One of the overarching market themes this year - aside from the hype around artificial intelligence - has been investors avidly building up bets on the Federal Reserve finally announcing an end to its cycle of rate hikes, only to have that optimism dashed.
There's no doubt, the U.S. central bank is nearing the end of its mission to wrestle down inflation. Headline consumer price pressures are rapidly abating, thanks to a wholesale retreat in food and energy prices. Headline inflation in July rose 3.2% annually - a far cry from last June's 9.1% - and nearing the Fed's 2% target.
Inflation as reflected in the Fed's preferred data point - the core personal consumption in expenditures (PCE) index - is running at 4.1%, having peaked in February 2022 at 5.4%.
The economy isn't generating jobs as quickly as it was a year ago, but it's still set to add another 170,000 in August, which will mean more than 25 million workers will have been added to non-farm payrolls since the depths of the COVID pandemic in April 2020.
Crucially, Fed Chair Jerome Powell has once again reinforced the "higher for longer" mantra that has underpinned most of his, and his officials', communications this year, no matter how much market participants have bet otherwise.
U.S. two-year Treasury yields, the most sensitive to shifts in expectations for Fed monetary policy, posted their largest weekly rise in two months last week, after Powell's comments at the annual Jackson Hole Economic Policy Symposium. He vowed to tread carefully with rate rises and rely on incoming data but was clear about the endgame.
“It is the Fed's job to bring inflation down to our 2% goal, and we will do so," he said. Money markets show traders believe the Fed has one more hike in the pipeline this year, which would bring its target rate to a range of 5.50%-5.75%, from 5.25%-5.50% right now. Just three months ago, when rates were at 5.125%-5.37%, markets were betting on a year-end range of 5.00%-5.25%, implying at least one rate cut this year.
This week, investors get a dose of top-tier data to help shape their view on the Fed's next move. A second read of U.S. gross domestic product is due on Wednesday, while core PCE and August non-farm payrolls arrive on Thursday and Friday, respectively.
Record levels of government debt, geopolitical tensions that threaten to split the global trading system, and the likely persistence of weak productivity gains may saddle the world with a slow-growth future that stunts development in some countries even before it starts.
"Countries are now in a more fragile environment. They've used a lot of their fiscal resources to deal with a pandemic. Then you have policy-driven forces, geoeconomic fragmentation, trade tensions, the decoupling between the West and China," International Monetary Fund chief economist Pierre-Olivier Gourinchas said in an interview on the sidelines of an annual Fed conference. "If we get to a point where part of the world is stuck without catching up and has large amounts of population, that creates tremendous demographic pressures and migration pressures."
Gourinchas said global growth may settle into a trend of around 3% annually, a figure far below rates above 4% seen when rapid advances in China's economy drove global output higher and which some economists consider borderline recessionary in a world where quick gains should still be achievable in large, less-developed countries.
China is now suffering what may be chronic economic problems along with a shrinking population. Emerging industrial policies in the U.S. and elsewhere are reordering global production chains in ways that may be more durable or serve national security ends, but also be less efficient.
The implications of public debt that is "here to stay" varies by country, they said, with higher-debt but higher-income nations like the U.S. likely able to muddle through over time, while smaller nations perhaps face future debt crises or binding fiscal constraints.
Globally the fallout could be severe if public borrowing steers capital from countries that still have growing populations and less developed economies, said Cornell University economics professor Eswar Prasad.
The Bank of Jamaica (BOJ) has reported that the foreign exchange rate and the market have remained relatively stable over the last two years, reflecting, in part, the actions taken by the institution.
During the Central Bank’s recent quarterly monetary policy media briefing, Governor Richard Byles revealed that the BOJ, through its Bank of Jamaica Foreign Exchange Intervention Trading Tool (B-FXITT) facility, sold approximately US$585Mn in 2023. However, in contrast, the bank net purchased about US$761Mn over the same period.
As of August 16, Jamaica’s gross international reserves remained substantial at approximately US$4.6Bn, which exceeded the standard measure of adequacy by approximately 15%, and the Bank projects that the reserves will remain adequate over the medium term.
As it relates to inflation expectations, the BOJ’s latest survey showed less than 14% of the respondents indicated that a strong depreciation in the exchange rate was the most important factor behind their views of future inflation. Meanwhile, Mr. Byles said Jamaica’s economy continues to expand, which supports increases in aggregate demand for goods and services and can potentially drive inflation upwards.
The Planning Institute of Jamaica (PIOJ) has estimated that the economy grew by 1.5% for the June 2023 quarter and that there are signs of continued expansion for the September 2023 quarter. Data from the Statistical Institute of Jamaica (STATIN) indicate that the country’s unemployment rate in April 2023 was 4.5%, the lowest on record.
