EUR Breaking New Ground Amid Shifting Monetary Policies

Central Bank

Economic

Summary:

The euro has recently consolidated at higher levels, signalling a potential shift in the currency's trading dynamics.

After breaking out of the 1.0500 to 1.1000 trading range that had dominated much of the landscape since late 2022, the euro is now trading within a new, higher range between 1.1000 and 1.1500. This move is particularly noteworthy given the currency's previous struggles to maintain momentum above the 1.1000 level. However, this time around, the euro's ascent appears more sustainable, underpinned by a confluence of factors that suggest a fundamental shift in market expectations and economic conditions.

One of the primary drivers behind this newfound strength is the anticipated monetary policy divergence between the Federal Reserve and the European Central Bank (ECB). The market has begun to price in the likelihood that the Federal Reserve will soon initiate a rate-cutting cycle, with expectations of at least 75-100 basis points in reductions by the end of the year. This shift in the US monetary policy stance reflects growing concerns about the resilience of the US economy in the face of global economic headwinds, including slowing growth in China, persistent geopolitical tensions, and tighter financial conditions. As the Fed pivots towards a more accommodative stance, the relative attractiveness of the US dollar is likely to diminish, providing further support for the euro.

In contrast, the ECB is expected to take a more measured approach to easing as the year progresses. After implementing a 25-basis point rate cut in June, the ECB is widely expected to lower rates by an additional 25 basis points this month. Importantly, the ECB refrained from making consecutive rate cuts at the July meeting, a decision that has been interpreted by the market as a signal of caution. As a result, a 25-basis point reduction in September is almost fully priced in, which should mitigate any significant downside risks to the euro in the near term.

However, the ECB's future policy trajectory remains a key focus for market participants. The central bank's updated guidance will be closely scrutinized to assess whether it will maintain a quarterly pace of cuts or potentially accelerate its easing cycle. As it stands, the euro-zone rate market is pricing in approximately 37 basis points of cuts by the October meeting, reflecting some degree of uncertainty and speculation about the ECB's next moves. I’m expecting that the ECB will continue with a quarterly rate cut schedule, with the third cut likely occurring in December rather than October. This more gradual approach aligns with MUFG outlook for modest euro strength against the US dollar, as it suggests that the ECB is not in a rush to aggressively ease monetary policy, thereby preserving some support for the euro.

Complicating the ECB's decision-making process is a growing divergence in views among its policymakers. A recent Reuters report highlighted emerging disagreements within the ECB regarding the growth outlook, which could add a layer of complexity to policy deliberations beyond this month. The more hawkish members of the ECB have emphasized that actual growth figures this year have consistently outperformed weaker survey results, bolstering their argument for a cautious approach to rate cuts. These members are concerned that moving too quickly with rate reductions could jeopardize the ECB's ability to achieve its inflation target of 2% within a reasonable timeframe, potentially pushing the target date out to 2026.

Given this backdrop, it seems unlikely that ECB President Christine Lagarde will strongly signal another rate cut for October at the upcoming September meeting. Instead, she is more likely to stress the importance of maintaining a flexible, data-dependent approach, with decisions being made on a meeting-by-meeting basis. This cautious tone would help manage market expectations and allow the ECB to respond more nimbly to evolving economic conditions. Moreover, by avoiding a clear commitment to further rate cuts in October, Lagarde could provide the ECB with the necessary leeway to adjust its policy stance should inflation or growth dynamics shift unexpectedly.

In conclusion, while the euro's recent strength marks a notable shift in the currency's trading range, its future trajectory will largely depend on the interplay between US and euro-zone monetary policies. The Fed's move towards easing, coupled with the ECB's more measured approach, creates a supportive environment for the euro. However, the underlying risks associated with diverging views within the ECB and the potential for unforeseen economic developments suggest that market participants should remain vigilant. The euro's path forward is likely to be shaped by a delicate balance between growth, inflation, and central bank actions on both sides of the Atlantic.

