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From inflation to war, here are the 4 big factors impacting markets and the economy right now – CNBC

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HUNTINGTON BEACH, Calif. — There are four big trends impacting the economy and stock market right now, and uncertainty around each is creating challenges for investors, market experts and investment strategists said Monday at the Future Proof wealth conference.

Those high-levels trends are inflation, the Federal Reserve’s interest-rate policy, the U.S. dollar’s strength and the Russian invasion of Ukraine, said Barry Ritholtz, chief investment officer and chairman of New York-based Ritholtz Wealth Management.

“The macro environment at present is uncertain,” Anastasia Amoroso, managing director and chief investment strategist at iCapital Network, said.

“We’ve been at this for nine months and what have we really figured out” except that inflation is longer-lasting than expected, she added.

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The Federal Reserve has steadily raised borrowing costs since March this year to tame stubbornly high inflation.

Officials at the U.S. central bank have updated their expectations for how quickly and how much they will raise the benchmark interest rate — the Federal funds rate — to achieve their goal.

That “moving target” has been the biggest challenge this year relative to price volatility in the stock market, said Michael Arone, chief investment strategist for the U.S. SPDR business at State Street Global Advisors.

The war in Ukraine has also had global ripple effects on prices for energy, food and other commodities.

And the U.S. dollar is trading at its strongest in decades relative to currencies such as the euro and the British pound. That strength can “serve as a headwind in many ways,” Arone said. For one, about 45% of the revenue of companies in the S&P 500 Index is generated outside the U.S., and a strong dollar can negatively impact those earnings, he said. Imported goods may become less expensive, but U.S. exports become more expensive for other nations.

Meanwhile, the Federal Reserve is trying to achieve a “soft landing,” whereby higher borrowing costs slow the economy and tame fast-rising consumer prices, but don’t trigger a recession or considerable unemployment.

Fed officials have repeatedly acknowledged the difficulty of that task but Amoroso believes the central bank is in the process of achieving it.

Chipping away at ‘the inflation puzzle’

“We are starting to chip away at pieces of the inflation puzzle,” she said.

U.S. gross domestic product is slowing but “isn’t falling off the cliff,” she explained. Energy prices are moderating, which should over time feed into moderating food prices, she said. (Food prices partly reflect the energy costs involved in transport.) Consumers are also starting to push back on companies for higher airline fares, food prices and other costs, Amoroso said.

“I think it’s getting harder and harder for companies to justify price increases,” she added.

Of course, “the economy isn’t the market, and vice versa,” Arone said.

Often, the stock market will begin to price in an economic recovery well before economic data hit a bottom, as investors look to better days ahead, Arone said. That happened during the pandemic, for example — the stock market hit bottom on March 23 but then swiftly rebounded even in the throes of a health crisis.

The lesson for investors worried about recession: Get ahead of the trend by buying assets that do well in the early stages of an economic rebound, Arone said. Those include value stocks, small-cap stocks and industry sectors like energy, industrials and financials, he added.

As a general theme, Amoroso also recommended buying “when it feels terrible to do so.”

“As bad as things felt and maybe still do, buying things when they’re on sale makes a lot of sense,” she said.

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China’s Economy ‘Dismal,’ Will See No Growth, New Report – Forbes

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Communist China under premier Xi Jinping is wilting fast.

The economy, already under pressure so far this year, looks set to get even worse, according to a recent report from London-based consulting firm Capital Economics.

Capital kicks off with the following blistering assessment of the situation:

  • “The financial world’s focus on a generational surge in inflation in advanced economies is stealing attention from a generational slowdown in China that is arguably of much greater importance for the long-term global outlook.”

In other words, ignore China’s economic worsening quagmire at your peril.

Already we know that China’s steel production is falling, down 5.7% in the year through August, according to the World Steel Association. That country has long been the world’s largest producer of steel so the decline is meaningful on a global scale.

Worse still, only two of the top global producers performed worse over the same period: Russia and Turkey. Both are economic basket cases.

The hits keep on coming. Exports from Korea to China fell during the first three weeks on September, the Capital report says. At the same time, Korean exports to the U.S. grew.

  • This may be a sign that global demand for the consumer goods that China produces – and to which Korea provides inputs earlier in the production chain – is softening,” the Capital report states. My emphasis.

Put simply, retail customers globally are pulling back and thats already hurting China.

Monthly data for August show declining retail sales inside China as well and Capital expects further declines in September.

When the experts put all this together the outlook is bleak.

  • “We recently lowered our forecast for this year’s officially-reported GDP growth rate to 3% from 4% – the government’s 5.5% target set in March has been quietly abandoned – but in reality don’t expect the Chinese economy to grow at all.”

Put another way, China’s growth under Xi likely dropped to zero from regular double-digit gains.

It’s not the sort of achievement most leaders want.

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Poverty, inflation, fear: Egypt's economy pushed to brink – CityNews Toronto

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Poverty, inflation, fear: Egypt’s economy pushed to brink  CityNews Toronto



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Brazilians’ Outlook on Economy Improves Ahead of Vote – BNN Bloomberg

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(Bloomberg) — Brazilians’ views on the economy are improving amid stronger-than-expected activity and easing inflationary pressures. 

The number of voters who believe the economy is doing better now is as high as before the onset of the Covid-19 pandemic, local newspaper Folha de Sao Paulo reported on Sunday, based on the latest Datafolha poll. In the survey, 28% of respondents say the economic outlook has improved, up from 25% in August and 15% in June. Still, 50% believe activity has worsened in the last few months. 

Latin America’s largest economy is witnessing the first signs of easing inflationary pressures. Consumer prices fell back to single digits in August, after tax cuts on gasoline prices kicked in and commodity prices declined. Activity is proving resilient to an aggressive monetary tightening campaign, as unemployment fell for five consecutive months amid stronger-than-forecast growth in the second quarter. 

President Jair Bolsonaro’s voters have a more positive view on the economy, with 64% saying there’s an improvement in recent months. Only 7% think alike among those who favor former president Luiz Inacio Lula da Silva, still the favorite ahead of presidential elections. 

Read More: Bolsonaro Becomes Main Target in Brazil Debate Without Lula 

The economy remains one of the top concerns for Brazilians as they head to the polls on Oct. 2. Trying to improve his chances of reelection, the incumbent pushed a multibillion social package that included boosted paychecks to the poor. Still, 55% of those who received the aid believe the economic outlook is worse now, with 46% saying their personal situation also worsened in recent months.  

Read More: Bolsonaro, Lula Battle for Votes in Brazil’s Largest State (2)

Both Bolsonaro and Lula are focusing on populous regions of the country in the week before the election day. Bolsonaro is continuing to reach out to female voters, while Lula is facing a tough fight with his opponent among evangelical groups.

©2022 Bloomberg L.P.

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