News review 22.09.2022
INTERNATIONAL NEWS
Extraordinary presidential elections in Kazakhstan will be held on November 20
They will elect a new president for one term for 7 years.
Turkish presidential elections will take place on May 14, 2023
Gasoline prices in the U.S. have risen for the first time since June 15
Looks like the bottom has been hit. Not good news for inflation.
Russian oligarch Alisher Usmanov faces criminal prosecution in Germany
He became a tax resident of Germany due to his personal use of his real estate there.
At the same time he was allegedly caught receiving his salary in an envelope and got caught up in money laundering, evasion and circumvention of sanctions.
U.S. secondary market home sales fell only slightly and better than expected
The secondary market is holding up.
Moldovan President Maya Sandu demanded that Russia immediately withdraw its troops from Transnistria.
FT: Executives of U.S. banks JPMorgan Chase, Bank of America and Citigroup pledged to withdraw funds from China in case Beijing attacks Taiwan
MARKET NEWS
The Fed expectedly raised the discount rate by 0.75% to 3-3.25%.
However, macroeconomic forecasts from the Fed unpleasantly surprised the market:
- The discount rate in 2023 will be raised to 4.6% (the interval of expectations of the central bank members is 4.4-4.9% - in June they expected 3.6-4.1%),
- This year, the Fed's rate will exceed 4% and reach 4.1-4.4% (previously 3.1-3.6% was expected),
- Core PCE inflation in 2023 will reach 3-3.4% (previous forecast was 2.5-3.2%),
- unemployment will rise to 4.1-4.5% (in June it was expected 3.9-4.1%),
- real GDP growth will be 0.5-1.5% (the previous forecast was 1.3-2.0%).
By the way, in 2022 the Fed is expecting near zero growth of the US economy - the growth from 0.1% to 0.3% (in June the growth of 1.5-1.9% was expected). Inflation expectations for the current year have increased slightly.
That is, the Fed expects a stronger slowdown of the economy on the background of stronger inflation. At the same time, the forecast for nominal GDP is worsened because of higher inflation.
These forecasts clearly do not include a recession. But the unemployment outlook is up to 4.1-4.5% from 3.7% now, which suggests recession is on the horizon. The Fed's words and actions are leading to a recession in the U.S.
On a separate note, the Fed is not considering a quick sale of $2.7 trillion in mortgage-backed bonds (MBS), and Powell responded bluntly that a sale was not imminent.
The Bank of Japan decided today not to change anything in monetary policy.
It kept short-term interest rates at minus 0.1% and the target yield on 10-year Japanese government bonds near zero.
After reports from real estate developers Lennar (LEN) and KB Home (KBH), their shares are generally neutral
The reports beat expectations, but the slowdown in the housing market reduced orders from both homebuilders.
Net margins at Lennar, the second-largest U.S. housing developer, were 23.5%, "even though materials and labor costs increased."
Lennar said its new orders fell 12% to 14,366 homes in Q3, and KB Home's net orders fell 50% to 2,040 homes.
Lennar CEO: "Sales have clearly been impacted by rising interest rates, but there is still a significant housing shortage, especially workforce housing, and demand remains strong as we balance price and interest rates."
General Motors (GM) plans to produce 1 million electric vehicles in North America by 2025
By comparison, Tesla's current production capacity is almost 2 million cars a year (globally). And by 2025 it is possible to reach 5 million cars.
The CEO of Nvidia (NVDA) boasted that the overwhelming number of customers in China was not affected by the restrictions imposed by the U.S.
Well, now the U.S. authorities will pay attention to it.
Well, in the meantime, NVDA shares were supported by investors.
By the way, Nvidia's CEO also said that "Moore's Law is dead." "And the ability under Moore's Law to deliver twice the performance at the same cost, or at the same performance at half the cost every year and a half, is over. It's completely over, and so the idea that the chip is going to get cheaper over time is unfortunately a thing of the past."
"Computing is not a chip problem, it's a software and chip problem," Huang said. That's why the company is developing Software-as-a-Service and Infrastructure-as-a-Service lines of business.
"There are customers who want to own, and there are customers who like to rent," he said. "Startups would prefer to have assets in operating expenses. Large, established companies would prefer to have capital investments."
"Some people would prefer to outsource the factory. And remember, artificial intelligence will be the factory, the most important factory in the future. The factory gets raw materials in, and something comes out. In the future, factories will have data coming in, and the output will be intelligence, models."
WSJ: META plans to cut costs by 10%.
First and foremost, it's about labor costs.
Home Depot workers in Philadelphia have petitioned for the store's first union
They are demanding higher wages and better working conditions.
Employees see the company's record profits and claim a share of them.
JP Morgan head to Congress: Cryptocurrencies are a pyramid scheme
Stablecoins should be regulated as money market funds.
Ray Dalio says stocks and bonds will continue to fall and the U.S. recession will come in 2023 or 2024
When asked to share his thoughts on where the markets might move, Dalio said, "There's a saying, 'whoever lives with a crystal ball is destined to eat the frosted glass.
Carl Icahn to investors: "The worst is yet to come."
"Inflation is a terrible thing," Icahn says, saying it led to the fall of the Roman Empire. - You can't cure it.
The 1st half of the year for the U.S. stock market was the worst since 1970. Icahn, by contrast, has had a good start to 2022, with his Icahn Enterprises net asset value up 30% in the first six months.
Icahn said hedging strategies were key to his success.
Icahn blamed federal spending for the country's current financial woes. "We printed too much money and just thought the party would never end. And the party is over."
Jesse Powell, co-founder of cryptocurrency exchange Kraken, will step down as CEO of the company
Financial Markets
The Fed's updated gloomier forecasts (although they don't predict a recession itself, but it is becoming an increasingly obvious scenario - the Fed's main goal now is to get the labor market to weaken and wages to stabilize) were the trigger for the stock market to fall as a result of the U.S. central bank meeting and the speech by its head.
The main thing that Powell said was that the Fed would tolerate a recession until they see a steady decline in inflation towards the 2% target.
Stock indices are down 1.7-1.8%. And futures are down another 0.6-0.8% this morning.
The S&P 500 has officially entered the bear market again (down over 20%). And all sectors were down. Non-cyclical consumption was the best performing sector.
The likelihood of a capitulation by equity investors has risen sharply.
The U.S. dollar gained about 1%.
Against the euro it is now 0.98.
Separately, the Chinese yuan weakened 0.6% to 7.1 yuan/dollar. Previously, Chinese authorities have expressed their displeasure with the strengthening dollar - they are starting to get squeezed by expensive external business liabilities.
The inevitability of recession was also reflected in the dynamics of U.S. government bonds. The Fed's determination to fight inflation is the best gift to holders of long-term bonds. And the flight from equities adds to the demand for the protective asset - that's why TLT gained almost 2% yesterday.
But most importantly, for now, Fed members are not expecting a Fed rate hike above 5%.
The Bank of England rate decision will be published this afternoon.