To stay updated on all economic events of today, please check out our Economic calendar

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Forex

Japanese Yen Key Points

When global stock indices tank, the Japanese yen is usually a big beneficiary of the risk-off trade.The weaker-than-expected JOLTS Job Openings survey is weighing on the US dollar.If 144.00 gives way, a continuation toward the 13-month low around 140.75 could be next for USD/JPY.

It’s a tale as old as time for experienced FX traders: When global stock indices tank, the Japanese yen is usually a big beneficiary of the risk-off trade. After the S&P 500 saw its third-worst day since the start of 2023 recently (-2.1%), Asian indices saw even larger drops and European bourses saw a second straight day of selling as well.

Keying in on USD/JPY, the weaker-than-expected JOLTS Job Openings survey (7.7M vs. 8.1M expected, lowest reading since April 2021) weighed on the US dollar specifically; after Fed Chairman Powell specifically noted that the Fed would be on high alert for any further deterioration in the job market in Jackson Hole last month, this report has traders on edge ahead of Friday’s marquee NFP report. As it stands, traders are pricing in nearly coin flip odds (53%/47%) of a 25bps or 50bps rate cut from the US central bank later this month, so Friday’s jobs report may be even more market-moving than usual.

Japanese Yen Analysis – USD/JPY Daily Chart

From a technical perspective, USD/JPY has nearly reversed all of last week’s gains in just the last two days alone. The pair is currently testing previous support near the 144.00 level – if the pair finishes yesterday under there (technically 143.96), it would mark the lowest closing price for USD/JPY since early January.

If 144.00 gives way, a continuation toward the 13-month low around 140.75 could be next, whereas only a big bullish reversal back above 147.00 would end the recent pattern of lower highs and lower lows and flip the near-term bias back to neutral.

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Owen Li

Indian property developer Rustomjee plans to build data centres in Mumbai, the nation’s largest real estate market, to ride the artificial intelligence (AI) boom while it continues to sell luxury homes, according to a top executive.

The data centres will be developed across five million square feet of land in Thane, a suburb of Mumbai, where the company holds an “economic interest”, Chandresh Dinesh Mehta, an executive director of Keystone Realtors Ltd, said in an interview.

Rustomjee, the brand of publicly listed Keystone, plans to get a strategic or financial partner for the project, he said. It currently has a residential township in Thane through a partnership that is 49%-owned by Singapore’s Keppel Land Ltd, a unit of Keppel Ltd.

“We feel that data centres are going to be an asset class, and there is play that is possible,” Mehta said. Thane is “strategically located, where you have fibre connectivity and availability of power”, he added.

India’s data centre capacity has nearly doubled since 2019, drawing interest from a wide range of investors, according to a report from Avendus Capital. Mumbai alone is expected to add 40% in new capacity in the next five years, the report said.

Real estate investment trusts and companies that have data centres have seen their share values surge this year as they provide key infrastructure for widespread AI adoption.

Keystone, which hit a US$1 billion (RM4.34 billion) valuation this year, began in 1995 in the affordable housing segment in Dahisar, a distant suburb of Mumbai. By 2001, its Rustomjee brand had started taking over residential buildings from owners, rebuilding them and constructing more apartments, Mehta said.

The developer is also betting on appetite for second homes, with the launch of its villa township in Kasara, located about 100km from Mumbai. “Customers want green spaces and homes where they can spend holidays with their family and friends,” Mehta said.

Given the ageing buildings and “zero supply of open spaces” in Mumbai city and its suburbs, redevelopment will continue to be a focus area for Rustomjee, and it has no plans to invest beyond the city and its surrounding areas.

“More buildings are discussing redevelopment post Covid, when people were stuck at home and realised homes were not only places to sleep, but to work, study, entertain and spend more time,” Mehta said.

