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They hang on his lips

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07.02.2023 –  This is real power: Jerome Powell steps up to the microphone and the world holds its breath. At least, the financial world does. If the head of the Federal Reserve doesn’t play the hawk, rates are likely to fizzle upward. If he does, interest rate fears could return.

Today, things will get exciting again: stock market participants are hoping that Powell’s appearance at the Economic Club of Washington will provide further and more concrete indications of the future course of monetary policy. The question is whether the master of money takes the strong U.S. labor market report from Friday as an excuse to stress, again the topic Tightening. Many brokers in the market are already hoping for rate cuts. But the economy in the U.S. is humming, which should further fuel inflation. And that’s exactly what the Fed doesn’t want.
Risk of overheating
Indeed, Friday’s data point to economic overheating and a tightening of the wage-price spiral: the U.S. economy added 517,000 jobs in January, while analysts had expected only 188,000 new jobs. “TheStreet.com” commented that the data showed a strong rebound in the service sector. Very nicely you can see the nervousness in the hourly chart of the Dow Jones – the reaction to the respective events, first the Federal Reserve’s interest rate decision, then the labor market report – speak volumes.

 

Quelle: Bernstein Bank GmbH

The market’s caution is only understandable, judged Sinead Colton Grant, global head of investor solutions at BNY Mellon Wealth Management on CNBC yesterday. “I think the market is in a reassessment mode, and that’s why you see markets pull back a little bit, certainly post the jobs report, and we’re seeing a little bit more today.” Saxo Bank commented that the market had recently priced in only one more rate hike, but now the focus is shifting to whether there will be more.

Disinflation or tightening?
That is also the question today, as the oracle of Washington speaks of the topic of interest rate hikes. Will Powell continue to emphasize the theme of disinflation, i.e. a tightening of inflation? He did that last week at the press conference on the moderate rate hike. Or will Powell now focus again on even further tightening? It’s quite possible that he wants to take steam out of the stock market with this. We’ll know more around 12:40 p.m. Eastern Time. But be careful: It’s quite possible that some facts will leak into the market in advance.
As you can see, you won’t see anything for a while. As always, the fog billows over the trading floor around an important Fed meeting. Every half-sentence counts,professional and retail traders will dissect every single word carefully – they hang on Powell’s lips. If, contrary to the old Fed rule “don’t trade around the Fed”, you do want to enter the ring, we wish you every success. It remains to be noted that there are other influencing factors on Wall Street with the earning season. Whether long or short – Bernstein Bank wishes you successful trades and investments!

 

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

€s goes ahead

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02.02.2023 – Pent-up demand in Euroland: The European Central Bank (ECB) is raising key interest rates more sharply than the Federal Reserve in the USA. And unlike its colleagues in Washington, D.C., it continues to send hawkish signals. Ergo, the euro continues to recover against the dollar.

Yesterday was the day: The ECB raised key interest rates by 0.5 percentage points. With the fifth interest rate hike in a row, the monetary guardians want to fight inflation and suck capital back from the market. The European rate move is above the Fed’s previously announced 0.25 percent. And while the U.S. Federal Reserve just struck much softer tones than before, the ECB held out the prospect of another 0.5 percentage point rate hike for its March meeting. And thus the euro continues its recovery, here the daily chart.

 

Currently, the main refinancing rate thus stands at 3 percent. The deposit rate climbs to 2.5 percent; last year, this main rate was still negative. The overnight lending cost, the marginal lending rate, is picking up to 3.25 percent.

It continues like this
It is true that inflation in the euro zone had fallen to 8.5 percent in January as a result of the recent drop in energy prices. But it was still far from the 2 percent target. Moreover, core inflation – that is, inflation that is cleansed of the actual price drivers of energy and food – is at 5.2 percent. And that is the highest level since the introduction of the euro.
The ECB has now confirmed that there will be no change for the time being. ECB chief Christine Lagarde had already ruled out a departure from the course of interest rate hikes at the World Economic Forum in Davos. Italy, in particular, is again calling for lower interest rates in order to be able to borrow more cheaply. In any case, Goldman Sachs sees another interest rate hike in Euroland of 0.5 percentage points in March; but only 0.25 percentage points in May.

