Airlines Issue Profit Warnings as Cost Pressure Rises 

Last week, American Airlines and Spirit Airlines joined other airlines in issuing profit warnings that rising costs would hit profits during the peak summer season, as airlines begin reporting third-quarter results in mid-October. 

Consequences for Airlines

American Airlines said it expects adjusted earnings per share in the third quarter to be between 20 cents and 30 cents, down from its previous forecast of 95 cents per share, citing higher fuel prices and new labor deals. The airline cut its operating profit margin in half from its forecast earlier this summer to 4% to 5%. 

Spirit Airlines expects negative profit margins of up to 15.5% in the three months ended September 30, down from its previous forecast of -5.5% to -7.5%. The airline also lowered its revenue forecast for the third quarter. 

Frontier Airlines said, “In recent weeks, sales have been trending below historical seasonality patterns” and forecasted an adjusted loss for the quarter. The airline’s shares hit a 52-week low. 

Outlook for the Industry

Airlines have lost the pricing power they gained last summer as lockdown eased and capacity constrained. Now they face a slow season when travel demand traditionally slows.

Fare tracking company Hopper said: “Fare prices are expected to continue to decline during the fall off-season, with domestic U.S. fares averaging $211 in September and October, down 30% from the summer peak.” 

(Global Airlines ETF ticker: JETS, US Global Investors) 

Conclusion

The airline industry finds itself at a critical juncture, navigating through a turbulent environment marked by rising costs, shrinking profit margins, and waning pricing power.

The third-quarter results will serve as a litmus test, shedding further light on the industry’s ability to adapt and prosper in the face of these formidable challenges.

As stakeholders watch closely, adaptability and resilience will be key to ensuring a successful flight through these trying times.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

The Bank of Japan’s Monetary Policy: Prioritizing Stability and Inflation Targets

The Bank of Japan (BoJ) maintained ultra-low interest rates on Sep. 22 and its pledge to keep supporting the economy until inflation sustainably hits its 2% target, suggesting it was in no rush to phase out its massive stimulus program. 

In terms of inflation data for August, Japan’s core CPI, excluding fresh food, came in at 3.1%, above the Bank of Japan’s target of 2% for the 17th month in a row. Another core-core CPI which excludes volatile fuel prices and fresh food, reached 4.3%. Higher import costs boosted the inflation.  

Yield Curve Control: A Pillar of Stability

The BOJ’s yield curve control program remains intact, with short-term interest rates at minus 0.1% and 10-year Japanese government bond yields guided around zero percent. 

Governor Kazuo Ueda’s recent hint at ending negative interest rates if prices and wages rise added another layer of complexity to the discussion. Ueda suggested that sufficient information and data would be available by year-end to facilitate a decision. 

(Japan CPI YoY% & 10Y JGB Yield) 

Conclusion

In summary, the Bank of Japan’s decision to maintain ultra-low interest rates, even in the face of rising inflation, exemplifies a resolute commitment to steering the nation’s economy on a stable course.

By prioritizing stability and economic growth, addressing the persistent inflation challenge, and fostering transparency in decision-making, the BoJ assures its continued role in Japan’s economic journey.

Governor Kazuo Ueda’s hint at potential changes in policy adds a layer of anticipation to the financial landscape.

As the situation evolves, market participants and analysts will remain vigilant, as this strategic decision’s impact unfolds.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Main Point: ASX 200 Index’s Recent Decline

The ASX 200 Index tumbled 1.3% to below 7,000 on Sep. 22, hitting its lowest levels in six months and tracking losses on Wall Street overnight as the US Federal Reserve’s hawkish pause continued to weigh on investor sentiment.

The benchmark index is also on track to lose nearly 5% this week for its second consecutive weekly decline. Domestically, investors digested data showing Australia’s manufacturing activity contracted further in September, while services activity turned expansionary.

Impact on Key Sectors

Commodity-linked stocks led the decline with sharp losses from BHP Group (-2%), Rio Tinto (-2.3%), Fortescue Metals (-2.2%), Woodside Energy (-0.9%) and Newcrest Mining (-0.9%). Heavyweight financial, technology, and consumer-related firms slumped as well. 

(ASX 200 Index daily chart) 

The Judo Bank Flash Australia Manufacturing PMI

The Judo Bank Flash Australia Manufacturing PMI fell to 48.2 in September 2023, from 49.6 in the previous month, flash estimates showed. It pointed to the lowest reading in 4 months, indicating continued deteriorating business conditions across the sector.

Inflation and Pricing Strategies

A sharper fall in new orders led to manufacturing output shrinking for a tenth straight month in September. Consequently, firms reduced their purchasing activity and inventory holdings.

That said, employment levels rose with some manufacturers still facing a shortage of labor to support ongoing operations. Staffing constraints also led to a marginal lengthening of lead times.

