Finally, the continued appreciation of gold, which is seen as a safe haven during economic shocks, also reflects the increased level of anxiety among investors.
US investors are once again looking for positive news
Table of Contents
- 1 US investors are once again looking for positive news
- 2 Moderate interest rate cuts are expected
- 3 The dollar’s selling took a breather
- 4 Recession signals in the US bond markets
- 5 The European economy is not gaining momentum
- 6 Deflationary pressure in China
- 7 The price of oil is still looking for a “floor”
- 8 How are shifting investor mindsets affecting gold prices in the US economy?
In the US markets, a change in the mindset of investors is observed: positive reactions are received by positive news from the economic sector, although most of 2024 part of it was the other way around, i.e. worse economic indicators were seen as good news for stock investors. A slowing U.S. economy, inflation and a cooling labor market have confirmed the assumption that the Fed will eventually cut interest rates. This would give consumers and businesses some breathing room from rising funding costs, which is seen as a positive signal for stock markets.
Why is the logic of investors changing now? Last month, Fed Chairman Jerome Powell announced that it was time to adjust monetary policy. He is convinced that inflation is approaching the target of 2 percent. level, and at the same time acknowledged that the labor market has become balanced again. If economic data continues to support this positive growth scenario, it will lead to a rally in stock prices. So far in the third quarter, US GDP is growing at about 2.5 percent. at a pace that is faster than the long-term GDP forecast.
This also changes the valuations of stock markets, in other words, bad economic news now does not mean anything good for stocks. For example, U.S. manufacturing activity contracted for a fifth straight month in August and job vacancies fell to their lowest level since 2021. beginning, causing stock prices to fall. By the way, equity investors are not the ones who would expect aggressive actions from the US central bank – more interest rate cuts would mean that the Fed’s urgency was due to a possible economic downturn.
Moderate interest rate cuts are expected
US core inflation rose unexpectedly in August as house price growth accelerated, reducing the likelihood of a higher 0.5 percent rate hike from the Fed. point interest rate reduction. The market gives the highest probability so far at 0.25 percent. point reduction.
The core consumer price index (CPI), which excludes food and energy spending, rose 0.3 percent from July and 3.2 percent on the year. Economists see core CPI as a better gauge of inflation than headline CPI, which rose 0.2 percent month-on-month and 2.5 percent year-on-year. This is the fifth month in a row that the annual rate has declined, largely due to cheaper fuel.
Friday, September 13 In the past two weeks, the Dow Jones Industrial Average rose 1.1 percent, the S&P 500 rose 1.7 percent, and the Nasdaq Composite gained 3.2 percent, according to data.
The dollar’s selling took a breather
As the expectations for interest rate cuts took root in the market, and the speculative US dollar. with positions settling between negative and neutral, the dollar’s sell-off has taken a breather recently.
With analysts forecasting the Fed to cut rates by 25 basis points this week and then gradually reduce them to neutral through 2025, the narrative should favor high-beta currencies such as the Swedish and Norwegian krone.
At the real 2025 with the risks of an economic downturn added to the fact that the Eurozone’s recovery is so far very sluggish, China is facing structural consumption problems, and US stock market valuations have risen, it is not surprising that investors are once again a bit more cautious about selling the US dollar.
The euro remained practically unchanged (+0.03%) in recent weeks and settled at $1.1075, while the pound sterling recorded a slight 0.17%. fell against the US dollar and was trading at $1.3124 on Friday. The Japanese yen continues to strengthen – its rate increased by 4.13 percent. and the ratio currently trades at 140 yen to the dollar.
Recession signals in the US bond markets
The longest inversion in the bond yield curve in history, where shorter-dated bond yields exceed longer-dated bond yields, may not have scared investors much until now, but it will become increasingly difficult to ignore.
The closely watched portion of the Treasury yield curve saw the spread between the 10-year and 2-year notes turn positive this week for the second time since 2022. This has reignited investor concerns about the economy, as the inversion is seen as a harbinger of recession.
The most realistic scenario while waiting for the Fed to cut interest rates is that the curve will become steeper. Historically, a “steepening” yield curve has indicated that the US economy is stalling or already in recession.
While the bond market is increasingly reflecting this bleak scenario, equity investors seem to believe things will be different this time around. A soft economic downturn is certainly possible, but recession risks have increased, with data pointing to a weak labor market and stock prices not yet largely reflecting this.
Equity market participants tended to shrug off yield curve inversions, at least initially, but as the yield curve consolidates in positive territory, equity results tend to turn to the downside.
The European economy is not gaining momentum
With inflation close to 2 percent, the ECB cut interest rates to 3.5 percent for the second time this year. The ECB argued that, based on the updated assessment of the inflation outlook, the dynamics of core inflation and the strength of monetary policy transmission, it is appropriate to take a further step in reducing the degree of monetary policy constraint. However, in its announcement, the ECB did not commit to a further path to reducing borrowing costs.
At that time, the economy of the euro zone countries does not gain momentum. Households are failing to sustain the recovery seen at the start of the year, and manufacturers remain in the doldrums due to weak foreign demand. This weakness prompted the ECB to cut its 2024 GDP forecast. The ECB forecasts that it will now grow by 0.8 percent, compared to the 0.9 percent forecast in the previous quarter. growth.
As mentioned, growth in Europe’s largest economies is fluctuating, so inflation may fall faster than expected. Consumer confidence remains below pre-pandemic levels, and a combination of weaker growth and relatively higher interest rates dampens the region’s potential.