Unchanged signals
BNP Paribas Germany pointed out that nothing has changed in the choice of words on rate hikes at a steady pace. We mean: quite differently than with the Fed before. The Fed had been softer recently, after having found clear words and steps to fight inflation last fall, which pushed the euro below parity. Thus, the euro could continue its recovery for the time being if there is no change in the global investment situation. An escalation in the Ukraine war, for example, could quickly make the dollar – together with the Swiss franc – more expensive again as the number one flight currency. The conclusion from all this is that if nothing changes in the current monetary policy trend, the euro is likely to continue to catch up with the greenback. Bernstein Bank wishes successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Language matters

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02.02.2023 – The price of natural gas has plummeted. And that despite the Ukraine war and the winter season. We analyze the reasons for this.

The Bottom Line: The U.S. federal funds rate is up 0.25 percentage points and is now in a range of 4.50 to 4.75 percent. This is thus the eighth consecutive rate hike. But the pace of tightening is slowing. In December, the Fed had still raised the interest rate by 0.50 points. Ergo, the interest rate-sensitive high-tech stocks in particular reacted positively. You can see the small jump of joy in the four-hour chart on the Nasdaq 100.

 

Source: Bernstein Bank GmbH

The mainstream media focused on this statement in the press conference: the Federal Reserve plans to continue raising its benchmark interest rate after the recent hike. Further tightening is appropriate to bring inflation back to the Fed target, he said. In December, inflation in the United States slipped to 6.5 percent. But the central bank wants inflation to be only 2.0 percent.
Subtle change in language
And now we’ll let the pros from the market niche have their say – as always, it was worth reading very carefully between the lines when it came to the Washington oracle. For example, the blog “Newsquawk” dissected Jerome Powell’s statements in great detail. And stated that the Fed chief had focused more on the question of when the interest rate hikes should end than on how high interest rates still had to rise.
Since he threw both hawks and doves a few lumps, observers saw this as a departure from the previous strict course. Especially since Powell indicated that a disinflationary process had begun. Inflation data over the past three months had shown a welcome slowdown in the rise, he said. While the Fed has not yet made a decision on the terminal rate, the target at the federal funds rate; discussions about it continue and there will be more rate hikes. However, the Fed is not far away from the actual target.
A – too? – good run
Our translation: inflation should continue to fall, interest rate hikes need not be as long and strict as previously feared. And the Fed is probably close to its actual interest rate target. So, all in all, a bullish impulse for stocks. However, the online service “SpotGamma”, for example, pointed out that growth stocks in particular had already anticipated such an interest rate decision in recent days. We remain on the ball for you – Bernstein Bank wishes successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Buying spree

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01.02.2023 – The price of natural gas has plummeted. And that despite the Ukraine war and the winter season. We analyze the reasons for this.

Undeterred, the gold price continues its recent march upwards – here the daily chart. No wonder: Just in time for the week of the central banks – the market expects a wave of interest rate hikes by the Federal Reserve, European Central Bank and co. – bullish news has crossed the ticker.

 

Source: Bernstein Bank Ltd.

The world’s central banks bought more gold in 2022 than they have since 1967. But why – if interest rates rise everywhere would be poison for precious metal. Because gold does not yield interest and costs money for storage in the bank. We see a possible cause: Perhaps the monetary guardians expect an inflation that cannot be stopped even by interest rate hikes. Or a deflationary crash, in which case gold would be a safe haven. The World Gold Council (WGC) has come up with a different explanation, in a more covert way: One of the main arguments for the monetary guardians is the lack of “counterparty risk” with gold – that is, the control of a foreign currency by another central bank. In other words: devaluation through money printing. And also capital controls and freezing of assets in the course of the Western sanctions against Russia.

Monetary guardians rely on gold
As for the details: total global demand rose to 4,741 tons last year, according to the lobby group – the highest level since 2011. Central banks in particular stocked up. In the last quarter of 2022 alone, there were 417 tons – about twelve times as much as in the same quarter of the previous year. Overall, annual purchases of 1,136 tons were more than twice as high as in the previous year.
According to the WGC, central banks have thus been net buyers since 2010 – after two decades on the sell side. Incidentally, only about a quarter of all central bank purchases were reported to the WGC. Turkey led the way last year with almost 400 tons. China reported 62 tons in November and December. The Financial Times, citing unnamed analysts, suspects that the rest was acquired mainly by central banks, pension funds and government agencies in China, Russia and the Middle East.

