Thread: ForexMart's Forex News

The American labour market: optimism and anxiety

The number of Americans applying for unemployment benefits unexpectedly fell last week, suggesting that concerns about a worsening labour market situation were exaggerated. According to the Ministry of Labour, the number of initial applications for benefits decreased by 17 thousand to 233 thousand, which was the largest drop in the last 11 months. Experts had expected a more modest decline.

Despite the positive dynamics, the indicator remains above the average level of the current year. The average number of applications over the past four weeks has increased to 240.75 thousand, reaching an almost one-year high. The increase in the number of applications, which began in June, is partly due to temporary shutdowns of automobile plants and the effects of Hurricane Beryl in Texas.

Overall, the number of layoffs remains low, confirming data on a record low level of layoffs in June. However, the pace of growth in the labour market is slowing due to less aggressive hiring caused by the Fed's interest rate hike.
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Brent rose above $80 per barrel

Oil prices have been rising for the fifth consecutive auction due to concerns about possible supply disruptions amid the escalation of the conflict in the Middle East.

Barbara Lambrecht, commodity analyst at Commerzbank, noted that geopolitical tensions could intensify at any moment, which would put additional pressure on price growth. Geopolitical risks are likely to remain a key factor influencing oil price trends.

The data published last week in the United States turned out to be better than forecasts, which reduced concerns about a possible recession in the country's economy. These data reinforced traders' confidence that the Federal Reserve could cut interest rates as early as next month, which in turn could boost fuel demand.

The current price of Brent crude oil is $80.30 per barrel. North American WTI oil is trading near the level of $77.70. Over the past week, Brent has risen by 3.7%, and WTI — by 4.5%, ending the first of five weeks in the «plus».
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German companies continue to invest in China

German companies continue to invest heavily in China, despite government calls to diversify risks. According to the Bundesbank, Germany's direct investments in China in the first half of 2023 reached 7.3 billion euros, which is almost one and a half times more than in the whole of 2022.

Experts note that a significant part of investments is directed to reinvest profits earned in China. Last year, German businesses reinvested more than half of the 19 billion euros of profits earned in China.

Localization of production in China is becoming an increasingly popular strategy for German companies seeking to reduce risks in their supply chains. However, this strategy could have a negative impact on the German economy by reducing exports and creating dependence on the Chinese labor market.

The German government recommends that companies diversify their investments and sales markets, but does not call for a complete cessation of cooperation with China.

Despite this, major automakers such as Volkswagen and BMW continue to invest heavily in China. In the last five years, Germany has been the leader in terms of EU investments in China, which indicates the continued attractiveness of the Chinese market for German businesses.
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JPMorgan: EM shares will benefit from the slowdown in the US economy

JPMorgan forecasts favorable prospects for emerging market (EM) stocks amid an expected slowdown in U.S. economic growth and lower interest rates in the second half of 2024. Analysts believe that these factors will have a positive impact on the comparative performance of EM shares due to differences in growth rates and interest rates.

Experts believe that adjusting expectations regarding rates and growth in the United States will lead to a higher valuation of EM shares in global investment strategies. However, they warn of risks, including economic downturns, market instability and the impact of the upcoming U.S. elections on international trade and investment risks.

The growth gap between EM countries and developed markets (DM) is expected to widen to 2.7% in 2024, compared with 2.5% in 2023. The Fed's rate cut may create opportunities for monetary policy easing in the EM.

Other factors boosting the attractiveness of EM stocks include limited investments in the sector, attractive prices, diversification strategies from U.S. stocks, and a weakening U.S. dollar.

The historically slowing but resilient U.S. economy is favorable for EM stocks. During periods of Fed rate cuts, EM stocks usually perform better: the average decline is 11% for EM, 15% for DM and 13% for the US.
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The yuan is rising amid a weakening dollar

On Monday, the yuan showed the most significant growth in two weeks, reaching 7.1363 per dollar, which is 0.4% higher than the previous day. This increase, the largest since the beginning of August, is due to the weakening of the dollar and expectations of lower interest rates in the United States.

However, the yuan lost ground against the resurgent yen, falling 1% to 20.38 yen, which was the strongest drop since August 5. As a result, the yuan fell to 98.07 against a basket of trading partner currencies, the lowest level since January 15.

Traders are waiting for the announcement of the base rate on loans in China on Tuesday. The collapse of bank lending, falling housing prices and gloomy economic sentiment, according to analysts, will not allow the currency to grow significantly further.

The yield on 10-year Chinese government bonds fell by 1.8 basis points to 2.17%, while the yield on similar benchmark U.S. government debt was 3.9%.

The 7-day repo rate for the yuan in the domestic market was 1.74%, and in the futures market, the 3-month yuan was quoted at 7.0695, 722 points higher than the spot rate. Three-month forward contracts on CNH were trading at 7.0682 per dollar. The People's Bank of China has set the average rate around which the yuan can trade in the 2% range at 7.1415 per dollar.
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S&P 500: the forecast for 5600 points remains

Analysts maintained an optimistic outlook for the S&P 500 index, expecting it to rise to 5600 points by the end of the year. The strong result of the second quarter, when the profits of S&P 500 companies increased by 10.5% year-on-year, exceeding the forecast of 8.1%, became the basis for such a positive attitude.