Input cost inflation eased amid the drop in purchasing activity, while firms also raised their own selling prices at a slower rate. 

(Judo Bank Australia Manufacturing PMI, S&P Global) 

Implications and Conclusion

In conclusion, the ASX 200 Index’s recent nosedive results from a complex interplay of domestic and international factors.

The US Federal Reserve’s hawkish stance, along with domestic issues, especially the manufacturing sector’s contraction, has deepened economic uncertainties.

While challenges persist, businesses have demonstrated resilience in adapting to the evolving landscape.

In this volatile market, comprehending the intricacies of the ASX 200 Index’s journey is vital for investors and analysts alike.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Federal Reserve Interest Rate Stability

The Federal Reserve (FED) held rates still at 5.25 to 5.5%. Chairman Powell said at a press conference after the meeting, “We will continue to make interest rate decisions on a case-by-case basis based on all data and the impact on economic activity and the outlook for inflation. ” 

Chairman Powell’s Insights

Powell said that there is still great uncertainty about the timing of interest rate cuts. The forecast for 2024 is only a current estimate.

He believes that the time for interest rate cuts in 2024 will always come, but he said that he would not specify a specific time. He believes that the labor market will eventually weaken, but must proceed with caution, believing that the failure to restore price stability is a more serious problem. 

Interest Rate Projections

Judging from the interest projections released with the statement, the FED is expected to raise interest rates by another 25 basis points this year, with interest rates peaking at 5.50%-5.75 %.

Technology stocks will be under increasing pressure as rising interest rates push up bond yields, attracting investors to shift more cash into the bond market. 

(FOMC interest rate target level, FOMC) 

Revised GDP Forecasts

The FED believes that the U.S. economy is improving and has revised its 2023 gross domestic product (GDP) growth forecast upward to 2.1% from the 1.0% forecast in June. It has also revised the GDP forecast from 1.1% to 1.5% for 2024. The forecast value for 2026 was first announced at 1.8%.  

(GDP Forecast, FOMC) 

Conclusion

In conclusion, the Federal Reserve’s decision to maintain interest rates and revise GDP forecasts upwards in October 2023 is a clear indication of its faith in the U.S. economic outlook.

The FED’s cautious approach to interest rates, its commitment to data-driven decision-making, and its unwavering focus on price stability will play pivotal roles in steering the nation toward sustainable economic growth and stability in the years to come.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Japan’s Semiconductor Slowdown: Impact on the Economy

Japan’s Ministry of Finance released import and export data for August, which showed weak demand from China and semiconductor equipment.

The export value fell 0.8% from the same month last year to 7,994.3 billion yen due to reduced exports of semiconductor machinery (-36.3%), organic chemicals (-19.1%), and fossil fuels (-63.7%). It fell into contraction for the second consecutive month. 

(Exports YoY, Mo F Japan) 

Import Challenges

Japan’s imports fell 17.8% year-on-year to 8,924.82 billion yen, the fifth month of decline since August 2020 and the largest decrease since August 2020, dragged down by energy costs mainly.

The value of imports decreased due to the import of crude (- 25.5%), liquefied natural gas (-43.0%), and coal (-48.6%). 

(Imports YoY, Mo F Japan) 

Trade Deficit Dynamics

Japan’s trade deficit decreased sharply to JPY 930.5 billion in August 2023 from JPY 2,790.4 billion in the same month a year earlier, compared with market estimates of a shortfall of JPY 659.1 billion.

Exports fell by 0.8% yoy to JPY 7,994.4 billion, the second straight month of drop, amid weak foreign demand, particularly from China; while imports slumped 17.8% to JPY 8,924.8 billion, the fifth consecutive month of fall and the steepest pace since August 2020, weighed down by energy cost and strong yen. 

(Balance of Trade, Mo F Japan) 

Implications and Conclusion

In conclusion, Japan’s economic woes are inextricably linked to the semiconductor slowdown and the declining demand from China.

This hierarchical structure conveys the central message efficiently, with supporting details that provide a comprehensive understanding of the economic challenges at hand.

To overcome these challenges and pave the way for future growth and stability, Japan must address the decline in crucial export sectors, navigate import challenges posed by energy costs, and develop strategies to mitigate the trade deficit impact.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Mastering Holiday Spending in Times of Economic Uncertainty

A new CNBC-Morning Consult survey has found that 92% of adults have reduced their spending over the past six months, and plan to spend less through the holidays. 

The Core Insight

Consumers remain cautious in their spending due to job insecurity and inflation. The most common categories for spending cuts over the past six months were clothing and apparel (63%), restaurants and bars (62%), and entertainment outside the house (56%), a pattern that held steady from our June survey. The next biggest categories for cuts were groceries (54%), recreational travel and vacations (53%), and electronics (50%.) 