UBS sees $2,100
For retail investors, demand jumped to more than 1,200 tons in 2022, a nine-year high. Here, inflation concerns have provided the incentive to buy. The investment bank UBS has reacted and just raised the price target for the end of the year from 1,850 to 2,100 dollars per troy ounce. Which would be a new all-time high – the previous one was marked at $2,069 in the summer of 2020. We are curious how the matter continues – and wish successful trades and investments!

 

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

The big copper bet

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24.01.2023 – The bulls are on the attack: according to many experts, the price of the red metal will rise sharply. For one thing, China is back. For another, electrification in the planned energy turnaround can only be achieved with copper. But the resources are obviously not enough.

After a setback from the all-time high, which was triggered by recession fears, copper may now be starting a new bull run – here is the weekly chart. In any case, the copper price has risen strongly due to the opening of the Chinese market after the Corona pandemic.

Source: Bernstein Bank GmbH

The metal is mainly used in electronics and vehicle manufacturing, but also in construction or interior design – think of the alloy brass for door handles or lamps, which is made of zinc and copper. But as an excellent conductor, “Dr. Copper” is used primarily in electrification. And that’s exactly why the cops are increasingly speaking up.

What the professionals say
Investors from the retail market and also professional investors expect copper to be the best performing commodity this year, leaving gold, corn or oil behind. At least, that is the result of the latest MLIV Pulse evaluation by Bloomberg. According to the report, 45 percent of retail investors and 36 percent of professionals think copper is the winner.
Saxo Bank also weighed in, reporting last week that the net long position in copper – the difference between bullish and bearish bets – had climbed to a nine-month high in favor of the bulls.

Too little copper available
Last month, Goldman Sachs had already forecast a new record high this year, saying the market was extremely tight. Strategist Nicholas Snowdon said: “The sequential increase in policy targets and commitments to green transition, alongside a minimal supply response so far… have resulted in earlier and larger open-ended deficit conditions that essentially are already here, not beginning at some point in the future.”
Also last month, mining giant Glencore warned that a huge shortage of copper was looming, which could affect the energy transition. Given the International Energy Agency’s zero emissions target, the world would be short more than 50 million tons of copper by 2030. But the industry is shying away from the billions of dollars in investment needed in mines. According to the International Energy Agency, it takes an average of 16 years for a new copper mine to come on stream.

Demand pull due to energy transition
Last summer, Daniel Yergin, deputy head of S&P Global, had already calculated in an interview with the CNBC television station that copper demand will almost double to 50 million tons by 2035 due to the energy transition. By 2050, demand will reach more than 53 million tons, he said. This is more than all the copper consumed worldwide between 1900 and 2021.
Our conclusion: it is worth keeping an eye on the red metal. Especially since if the war in Ukraine continues, the production of new munitions will be in full swing. Just think of the tons of brass cartridge cases that will be senselessly and irretrievably fired. As it currently stands, only a change in policy and the end of the energy turnaround or a recession could stop the price increase. Or recycling will be massively expanded and existing mines will be increasingly developed. We wish you successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Bitcoin comeback

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23.01.2023 – BTC is back among the winners: bitcoin has just returned to the prices of the previous September. The largest e-device has had an amazing run for about two weeks. There are hardly any really solid reasons for this in the news. Nevertheless, there is a smorgasbord of bullish factors.

The mini-rally, which we reported on here a few days ago, continued recently. BTCUSD has already gained about a third this year. Here is the daily chart.

Source: Bernstein Bank GmbH

With that, let’s take a closer look at the background. We have found some valid conjectures at “FXStreet”. According to them, the Ukraine war is heating up demand for cyber currencies; Big Russian Money is likely to bring a lot of money to safety from US sanctions. In addition, the U.S. Securities and Exchange Commission (SEC) is apparently on the verge of approving the first index fund based on BTC futures – that would be a real vote of confidence. In the U.S. Senate, there were also signs of crypto regulation that would not hurt the industry.