The Bank continues to project growth ranging between 1% and 3% for fiscal year 2023/24, largely due to expansion in the mining sector and continued growth in tourism and its allied industries. Over the medium term, the economy is projected to settle at its long-run growth rate of 1%-2%.
Brazil has announced plans to release approximately $2 billion in its first sustainable sovereign bonds this September, a significant move towards eco-friendly financing.
Dario Durigan, the executive secretary of the Finance Ministry, stated, "In the upcoming month, the world will be closely observing and acquiring our sustainable bonds." He made this remark during a session of the country's Climate Fund committee, highlighting that these bonds will be backed by green and social projects.
"The expectation that we have in the Nation Treasury is that we issue something around $2Bn. It is a very relevant amount, it will be able to serve as a financing base for the ecological transition plan."
Durigan said that during a meeting later on Thursday of the National Monetary Council (CMN) - Brazil's top economic body comprising the finance minister, planning minister and central bank governor - the government will greenlight the issuance of the country's first sustainable sovereign bonds and will define a new framework that will govern Climate Fund operations.
In an interview with Reuters last week, Rafael Dubeux, who is coordinating efforts in the Finance Ministry's "ecological transformation" plan, disclosed that the initial allocation of Brazil's inaugural sustainable sovereign bonds will primarily benefit the Climate Fund under the oversight of the state development bank BNDES, aiming to finance actions to reduce emissions effectively.
The bonds are part of President Luiz Inacio Lula da Silva's efforts to improve Brazil's record on the environment in a broad green plan that includes the establishment of a regulated carbon credit market.
Brazil's ambitious step towards sustainable bonds underscores its commitment to environmental preservation and ecological transition. By tying financial mechanisms with green initiatives, Brazil not only sets a precedent for emerging economies but also reaffirms its dedication to global environmental objectives.
Brazil's President called on Wednesday for the BRICS nations to create a common currency for trade and investment, to reduce their vulnerability to dollar exchange rate fluctuations.
Brazil's president does not believe nations that do not use the dollar should be forced to trade in the currency, and he has also advocated for a common currency in the Mercosur bloc of South American countries. A BRICS currency "increases our payment options and reduces our vulnerabilities," he told the summit's opening plenary session.
Building a BRICS currency would be a "political project", South African central bank governor Lesetja Kganyago told a radio station in July. "If you want it, you'll have to get a banking union, you'll have to get a fiscal union, you've got to get macroeconomic convergence," Kganyago said. "Importantly, you need a disciplining mechanism for the countries that fall out of line with it; plus they will need a common central bank, where does it get located?"
BRICS leaders have said they want to use their national currencies more instead of the dollar, which strengthened sharply last year as the Federal Reserve raised interest rates and Russia invaded Ukraine, making dollar debt and many imports more expensive.
The greenback's share of official FX reserves fell to a 20-year low of 58% in the final quarter of 2022, and 47% when adjusted for exchange rate changes, according to International Monetary Fund data.
However, the dollar still dominates global trade. It is on one side of almost 90% of global forex transactions, according to Bank of International Settlements Data. De-dollarising would need countless exporters and importers, as well as borrowers, lenders and currency traders across the world, to independently decide to use other currencies.
Investors may be underestimating the degree of potential market turbulence stemming from the Federal Reserve's economic symposium at Jackson Hole, Wyoming, potentially leaving them more vulnerable to a hawkish surprise, options strategists said.
Some strategists believe that the outlook may not be cautious enough, especially if last year is any guide.
A more hawkish-than-expected message from Powell at Jackson Hole last August sank the S&P 500 by 3.4% on the day of his address - the biggest reaction to a Fed chair’s speech at the annual symposium in at least 11 years, a Reuters analysis showed. At that time, options markets were primed for a move of around 1.4%.
With many investors sitting on big year-to-date gains in stocks and bond yields pushing higher, investors may be caught flat-footed if a hawkish Powell spurs a run out of risky assets, Steve Sosnick, chief strategist at Interactive Brokers, said. Markets "have shaken off some of the outright complacency that existed about a month or two ago but (they) are hardly risk averse," he added.
Though the Fed has made significant progress in cooling consumer prices, the pressure may be on Powell to reinforce his "higher for longer" mantra on rates to avoid giving the impression that the battle against inflation was already won, BofA's analysts wrote.
SpurTree recorded a net profit attributable to shareholders of $3.04Mn for the quarter that ended June 30, 2023. This represents a 92.1% yoy decrease in profitability. Similarly, net profit for the six months ending June 2023 decreased by 51.2% to record a profit of $43.56Mn
Revenue for the quarter was up by 37.9% yoy to $278.22Mn, while revenues for the six months increased by 50.8% yoy to $661.90Mn. While there was a commendable performance in traditional sectors such as seasonings and sauces, revenue for the period was negatively impacted across the group by low availability and consequent low production of ackee for sale during the quarter.