Looking ahead to the holiday shopping season, a warning for retailers: More than three-quarters of all U.S. adults surveyed (76%) plan to cut back on spending for non-essential items, and 62% expect to cut back on essential items “sometimes” or “more often” over the next six months, the survey found. 

Just how acutely consumers reported feeling the impact of the current economic situation varied among socio-economic groups. And it wasn’t always those making the least that reported feeling most pinched. 

Impact Across Socio-Economic Groups

More than half (55%) of households earning $50,000 or less (lower-income) said they’re feeling the impact of the economy on their personal finances, while 61% of households with $50,000 to $100,000 (middle-income) and 46% of households making at least $100,000 (higher-income) reported the same. 

However, Higher-income households are in fact moving toward feeling that the economic situation is having a positive impact, the survey reports 30% in September, up from 21% in June. 

Conclusion

In light of the economic uncertainty, a significant portion of Americans is adjusting their spending habits, especially as they approach the holiday season.

While these changes in consumer behavior pose challenges, they also offer opportunities for individuals to reevaluate their financial priorities and develop prudent spending habits.

By following these strategies and adapting to the current economic landscape, you can make the most of the holiday season while safeguarding your financial well-being.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

The European Central Bank’s Recent Interest Rate Hike and Its Impact on the Euro

The European Central Bank (ECB) raised the three key interest rates by 25 bps.

Starting from September 20, 2023, the marginal lending facility, main refinancing operations, and deposit facility will increase to 4.75%, 4.50%, and 4.00% respectively, setting a record since the euro was introduced in 1999. 

(Latest ECB interest rate, ECB) 

A Historic Interest Rate Shift in ECB

The ECB raised the benchmark interest rate from a historical low of -0.5% to the current record high in 20 years and 14 months.

Although Eurozone inflation has cooled, reaching 5.3% in August, the same as in July, it is still far beyond the 2% target. Rising interest rates put pressure on the euro, which fell to its lowest level against the dollar in five months. 

(EUR /US YTD Chart) 

ECB’s Inflation Control and Economic Growth Prospects

European Central Bank President Christine Lagarde said at the press conference that inflation in the eurozone has been hovering at a high level for too long, core inflation is still too high, and food and energy costs continue to put upward pressure on prices.

She reiterated that the ECB is committed to bringing inflation back to its 2% target. At the same time, the economy is expected to grow by 0.7% this year, 1% next year, and 1.5% in 2025, which is lower than the previous forecast growth of 0.9%, 1.5%, and 1.6%. 

The Global Implications

The ECB’s move has not only had a profound impact on the Eurozone but has also sent ripples across the global financial landscape. It underscores the central bank’s unwavering commitment to achieving price stability, even at the expense of economic growth prospects.

In conclusion, the ECB’s decision to raise interest rates to their highest levels in over two decades is a clear signal of its determination to tackle inflation. While this move may have consequences for the Euro and economic growth in the short term, it demonstrates the central bank’s commitment to maintaining price stability in the Eurozone.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Unveiling the Robust U.S. Economic Landscape Ahead of the Federal Reserve Meeting

The Bureau of Labor Statistics released three statistical reports on September 14: 

1. Retail sales 

U.S. retail sales in August increased by 0.1% on a monthly basis higher than market expectations, and the annual growth rate increased from 2.6% to 2.5%. Retail sales in August were mainly driven by the sharp increase in gas station sales mom from 0.1% to 5.2%, reflecting the rebound in oil prices.

Other categories also generally showed positive growth, with more significant increases including automobiles and parts from -0.4% to 0.3%, electronics Supplies -1.1%→0.7%, and dining out and catering 0.8%→0.3% showed a slowdown.

Overall, retail sales in August were partly due to the recovery in gasoline prices, but retail sales excluding automobiles and gasoline were also higher than market expectations. (0.2% vs. 0.1%), the control group dropped from 0.7% to 0.1%, which was still better than the market expectation of -0.1%, highlighting that the US consumer market is still strong. 

(Retail Sales data, BLS) 

2. Initial jobless claims 

Last week, the number of initial claims for unemployment benefits increased by 3,000 from 217,000 to 220,000, lower than the expected 225,000.

The number of continuing claims for unemployment benefits in the previous week increased by 4,000 from 1.684 million to 1.688 million, which was lower than the market estimate of 1.69 million people, showing that the job market is cooling more slowly than expected. 

(Initial Jobless Claims, BLS) 

3. PPI (Producer Price Index)

The August producer price index (PPI) increased by 1.6% year-on-year, higher than market expectations of 1.2% and the previous value of 0.8%, growing for the second consecutive month.

Excluding volatile food and energy prices, the August core PPI rose by 2.2% YoY, in line with market expectations and lower than the previous value of 2.4%.