More hunger for risk
The “Cointelegraph” also referred to a correlation that can be observed again and again: as soon as the U.S. dollar index dips, BTC rises. Furthermore, there is a correlation to more risk appetite in equities, which is fed by the recently cooled inflation – which is why the Federal Reserve may now not raise interest rates so sharply after all. In any case, the market has digested the bankruptcy of crypto lender Genesis well. Genesis took about $226 million in losses from the collapse of FTX. From a technical perspective, the website pointed to the Relative Strength Index, which behaved the same way it did in the recovery after the 2018 bear market.

Trades on the dark web
We add: Cyber Crime is also a huge bullish factor, but one that is going on undetected in the background. If, for example, North Korea is exchanging loot in bitcoin, of course we won’t read about it in any news service. Nor will we always hear about it when companies pay ransoms in BTC after being knocked out by ransomware. In any case, the topic is burning on the minds of discrete corporations: According to the Allianz Risk Barometer 2023, cybercrime and business interruption are the top two threats to companies worldwide.

Beware of profit-taking
Last but not least, it should be noted that despite the recent bull market, the trees are not growing to the sky: Joe DiPasquale, head of BitBull Capital, explained to “CoinDesk” that the rise was typical for the first quarter and stated “a long consolidation period that saw shorts accumulating. (…) The market has risen, partially fueled the short squeeze.” And then he warned, “Bitcoin and several altcoins are overheated and due for a correction. (…) We would not be surprised to see Bitcoin test the $20,000 level in the coming days.” Bernstein Bank wishes successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

The cartel

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20.01.2023 – Could it be that the shooting stars of recent years are in for a rough ride? On the one hand, the threat of recession and the tightening of the Federal Reserve are taking their toll on the growth stocks. On the other hand, the antitrust authorities are up in arms. And in the House of Representatives, the Republicans now have the power. We take a look at the background.

Let’s take a look at the daily chart of Amazon, pars pro toto. The stock had fallen sharply in recent months. Most recently, hopes of an end to the Fed’s tightening provided support. The Federal Reserve’s current cycle of interest rate hikes is hurting companies because it makes borrowing costs more expensive.

 

Source: Bernstein Bank GmbH

In addition, the threat of global recession is hitting mega-caps. Already at the beginning of January, Amazon confirmed a wave of layoffs of 18,000 people. Microsoft has just followed suit. Group CEO Satya Nadella announced: “We are making changes today that will lead to 10,000 job cuts (…)”. The company justified the austerity measures with the change in demand. Meta, Twitter and Cisco also reported job cuts.

Nasty antitrust authorities
In addition, the anti-trust authorities have also caused trouble in recent weeks. In December, the competition authority FTC filed a lawsuit to prevent Microsoft from buying the video game producer Activision. The deal is said to cost $70 billion. Since the end of 2021, the FTC has wanted to prevent Facebook parent Meta from buying virtual reality producer Within. We think: If the authorities continue to interfere with the high-tech giants, a renewal of the business in the middle of the recession could fail. Which could have a negative impact on the results.

Unpaid bills
The new balance of power in the House of Representatives also threatens trouble. There are some scores to settle: Silicon Valley traditionally supports the Democrats with millions of dollars – the high-tech giants want open borders so that software geniuses can enter the country as easily as possible. At Microsoft, Google, ex Twitter and co. woke biotopes have formed – soviet republics that tend to suppress the opinion of political opponents, which is anti-democratic and totalitarian.
In the end, we are dealing – in tandem with the mainstream media – with an opinion cartel that has been able to spread unhindered under the protection of the Dems. A fine example of this is the former flagship paper “Washington Post”, which is owned by Amazon boss Jeff Bezos and of course promotes open borders, which a certain logistics company that relies on low-wage workers can make good use of.

The protective hand

An honest clean-up, however, is likely to be prevented by the Department of Justice and also the FBI. Both agencies were staffed with loyalists under the Obama administration, which they see very nicely in the confidential documents found at Joe Biden’s place. With him, none of this is a problem; with Donald Trump, of course, it was – raid! In this respect, we do not see any control or even a break-up of the cartel companies, which could ultimately create synergies by separating bad parts of the company from the good ones. Thus, languishing in the current state would be the worst thing for the mega-caps. At least until the market celebrates the turnaround in interest rates. We are curious to see how things develop and wish you successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Zero on the Nippon

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18.01.2023 – It was probably nothing: the market had hoped for a tightening by the Bank of Japan. But the Bank is stubborn. The yen is sliding against pretty much all currencies. And in the long run, the question is how this will continue.

