News Summary
On Wednesday, Philip Jefferson took the oath of office as the Federal Reserve Board's new vice chair, as policymakers gear up for an interest-rate-setting meeting next week. Jefferson, who will be the second Black person to hold the vice chair
post, will continue to hold a separate term as governor, which runs
through 2036. The vice chair term lasts four years. Jefferson, 61, has backed every Fed interest-rate decision since he joined the Board of Governors. Also sworn in were Fed Governor Lisa Cook to a new 14-year term, and Adriana Kugler as the Fed's newest Board member.
These appointments will not likely change the outcome of the September meeting, at which Fed officials are anticipated to leave the policy rate in its current 5.25%-5.50% range.
U.S. President Joe Biden has sought to bring more people from racially-diverse backgrounds into the Fed leadership to ensure a broader range of perspectives as policymakers weigh decisions that affect the economic wellbeing of Americans.
The United Auto Workers said it plans to resume bargaining on Saturday after launching its first simultaneous strikes at General Motors, Ford Motor and Stellantis. The most ambitious U.S. industrial labor action in decades has halted production at three plants producing the Ford Bronco, Jeep Wrangler and Chevrolet Colorado, along with other popular models.
At a rally on Friday, union members protested against a two-tiered wage system that left new hires without the pay or benefits of seasoned hands. That was unfair and favored investors over workers, they said. UAW President Shawn Fain said: "We’re not going to wreck the economy. The truth is we are going to wreck the billionaire economy".
The union is demanding a bigger share of profits, shorter work weeks, restoration of defined benefit pensions and stronger job security as automakers shift to electric vehicles.
While Biden is pouring billions in federal subsidies into expanding electric-vehicle sales, this shift could threaten combustion powertrain jobs. The UAW has not endorsed his re-election. Biden's likely opponent, former president Donald Trump, on Friday criticized the shift to EVs as a job-killer for the UAW.
On the economic front... China's consumer prices rose by 0.1% YoY in August 2023, compared with market forecasts of a 0.2% gain. Non-food prices increased by 0.5%, while the cost of food fell 1.7%. On a monthly basis, consumer prices gained 0.3% in August. China's producer prices dropped 3.0% YoY in August 2023, matching market forecasts. This means that consumer price deflation is a bigger risk than inflation in China.
The unemployment rate in the United Kingdom rose to 4.3% in May to July 2023, the highest level since the third quarter of 2021, indicating that the labor market may be cooling off after months of unprecedented monetary policy tightening by the Bank of England. The British economy shrank 0.5% month-over-month in July 2023, the biggest decline so far this year and reversing a 0.5% growth in June. The YoY GDP figures are essentially flat for the UK.
The annual inflation rate in the US accelerated for a second straight month to 3.7% in August from 3.2% in July, above market forecasts. Oil prices have been on the rise contributing to rising inflation. US core consumer prices, which exclude volatile items such as food and energy, rose by 0.3% from the previous month in August of 2023
Retail sales in the US advanced 0.6% MoM in August 2023, pointing to robust consumer spending despite high prices and borrowing costs. Sales at gasoline stations recorded the biggest increase of 5.2%.
The number of Americans filing for unemployment benefits is still stable, at around 220000. The data added to evidence that the labor market remains at historically tight levels, for the moment being. This supports the aggressive stance of the Federal Reserve, which will likely continue pushing the narrative of "higher for longer".
The ECB hiked interest rates on September 14th and signaled that it is likely done tightening. The main refinancing operations rate reached a 22-year high of 4.5%, and the deposit facility rate set a new record at 4%. Average inflation is forecasted to be at 5.6% in 2023 and 3.2% in 2024, both higher than previous estimates, primarily due to elevated energy prices. The central bank has reduced its GDP growth projections, now anticipating the economy to expand by 0.7% in 2023, 1.0% in 2024, and 1.5% in 2025.
Regarding the financial markets, for the week, the main stock market indices are down, with the S&P500 losing 0.2%, the NASDAQ 100 down 0.5%, and the RUSSEL 2000 0.2% in the red. Gold and silver gained 0.3% and 0.5%, respectively. The barrel of WTI rised 4.6% and is now around 91$/barrel. Bitcoin gained 2.7% and is around ~26500$.
The relative strength of the US dollar rised 0.3%, and bond yields increased slightly. US bond yields now sit at 4.33% for the 10-year and 4.42% for the 30-year. The US bond yield curve remains inverted and is now peaking at 5.52% in 6 months from now.
Sources:
https://www.msn.com/en-us/money/markets/feds-vice-chair-newest-governor-sworn-in/ar-AA1gF600
https://www.reuters.com/markets/us/feds-jefferson-sworn-new-vice-chair-2023-09-13/
https://www.reuters.com/business/autos-transportation/us-auto-union-strike-three-detroit-three-factories-2023-09-15/
https://tradingeconomics.com
Comment
The scenario of stagflation is predominant around the world, with special focus in China, which is already trying to stimulate the economy to stop deflation. In the western countries, the effects of monetary policy tightening will only be fully evident in the coming months, or possibly next year. Thus, caution, patience and risk mitigation strategies are a must. Long-term bonds are not advised because we don't know the reaction of central banks to a possible recession and how that will affect the long-end of the yield curve. On the equity side of the market, big caps are over-valued and better entry points will likely manifest in the near future. There is also the possibility of doing strategic hedges and shorts to protect against or even profit from falling equity prices.
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