Thursday's Markets Update (10 August 2023)

11 Aug 2023 by rate3

On Thursday, CPI got down while the inflation got up less than expected which energized markets on the opening but NASDAQ closed in the negative on increased traders uncertainties and bearish technicals. At the same time, BTC continued its record stretch of an suspense inactivity.

Details

Inflation

in increased slightly (to 3.2% from 3.0%) in July, but it is still below the peak of 9.1% reached in June 2022. The main drivers of inflation in July were energy prices, which fell but at a slower pace than in June. Prices for other goods and services also rose, but at a slower pace than in recent months. Core inflation, which excludes food and energy, eased slightly in July (to 4.7% from 4.8% in June).
Comment: It is possible that the increase in energy prices in July is a seasonal effect. The summer months are typically the hottest months of the year, and people use more energy to cool their homes and businesses. This can put a strain on energy supplies and drive up prices.

Consumer Price Index rose 0.2% in July, the same as in June. Shelter (30% of the total index) was the biggest driver of inflation, accounting for over 90% of the increase. Food and energy prices also rose, but at a slower pace than in June. Core inflation, which excludes food and energy, rose 0.2% in July, the same as in June.

Comment

It supports my conjecture. The Fed raising rates start to feed inflation as lenders continue to increase prices in anticipation of the higher rates. This is because lenders have borrowed money at a low interest rate, and they are now passing on those low interest rates to borrowers. However, as the Fed raises rates, lenders will need to charge borrowers higher interest rates in order to cover their own costs. This will lead to higher prices for goods and services, as businesses pass on the higher interest costs to consumers.

In addition, many lenders used bank loans to purchase properties in order to lend it to businesses and families. This means that they are now more exposed to rising interest rates, as they will need to pay more interest on their own loans. This could lead them to increase prices even further in order to cover their costs.

Macroeconomics

The Bank of Mexico kept its interest rate unchanged at 11.25% in August 2023, as widely expected. Inflation has eased in recent months, but remains high. The central bank expects inflation to converge to its target of 3% in the fourth quarter of 2024. The bank will continue to monitor inflation closely and take action as needed.

Comment

The Federal Reserve (Fed) is the most powerful central bank in the world, and its monetary policy decisions have a significant impact on the global economy. As a result, many other central banks around the world tend to follow the Fed's lead when it comes to setting interest rates.

There are a few reasons for this. First, the US economy is the largest and most influential economy in the world. When the US economy is doing well, it tends to boost economic growth in other countries. This is because the US is a major trading partner for many countries, and when the US economy is strong, it means that there is more demand for goods and services from other countries. This can lead to increased exports and economic growth in those countries.

Second, the US dollar is the world's reserve currency. This means that it is the currency that is most widely used to conduct international trade and finance. When the Fed raises interest rates, it makes it more attractive for investors to hold US dollars. This can lead to an increase in the value of the dollar, which can make it more expensive for other countries to import goods and services from the US. This can have a negative impact on economic growth in those countries.

Third, many other central banks around the world have a peg or a currency board system that ties their currency to the US dollar. This means that they are legally obligated to keep the value of their currency within a certain range of the US dollar. When the Fed raises interest rates, it can lead to an appreciation of the US dollar, which can put pressure on other central banks to raise their interest rates in order to maintain the value of their currency peg.