Japan is maintaining its interest rate and yield curve policy. Thus, the key interest rate remains at – 0.1 per cent and the BoJ will continue to buy Japan bonds in the future without specifying a limit. This is to keep the yield at 0, it was said in Tokyo. The central bank had caused a surprise in December when it announced that the yield band for ten-year government bonds would be between minus and plus 0.5 per cent from now on. Previously, it had hovered at plus/minus 0.25 per cent. From which the forex market concluded that the yield may move upwards and that Tokyo must soon follow suit. Today’s statement took the wind out of these fantasies. Consequently, the yen slipped against the dollar, the euro, sterling, the New Zealand dollar and also against its Australian counterpart. Indeed, the reaction in the Aussie nicely illustrates the recent nervousness – investors had to put down a few more yen before profit-taking set in on AUDJPY – shown here in the hourly chart.

 

 

Source: Bernstein Bank GmbH

Japanese monetary policy is now causing quite a headache for some professionals. Phoenix Capital Research fears that “Japan’s central bank (…) is beginning to lose control of its financial system.” Since the introduction of quantitative easing in 1999, the central bank has never managed to normalise monetary policy. For more than twenty years, therefore, a nationalisation of the Japanese financial system has been taking place. The BoJ already holds about half of all Japanese government bonds issued and more equities than any other country or institution in the world. Bloomberg just added that in about 33 weeks there will be no more privately held Japan bonds left for Tokyo to buy.

Nationalisation of the financial market
The monetary guardians of Nippon are also the top 10 shareholder in 40 per cent of Japanese public companies, according to Phoenix. The central bank’s balance sheet amounts to 92 percent of Japan’s gross domestic product. We think: Lenin would be proud of the Japanese – they have implemented state socialism and nobody wants to notice. And red policies always end in disaster. But back to Phoenix Capital Research: Unfortunately, the bond market has started to test the BoJ’s resolve and yields have recently risen above the target range. This means that Tokyo has to intervene behind the scenes almost daily.

Plague or Cholera

Now the central bank is trapped, Phoenix added: if it continues to print yen to buy bonds and defend the yield target, the yen will collapse and inflation will explode. But if it stopped pumping air money into the market to hold bond yields, yields would shoot up and Japan would slide into insolvency. The investment house drew a parallel to 2008 – only this time an entire country would go bankrupt.
We add: If this scenario happens, a Japan crash will shake the entire financial world. Jim Grant, editor of “Grant’s Interest Rate Observer”, also fears that Japan could trigger a shock for the global financial system and advises buying gold. And so we wonder how long the current monetary policy should continue like this. The global analysis house Vanda Research also commented, “bond buying is nothing short of unsustainable”. According to the financial blog “ZeroHedge”, the BoJ has already spent the equivalent of 300 billion dollars on bond purchases this month alone. So keep an eye on the real-time news, it smells like intervention in the yen – or a break in current policy. Bernstein Bank wishes you successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

This is how strong China really is

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17.01.2023 – Beijing has just released economic figures – and the mainstream press is bent on missing the government’s targets. The data for the fourth quarter, on the other hand, speak a different language. They promise that the People’s Republic is giving the world’s stock markets a powerful bullish boost.

Before we get into the details, let’s take a look at USDSGD, a rather exotic currency pair that might be of interest to China fans – the Singapore dollar closely follows the yuan, according to experts at Focus Economics in Spain. And with the People’s Republic’s economy on the way up, as we’ll see in a moment, investors in the city-state have recently had to pay less and less for a greenback. Which is not surprising given the close ties with its big neighbor.

 

Source: Bernstein Bank GmbH

Let’s first look at what the quality and truth media have drawn from the numbers. For example, ARD reports from Shanghai that China’s economy “grew by 3 percent overall last year – far below the Chinese government’s official target. It is one of the weakest results in decades.” At least the broadcaster acknowledges that this is more than analysts expected – though without giving details. Finally, we learn that the Communist Party had issued a growth target of 5.5 percent in the spring. Growth was only slightly weaker in the first corona year of 2020. So far, so true – and so sketchy.