China’s continuing disinflation, which was also highlighted at the last ECB meeting, is another negative factor. With China, the world’s second-largest economy, failing to achieve stable growth, the near-term outlook for the Eurozone is getting even worse.
In the past two weeks, stock indices in Europe have fallen. European stock index STOXX 600 on Friday, September 13. 1.7 percent completed trading. below, the German DAX index – 1.2 percent. lower, the United Kingdom’s FTSE 100 index fell 1 percent, while the Baltic OMX Baltic Benchmark ended two-week trading down 0.4 percent. below.
Deflationary pressure in China
China’s core inflation cooled to the weakest in more than three years, prompting a push to boost household spending as weak demand puts pressure on the country’s annual growth target.
The Office for National Statistics said on Monday that the consumer price index, which excludes volatile food and energy prices, rose just 0.3 percent in August. – at least from 2021 March The broader CPI increased by 0.6 percent. and fell short of expectations, although it was boosted last month due to bad weather and higher food prices.
Taken together, the figures are further evidence of weak consumer demand in the world’s second-largest economy, prompting calls for more action to prevent a downward spiral in corporate income, wages and spending.
Societe Generale’s Asia-Pacific expert Michelle Lam notes that deflationary pressures are becoming more entrenched in China, which could lead to a downward spiral in prices and wages and call for more radical policy action.
Major indexes in Asia also fell, with Japan’s Nikkei down 5.4 percent in the two-week period, China’s blue chip CSI 300 down 3.2 percent and Hong Kong’s Hang Seng down 1.8 percent over the period. .
The price of oil is still looking for a “floor”
Recently, the numbers cheering drivers on gas station billboards reflect the fact that global oil prices are on a downward trend. This trend is fueled by the observed slowdown in China and fears of a possible recession in the US economy.
OPEC+ is considering a possible delay in a planned October output increase after prices fell to their lowest level since last year. A group led by Saudi Arabia and Russia is reconsidering whether to take the planned 180,000 barrels per day production increase. OPEC+’s plan to delay production increases will not prevent the oil market from running into a large surplus next year or Brent falling below $60, according to Citi.
“Brent” oil contracts were traded as much as 7.6 percent in the two-week perspective. below and reached 71 US dollars. per barrel. The US WTI oil price fell by 2.4 percent. up to USD 68 during the Friday session. The price of gold increased by 3 percent. up to USD 2,577 per ounce.
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2024-09-19 03:01:05
How are shifting investor mindsets affecting gold prices in the US economy?
US Economy Sees Shift in Investor Mindset as Gold Prices Soar
As the global economy continues to grapple with uncertainty, investors are adapting their strategies to navigate the changing landscape. The recent surge in gold prices, considered a safe-haven asset, reflects elevated anxiety levels among investors. Meanwhile, US investors are shifting their focus towards positive news from the economic sector, marking a departure from the previous trend of celebrating bad economic indicators as good news for stocks.
A Change in Investor Sentiment
The US markets have witnessed a significant change in investor mindset, with positive reactions to good economic news. This shift can be attributed to the Federal Reserve’s (Fed) indication that it may cut interest rates, providing relief to consumers and businesses from rising funding costs. The assumption is that a slowdown in the US economy, combined with cooling inflation and labor market, will lead to a rally in stock prices.
Fed’s Monetary Policy Adjustment
Last month, Fed Chairman Jerome Powell announced that it was time to adjust monetary policy, driven by the notion that inflation is approaching the 2% target level and the labor market has become balanced again. This positive growth scenario has led to a rally in stock prices, with the US GDP growth rate exceeding 2.5% in the third quarter.
Impact on Stock Market Valuations
The new investor mindset has also changed the valuations of stock markets. Bad economic news no longer translates to good news for stocks. In fact, recent news of US manufacturing activity contraction and job vacancies falling to their lowest level since 2021 has led to a decline in stock prices.
Moderate Interest Rate Cuts Expected
The market expects the Fed to cut interest rates moderately, with a 0.25 percentage point reduction being the most likely scenario. This comes after the US core inflation rose unexpectedly in August, reducing the likelihood of a higher 0.5 percentage point rate hike. The core consumer price index (CPI) rose 0.3% from July and 3.2% year-on-year, indicating that the economy is still growing, albeit at a slower pace.
Dollar’s Sell-Off Takes a Breather
As expectations for interest rate cuts took root in the market, the speculative US dollar short positions have settled between negative and neutral, leading to a breather in the dollar’s sell-off. Analysts forecast the Fed to cut rates by 25 basis points this week and then gradually reduce them to neutral through 2025, which should favor high-beta currencies such as the Swedish and Norwegian krone.
Recession Signals in the US Bond Markets
The longest inversion in the bond yield curve in history, where shorter-dated bond yields exceed longer-dated bond yields, has reignited investor concerns about the economy. The inversion is seen as a harbinger of recession, making it increasingly difficult to ignore. While the most realistic scenario is that the curve will become steeper as the Fed cuts interest rates, the yield curve inversion remains a worrying sign for investors.
the shift in investor mindset in the US markets reflects a growing awareness of the need for caution in an uncertain economic environment. As gold prices soar and bond yields signal recession, investors are adapting their strategies to navigate the changing landscape. With the Fed expected to cut interest rates moderately, the focus will be on the US economy’s growth trajectory and its impact on stock market valuations.
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Explore the shift in investor mindset in the US markets, driven by gold price increases and Fed’s indication of interest rate cuts. Learn how this change in sentiment impacts stock market valuations and the economy.
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