Cost of sales saw an increase of 63.7% and 69.9% over the three-month and six-month periods respectively. This subsequently resulted in a fall in gross margin to 25.0% (from 36.8%) in Q2 and 29.3% (from 37.2%) for the first half of the year.
Admin and other expenses for the quarter increased by 92.8% over the same period in 2022 as well as 84.8% yoy over the six months. This increase is attributed to increased salary costs arising from the addition of talent in critical areas, depreciation expenses, promotional activities in the US market to reintroduce the brand and products directly to customers post-COVID, and legal and professional fees.
SpurTree’s stock price has decreased by 34.8% since the start of the calendar year. The stock closed Wednesday’s trading session at $2.10 and currently trades at a P/E of 35.0x which is above the Junior Market Manufacturing Sector Average of 17.3x.
The company has highlighted that Exotic Products (a manufacturing partner to the company) is nearing completion of a second production line, enhancing its capacity to yield substantial ackee quantities during each crop. The factory will also introduce new lines of canned products, packed for Spur Tree Spices that are expected to drive growth for the company.
The Bank of Jamaica has admitted that the Central Bank’s digital currency, JAMDEX, is behind its projected target.
BOJ’s Governor Richard Byles conceded that "we are not where we wanted to be." He explained that this is due to several issues, including the slow transition of the existing technology to accept JAMDEX, specifically the point of sale machines, which need to be adjusted to take a JAMDEX QR code, and that is an avenue that is being worked on.
He further highlighted that other payment technologies are seeing increased use.
Byles explained that smaller merchants, in particular, who do not rely on POS machines have been recruited to take JAMDEX.
Currently, there are over two hundred thousand individuals, who have the capacity on their phone to pay for their services and goods with JAMDEX and once that happens, it means that every supermarket, every fast food enterprise; and all kinds of merchants will be able to take JAMDEX.
Colombia's banks have called on the country's central bank to tackle liquidity issues amid lower-than-expected government spending and compliance with the international regulatory framework Basel III, which strengthens bank risk management.
Colombian banking association Asobancaria suggested the central bank cut the reserves that financial institutions are required to hold, buy dollars at the spot market rate and allow foreign entities to purchase fixed-term certificates of deposit (CDTs).
Analysts attribute the financial system's decrease in liquidity to the government's slower budgetary spending and higher tax collection. The funds are stored in the central bank and have not flowed into the economy.
So far this year, the government has spent 47% of its planned budget, according to the finance ministry. However, some lawmakers warn some ministries have spent just 20%.
Furthermore, banks are required to retain a certain level of reserves under Basel III, adding to the liquidity strain. "It's necessary to adopt a series of measures to guarantee liquidity in accordance with the needs of the economy," Asobancaria said in a report published on Tuesday.
A World Bank study has highlighted that the Dominican Republic must increase its productivity by implementing reforms to strengthen human capital, competitiveness, innovation, efficiency in public spending, and resilience to climate events.
In recent years the country has experienced low productivity growth, as pending structural reforms have not been implemented and this has contributed to the stagnation of real wages.
The report, “Rethinking Productivity to Boost Growth Leaving No One Behind, DR Economic Memorandum,” highlights that economic growth in the DR averaged 5.8% per year between 2005 and 2019, more than double the average for Latin America and the Caribbean.
However, the drivers of this exceptional growth are reaching their limit due to low productivity growth in recent years, hampered by insufficient human capital to meet the needs of the business sector, the occurrence of climate change-related disasters, and distortions in key markets, including the inefficient allocation of tax exemptions.
“The model that has generated so many social and economic benefits for the country can be revitalized to become more dynamic, inclusive and sustainable, which will allow for the continued reduction in income gaps, especially for women, and that promotes better jobs and more opportunities for more households and regions in the country,” said Alexandra Valerio, resident representative of the World Bank.
The structural reforms proposed in the report are: Strengthening human capital; first, adapting the education system to the needs of the market, through the modernization of secondary studies, and continuing education for adults. Second, reducing inequality of opportunities between genders and between rural and urban areas.
For the Promotion of competition: reducing barriers to entry and expansion of companies in key economic sectors, revision of sectoral protection provisions for established companies, production and export quotas, and price controls, among others.
To incentivize innovation: technological extension services, improvement of management capabilities, development of basic infrastructure for innovation, and implementation of subsidies for small and medium-sized enterprises that have not benefited from tax incentives.
Another reform is improvements in the efficiency of public spending and the tax system, among which the elimination of tax exemptions and the broadening of the tax base continue to be priorities. Further, increasing resilience to external shocks and weather events by developing fiscal risk strategies was another suggestion.