Challenges for Beijing
Indeed, big Red Dragon is having trouble restarting the economy after the Corona lockdowns; and the gigantic real estate bubble is also a threat. Furthermore, the shrinking population, reported for the first time since 1961, is worrisome. In this respect, some investors might assume that the seemingly catastrophic figures are now shaking the world’s stock markets. But the details are quite different.

Strong Q4
The financial blog “ZeroHedge”, for example, suspects that China has bounced back. Because the figures for the fourth quarter would have exceeded all expectations. Thus, economic growth in the last quarter was plus 2.9 percent – the forecasts of analysts were on average 1.6 percent. Industrial production in December rose by 1.3 percent year-on-year, while expectations were only 0.1 percent. The figures for the retail sector were particularly positive: the decline in sales in December was only minus 1.8 percent; experts had expected minus 9 percent. In addition, market expectations are solidifying that the state will support reeling project developers with loans equivalent to $24 billion.

On the way up
Ho Woei Chen, economist at United Overseas Bank in Singapore, commented that China’s recovery is likely to be stronger this first quarter as the country reopens borders and eases regulation in some sectors, such as real estate. Specifically, it said, “We are maintaining our forecast for 2023 at 5.2%. Economic recovery is likely to accelerate in 2Q as the population achieves herd immunity, which will pave the way for further normalization in activities and a v-shaped recovery in private consumption.”
Our conclusion: China once rocked world stock markets by exporting the Corona crisis. China made many products more expensive due to gaps in its supply chain. Now, however, the country appears to be on the mend. Which will boost demand for goods from the West – so we just got a bullish boost. We expect this to show up in analyst forecasts and prices sooner rather than later. Of course, that’s if no event like a new Corona wave or Taiwan invasion gets in the way. Bernstein Bank wishes successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Stop and Go

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13.01.2023 – Back and forth on the financial market: Inflation in the USA is cooling off. Investors are betting on an end to interest rate hikes in the U.S. because of new Consumer Price Index (CPI) data. But the Federal Reserve is quickly putting the brakes on the buying mood.

What happened: Yesterday, the new CPI data arrived. In December, inflation in the U.S. fell for the sixth month in a row. To be sure, year-on-year inflation is still hovering around 6.5 percent. But in November, it had still been at 7.1 percent. The market reaction in a nutshell: stocks up, Treasuries up, oil more expensive, dollar down. The Dow Jones, for example – here the hourly chart – had already gained before the data, then analysis and doubts set in, now the index has regained its footing. The other major U.S. indices look similar.

 

Source: Bernstein Bank GmbH

The “Wall Street Journal” just summed it up on its website: “Markets Are Locked in a Game of Chicken With the Fed. Investors are betting the Fed will cut interest rates as early as the second half of the year. The central bank says otherwise.” In fact, there is still a lot wrong with inflation. For example, falling energy prices are primarily responsible for the decline, but prices for services and rents continue to climb.

The Fed puts the brakes on
Accordingly, some monetary watchdogs spoke out. Patrick Timothy Harker, president of the Federal Reserve Bank of Philadelphia, said the Fed is prepared to raise interest rates a few times in 2023. To be sure, he said, it is time to move to 25 basis points. However, achieving the 2 percent inflation target is quite difficult, he said. In his view, the fed funds rate should remain above 5 percent. Currently, the fed funds rate is between 4.25 to 4.5 percent.
From the St. Louis Fed, James Bullard reported an interest rate above 5 percent is the lowest level the Fed needs to aim for to tame inflation. Thomas I. Barkin, Richmond Fed chief, added that the latest data are a step in the right direction, but the central bank still has work to do.
On the one hand.
Many brokers now expect the Fed to raise rates by only 25 basis points in February. However, analysts at Capital Economics commented: “But the Fed isn’t going to stop raising interest rates until it sees accompanying evidence of an easing in labor market conditions and wage growth. It will be a couple more months before that evidence is also irrefutable.”

Our conclusion: Perhaps the Fed’s orchestrated statements are only intended to curb the buying mood in order to prevent an excessive bull market. After all, that would create social dynamite: Prices are still rising and people are feeling that they can afford less and less. A rally on Wall Street would be poison for the government. From the verbatim reports, we read that the Fed will only pause above 5 percent – how high above that is the loaded question. Wall Street is likely to price in these expectations and see itself near the end of the tightening cycle. However, much will depend on the current reporting season – we’ll keep you posted.

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 83% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.