Last year, Bollywood producer Dinesh Vijan reportedly bought three floors in Rustomjee’s new redevelopment project in the upscale Pali Hill neighbourhood for over one billion rupees (US$12 million or RM51.72 million), according to local media. Mehta declined to comment on the transaction, but said such pricing was not unusual.

Any real estate purchase of at least 200 million rupees “is not a one-off transaction in Mumbai, unlike in Bangalore or Chennai”, he said. “I have enough headroom in Mumbai.”

Source: Theedgemarkets

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Glendon

Economic

As September 2024 draws to a close, technology stocks have showcased remarkable performance, driven by a combination of innovation, strong earnings reports, and investor enthusiasm. This article delves into the standout tech stocks of the month, analyzing their performance, the factors contributing to their success, and what this means for future investment opportunities.

Overview of Tech Stock Performance in September 2024

The technology sector has continued its strong momentum into September, following a successful summer. Major indices like the Nasdaq and S&P 500 have benefited from significant gains in tech stocks, reflecting the sector's resilience and growth potential. The month has been marked by impressive earnings, strategic acquisitions, and breakthroughs in technology, contributing to the robust performance of select stocks.

Key Highlights of September 2024

Nvidia (NVDA)

Nvidia remains a dominant force in the technology sector, with its stock surging by 15% in September. The company's performance has been buoyed by several key factors:

Breakthrough in AI Technology: Nvidia's latest advancements in artificial intelligence (AI) and machine learning, particularly its new graphics processing units (GPUs) designed for AI applications, have been well-received by the market. These innovations are expected to drive demand in sectors ranging from gaming to data centers.

Strong Earnings Report: Nvidia's Q3 earnings report exceeded analyst expectations, with significant revenue growth driven by robust sales of its high-performance GPUs and data center products.

Strategic Partnerships: Nvidia has formed strategic alliances with major tech firms to integrate its AI solutions into their platforms, enhancing its market position and driving future growth.

Apple Inc. (AAPL)

Apple continues to perform strongly, with its stock up by 12% this month. Key factors contributing to Apple's success include:

Product Launches: The successful launch of the latest iPhone models and updates to its MacBook lineup have generated substantial consumer interest and pre-order sales.

Expansion into New Markets: Apple has made significant strides in expanding its services segment, including advancements in its subscription-based services and digital health initiatives.

Positive Analyst Reviews: Strong positive reviews and recommendations from analysts have bolstered investor confidence in Apple's long-term growth prospects.

Microsoft Corporation (MSFT)

Microsoft has shown a 10% increase in its stock price in September, supported by several key developments:

Cloud Computing Growth: Microsoft Azure's continued growth has been a major driver of the company's performance. The expansion of cloud services and enterprise solutions has led to higher revenue and market share in the cloud computing sector.

AI Integration: Microsoft’s integration of AI technologies into its Office suite and other products has positioned it as a leader in digital transformation.

Acquisition Activity: Microsoft’s strategic acquisitions, including recent purchases in cybersecurity and enterprise software, have strengthened its product portfolio and market position.

Alphabet Inc. (GOOGL)

Alphabet has experienced a notable 8% increase in its stock price this month. Key factors behind Alphabet's strong performance include:

Advertising Revenue: Alphabet’s advertising revenue has continued to grow, driven by increased digital ad spending and improved ad targeting technologies.

Innovation in AI and Cloud: Investments in AI research and the expansion of Google Cloud have contributed to Alphabet’s positive performance and future growth prospects.

Regulatory Settlements: Recent settlements with regulatory bodies have resolved some of the company’s legal challenges, providing clarity and removing uncertainties that have previously impacted its stock.

Tesla Inc. (TSLA)

Tesla has seen a 7% rise in its stock price in September, with several factors contributing to its strong performance:

Advancements in EV Technology: Tesla’s continued innovation in electric vehicle (EV) technology, including advancements in battery efficiency and autonomous driving capabilities, has attracted investor interest.

Production Milestones: Achieving new production milestones and expanding its global manufacturing footprint have bolstered Tesla's market position and revenue potential.