Seven major technology companies contributed significantly to this growth, increasing earnings per share by 38%. It is important to note that the remaining 493 S&P 500 companies also showed positive profit growth, which is the first time in the last six quarters.

Despite the good performance, profit growth forecasts for the second half of the year were slightly adjusted down to 10% y/y. Analysts note the risks to the market, in particular, rising unemployment and the likelihood of a recession.

Nevertheless, they believe that reducing the dependence of the index's income on cyclical sectors may provide some stability. The consensus forecast for earnings per share (EPS) for 2024 coincides with analysts' estimate of $250, which supports the target for the S&P 500 at the end of the year.

Analysts have expressed doubts about the ambitious forecast for profit growth of 15% in 2025, offering a more cautious forecast in the area of high single-digit percentage growth rates. Despite these considerations, analysts remain positive about the market and confirm their year-end S&P 500 target at 5,600.
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Chinese banks have increased assets by 7%

According to Xiao Yuanqi, Deputy head of the State Administration for Financial Supervision and Control of the People's Republic of China, the total assets of the Chinese banking sector at the end of July amounted to 423.8 trillion yuan ($59.4 billion), an increase of 7% compared to the same period last year.

Positive trends are also observed in the field of credit quality: the share of non-performing loans decreased by 8 basis points to 1.61%.

The equity capital adequacy ratio of banks in the first half of the year reached 15.53%, which indicates the high strength of the industry and its ability to withstand risks, Xinhua news agency reports.

Xiao Yuan qi stressed that the GUF will continue to support banks in optimizing the structure of assets and liabilities, as well as in finding new sources of profit growth to increase profitability.
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Powell's performance was a turning point for gold

The gold market is once again reaching record highs, exceeding the mark of $2,560 per ounce. This upward movement in the market was provoked by a speech by Fed Chairman Jerome Powell in Jackson Hole, where he made it clear that the Fed is ready to lower interest rates.

Lower Treasury bond yields, a weaker dollar and increased investment in exchange-traded funds investing in gold (ETFs) create a favorable environment for gold prices to rise. These factors, which previously inhibited the growth of the value of gold, can now become a powerful incentive for it.

Jay Hatfield, chief executive officer of Infrastructure Capital Advisors, notes that the expectation of interest rate cuts from the Fed was a turning point for gold. He emphasizes that previously everyone believed that the Fed would be the last to cut rates, but now the situation has changed.

This year, gold has shown impressive growth, setting new records and occupying one of the leading positions among the main commodities.
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Research: 4 risks for the dollar dominance

Researchers from the Brookings Institution have identified several factors that can undermine the dominance of the dollar in global markets. Although the dollar remains the main reserve currency, its share in global reserves has decreased from 71% in 1999 to 59% in 2024.

At the same time, the share of reserves in alternative currencies such as the Australian dollar, Swiss franc and Chinese yuan is growing.

One of the main threats to the dollar is the US sanctions, which have prompted Russia and China to actively seek de-dollarization. Russia is switching to payments in yuan and developing alternative payment systems, while China is promoting its yuan as a substitute for the dollar.

The growing U.S. government debt is also a concern for investors. A rapid increase in government spending and a decrease in the US credit rating may weaken confidence in the dollar and make it less attractive to holders of foreign exchange reserves.

The improvement of payment technologies is another factor threatening the dollar. New systems allow countries such as China and India to exchange their currencies directly, bypassing the dollar. This may reduce the demand for the dollar, which has traditionally been used in international settlements.

In addition, the development of central bank digital currencies (CBDC) increases competition for the dollar. China is actively developing its digital currency and payment systems, while the United States is still lagging behind in this area, which puts the dollar in a less favorable position.

Despite these risks, experts believe that the dollar will remain the dominant currency in the near future, since its competitors cannot yet replace it. However, attempts at de-dollarization can lead to economic problems for those who abandon the American currency.
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The dollar is recovering after the fall

On Thursday, the US dollar recovered from its recent fall, rebounding from a 13-month low. The dollar index, which tracks the USD exchange rate against a basket of six other currencies, rose 0.2% to 101.182.

The recovery of the exchange rate is associated with an increase in demand for the dollar as a "safe currency" amid worsening geopolitical problems in the Middle East, as well as concerns about the resumption of trade disputes between China and the West.

However, the dollar is still under pressure due to the expected reduction in US interest rates next month. In August, the dollar fell by about 2.9%, which was the sharpest drop in the last nine months.

Preliminary GDP data showed the resilience of the American economy, fueling hopes for a soft landing. But the latest data also revealed a weakening of the labor market.

Data on the PCE price index, which is the Fed's preferred measure of inflation, will be released on Friday and is likely to affect interest rate forecasts.
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