The growth of PPI in August was mainly driven by rising energy and transportation costs.  

(Core PPI, BLS) 

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

Understanding the Surprising Rise in U.S. Inflation Data

On September 13^th, the U.S. Department of Labor (BLS) released the Consumer Price Index (CPI) in August increased by 3.7% year-on-year, slightly higher than the market estimate of 3.6%, and higher than the previous value of 3.2%.

However, excluding food and energy Core CPI increased by 4.3% YoY, in line with market expectations and lower than the previous value of 4.7%. It was the smallest increase in the past two years, but it was still higher than the Fed’s 2% target. 

(U.S. Consumer Price Index CPI) 

Understanding the Drivers

Examining the report details, energy was the main driver for the growth of CPI in August, accounting for more than half of the CPI increase. On a monthly basis, the growth rate of 5.6% was much higher than the 0.1% growth rate last month.

Separately, on an annual basis, housing prices increased by 7.3% in August, accounting for more than 70% of core CPI. However, the housing inflation rate is falling sharply, and the slowdown in growth has become more obvious.

In August, transportation (10.3%) beat housing for the first time and became the biggest driver of core CPI.

The production cuts by OPEC+ and the threat of strikes by the United Auto Workers against General Motors, Ford and Stellantis are all creating variables in the fight against inflation.  

Implications for Monetary Policy

This CPI report is the last important economic data to be seen before the Fed’s monetary policy meeting next week.

CME Group The FedWatch Tool shows that the interest rate futures market predicts a 97% chance of keeping interest rates unchanged next week and only a 3% chance of raising interest rates by 25 bps.

However, the chances of keeping interest rates unchanged and raising interest rates by 1% at the November meeting are respectively 60% and nearly 40%. 

(Detailed classification MoM % & YoY%, US BUREAU OF LABOR STATISTICS ) 

Conclusion

In summary, the unanticipated rise in U.S. inflation data for August 2023 raises critical questions and concerns.

As we explore the drivers behind this increase and the potential impact on monetary policy, it is evident that the economic landscape is evolving rapidly.

Market participants and policymakers must remain vigilant and adaptable in the face of dynamic conditions.

The coming months promise to be pivotal as we witness the Federal Reserve’s response to these unforeseen developments and their broader economic implications.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided. 

The ECB Debate: Hawks vs. Doves – Charting a Path Through Uncertainty

Since July 2022, interest rates in the euro area have increased by 4.25 percentage points. But as signs of recession in the region become increasingly apparent, with annual price growth now at half its peak of 10.6%, disagreements have emerged within the ECB over the future direction of interest rates. Some officials prefer to adding 25 bps, while others want to suspend interest rate hikes. 

At the end of the summer, indicators of manufacturing and services sectors in the eurozone pointed to a slowdown. Higher interest rates of 3.75%~ 4.50% restrict bank lending. In fact, on September 11, the European Commission lowered the euro zone’s growth outlook for 2023 from 1.1% to 0.8% due to shrinkage in Germany, the largest economy in the region. 

A Diverging Path at ECB

Three aspects make ECB decision-making more difficult: 

1. Core inflation remains high, and although it has slowed somewhat, it grew at 5.3% last month, well above the historical average. Annual wage increases uplift price pressures as the labor market appears tight, particularly in the services sector. 

2. Rising oil prices due to production cuts by OPEC+ allies and strikes at Australian LNG plants have added more variables to the eurozone economy. Prices are likely to remain high for longer. 

3. There are apparent differences among ECB officials. After inflation falls, the European Central Bank is more willing to convey a hawkish tendency. The European Central Bank has defied market expectations in the past. To regain its prestige, it will continue to emphasize its anti-inflation credibility. 

Christine Lagarde’s Balancing Act

Regardless of the decision, European Central Bank President Christine Lagarde must firmly express the ECB’s commitment to achieving its inflation target and say that interest rate cuts are still a distant prospect. It is a difficult decision, but actions speak louder than words when it comes to getting the message across. 

Conclusion: Christine Lagarde’s Crucial Role

In conclusion, the ongoing ECB debate between the hawks and doves underscores the intricate decision-making process central bankers must navigate amidst economic uncertainties.

With core inflation remaining elevated, oil price volatility adding another layer of complexity, and divergent perspectives within the ECB, President Christine Lagarde faces a formidable task.

She must effectively communicate the ECB’s dedication to achieving its inflation target and convey that interest rate cuts remain a distant prospect.

In this critical juncture, actions will speak louder than words in conveying the ECB’s stance to the public and the financial markets.

In light of the multifaceted challenges, the world watches with keen interest, as the ECB’s final decision carries profound implications for the eurozone’s economic landscape.

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Disclaimer  

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided.