Back Against Bets On Early Interest-Rate Cuts
New Zealand’s Economy: New Zealand’s economy is currently in a double-dip recession, which means it’s experiencing a period of economic decline, a brief recovery, and then another decline.
Interest Rates: The Reserve Bank of New Zealand (RBNZ) is expected to keep the Official Cash Rate (OCR) at 5.5% for the sixth time in a row. This is the interest rate that banks use to borrow and lend money to each other overnight. The RBNZ uses the OCR to influence prices in the economy to keep inflation under control.
Investor Expectations: Some investors were expecting the RBNZ to cut the OCR soon because of the recession. However, the RBNZ is not expected to do this just yet. They previously said they wouldn’t start lowering the OCR until 2025 because they’re worried that a lot of people moving to New Zealand will increase demand and push up prices.
Global Interest Rates: Central banks around the world, like the Swiss National Bank and the Reserve Bank of Australia, are starting to lower their interest rates because inflation (the rate at which prices are increasing) is slowing down. If the US Federal Reserve also cuts its interest rates this year, this could cause the New Zealand dollar to increase in value, which would make imported goods cheaper and help to keep inflation low in New Zealand.
Inflation in New Zealand: Currently, inflation in New Zealand is 4.7%, which is higher than the RBNZ’s target of 1-3%. This means that prices are increasing faster than the RBNZ would like.
Future Interest Rate Cuts: Most economists expect the RBNZ to start cutting the OCR in the last quarter of this year, although some think it could happen as early as August. However, Westpac and ANZ Bank don’t expect this to happen until early 2025. Despite this, investors are expecting two cuts and a 70% chance of a third cut before the end of this year.

UK Rent Rises Forecast to Outpace Wage Growth for Three Years
Rent and Wage Growth: Rent prices in the UK are expected to rise faster than wages, even though they’ve already increased at the fastest rate ever due to the Covid pandemic and the cost of living crisis.
Pressure on Households: The Resolution Foundation, a thinktank, predicts that average rents could increase by 13% over the next three years. This is due to the current high growth in the private rental market affecting existing tenancies.
Rent vs Wage Growth Forecast: The thinktank forecasts a 4.2% growth in average rents each year up to 2027. This is much faster than the 7.5% growth in average workers’ earnings (2.4% a year on average) predicted by the Office for Budget Responsibility over the same period.
Government Reforms: Last month, the government made changes to increase protections for renters against no-fault evictions. However, these reforms were not as strong as initially planned, leading to accusations that the government had given in to pressure from MPs who were lobbying in favour of landlords.
Rent Levels: Rent levels for new tenancies have already increased by almost a fifth over the past two years. The number of households renting privately has almost doubled from 11% in the mid-1990s to 20%. This includes a sharp increase in the number of families living in private rented accommodation headed by someone aged 30-49.
Rental Cost Growth: The record growth in rental costs is beginning to slow down after a “bounceback from the pandemic”. However, it could still take years for this growth to affect the whole private rental sector.
Future Rent Increases: Existing tenants reaching the end of their tenancies, or those being forced to accept price rises within their tenancy, could face large rent increases in the future.
Factors Driving Up Rental Costs: The main factor driving up rental costs was the snapback from Covid lockdowns, when evictions and repossessions were halted and rents collapsed amid heightened economic uncertainty. More recently, fast-rising wages have also pushed up rents for new tenancies.
Rent-to-Earnings Ratio: Rents tend to track wage levels over the longer term but had fallen to the lowest level on record relative to earnings amid the disruption of the pandemic. They are expected to continue to increase by 13% over the next three years to return the UK’s rent-to-earnings ratio to its long-term trend.
Solutions: Short-term solutions include regular uprating of local housing allowance to support poorer families, and the ultimate, longer-term solution is to simply build more homes.
Government Support: The government is supporting households with help for bills amid the cost of living crisis. They are investing £11.5bn in the affordable homes programme and remain on track to build one million over this parliament.

World Food Prices Rise for First Time in 7 Months
Global Food Prices: In March, global food prices increased for the first time in seven months. This increase was mainly due to the rising costs of vegetable oils and dairy products.
Yearly Decline: Despite the monthly increase, the prices have actually decreased when compared to the same month last year.
FAO’s Price Index: The Food and Agriculture Organization (FAO), a UN agency, has a price index that tracks the monthly changes in international prices of a basket of commodities. In March, this index averaged 118.3 points, which is 7.7% lower than the same period last year. However, it rose 1.1% from February, marking its first increase since August.
Vegetable Oils: The prices of vegetable oils, such as palm, soy, sunflower, and rapeseed oils, increased by 8% in March. This increase was due to lower production in leading countries and strong demand in South-East Asia. The prices of these oils also increased due to higher crude oil prices.
Dairy Prices: Dairy prices dropped 8.2% annually but rose for the sixth straight month. This increase was driven by higher cheese and butter prices, steady import demand from Asia, higher sales in Western Europe, and seasonally falling production in Oceania.
Meat Prices: Meat prices rose 1.7% in March, marking a second consecutive monthly increase. However, they declined by 1.5% compared to the same period last year. Poultry prices rose due to steady import demand, despite ample supplies. Prices of bovine meat (related to cows) increased due to higher purchases by leading importing countries, while prices for ovine meat (related to sheep) dropped due to a surge in supplies, especially from Australia.
Cereal Prices: Cereal prices declined 2.6% from February, marking a third consecutive drop. This decline was driven by sustained export competition among the EU, the Russian Federation, and the US. Canceled wheat purchases by China also contributed to this decline.
Sugar Prices: Sugar was the only commodity to post a year-on-year increase, rising 4.8% in March. However, it decreased by about 5.5% from the previous month. This decline was due to an upward revision to the 2023-2024 sugar production forecast in India and the improved pace of harvest in Thailand. Large exports from Brazil also weighed on world sugar prices.

Israel Faces Tough Call on Rates As War Clouds Economic Outlook
Interest Rate Decision: The Bank of Israel is deciding whether to cut interest rates to help the economy, which has been affected by war, or to keep them steady to protect the Israeli currency, the shekel.
Economists’ Predictions: About half of the economists think the bank will keep its base rate at 4.5%, while the other half think it will be cut to 4.25%.
Effect of Recent Events: After a recent attack on Iran’s consulate in Damascus, tensions have risen. This has led to a drop in Israeli stocks and the shekel, but the currency has since rebounded.
Inflation Outlook: The rising tensions have worsened Israel’s inflation outlook. Inflation is the rate at which the general level of prices for goods and services is rising. If it gets too high, the bank may have to raise interest rates.
Rate Cuts Postponed: Due to the increased risk and inflation expectations, the Bank of Israel might postpone cutting rates.
Inflation Remains Low: Despite the concerns, inflation remains low for now. It dropped to 2.5% last month from 4.1% in August.
Fiscal Impact of the War: The war has had a significant impact on Israel’s budget, with a deficit of 6.6% of the country’s total economic output predicted. This could increase if the conflict continues.
Future Inflation and Interest Rates: The central bank will release new forecasts after the rate decision. Some expect the bank’s inflation forecast for this year to rise to 3%, up from 2.4% in January. The interest-rate outlook might also increase.
Economic Recovery: The bank will need to consider the rising inflation expectations against the uneven economic recovery from the war. Many industries are still suffering, even though spending has rebounded.
Economic Risk: Keeping interest rates high may reduce market volatility in the short term, but it could increase the risk to the economy and market stability in the future.

Sources :

– CNBC, Bloomberg, Reuters, Fastbull, Yahoo Finance, CNN, ForexFactory News, Myfxbook News etc

Prepared to you by “Akif Matin“

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