Strong Sales Growth: Increased demand for Tesla’s vehicles and energy products has driven revenue growth and enhanced the company’s overall performance.

Factors Driving Tech Stock Success

Several factors have contributed to the success of these tech stocks in September 2024:

Technological Innovation: Continued advancements in AI, cloud computing, and EV technology have been central to driving stock performance. Companies that are leading in these areas are attracting significant investor interest.

Strong Earnings Reports: Positive earnings results and revenue growth have reassured investors and bolstered confidence in the future prospects of these companies.

Strategic Investments and Acquisitions: Strategic moves, including acquisitions and partnerships, have strengthened the market position of these tech giants and enhanced their growth potential.

Positive Market Sentiment: Overall positive market sentiment towards the tech sector, driven by favorable economic conditions and technological advancements, has supported stock price increases.

Conclusion

September 2024 has been a remarkable month for technology stocks, with several key players demonstrating impressive performance. Nvidia, Apple, Microsoft, Alphabet, and Tesla have all shown strong gains, driven by innovation, strong earnings, and strategic investments. As the technology sector continues to evolve, these companies are well-positioned to capitalize on emerging trends and opportunities, making them attractive options for investors looking to leverage the growth potential of the tech industry.

Investors should continue to monitor these stocks and the broader technology sector for potential opportunities and developments that may impact future performance. With ongoing advancements and a favorable market environment, the tech sector remains a dynamic and promising area for investment.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

Investing with a long-term perspective is a strategy that can lead to substantial financial growth, stability, and wealth accumulation over time. Unlike short-term trading, which often involves higher risk and rapid decision-making, long-term investing focuses on holding assets over extended periods, capitalizing on compounding returns and enduring market trends. This article explores some of the best long-term investments to consider, the principles guiding these choices, and strategies for building a robust long-term investment portfolio.

The Fundamentals of Long-Term Investing

Long-term investing involves committing capital to investments with the expectation that they will appreciate in value over several years or even decades. This strategy is rooted in several key principles:

Compounding Returns: Over time, investments can grow exponentially due to the effect of compounding, where earnings generate additional earnings. This principle is crucial for wealth accumulation.

Market Resilience: Long-term investments often benefit from the overall growth of the market. Despite short-term volatility, the market tends to increase in value over the long run.

Diversification: Spreading investments across various asset classes can reduce risk and enhance potential returns. A well-diversified portfolio is less likely to suffer significant losses if one sector underperforms.

Patience and Discipline: Long-term investing requires patience and discipline, as it involves resisting the urge to react to short-term market fluctuations and focusing on long-term growth.

Top Long-Term Investment Options

Stocks

Blue-Chip Stocks: These are shares in large, well-established companies with a history of reliable performance and dividends. Examples include Apple (AAPL), Microsoft (MSFT), and Johnson & Johnson (JNJ). Blue-chip stocks tend to be less volatile and offer consistent returns, making them ideal for long-term investing.

Dividend Growth Stocks: Companies that consistently increase their dividend payouts can provide a reliable income stream and capital appreciation over time. Investing in dividend aristocrats—companies with a long history of increasing dividends—can be particularly rewarding.

Real Estate

Residential Property: Owning rental properties can generate steady income and appreciate in value over time. Areas with strong job growth and increasing population tend to offer the best long-term prospects.

Real Estate Investment Trusts (REITs): For those who prefer a more hands-off approach, REITs offer exposure to real estate markets without the need to directly manage properties. REITs can provide regular dividend income and have the potential for capital appreciation.

Bonds

Government Bonds: U.S. Treasury bonds and other government securities are considered low-risk and provide stable returns. They are a good choice for conservative investors seeking safety and income.

Municipal Bonds: Issued by state and local governments, municipal bonds offer tax advantages and relatively stable returns. They are suitable for investors looking for tax-free income.

Mutual Funds and ETFs

Index Funds: These mutual funds or ETFs track a specific index, such as the S&P 500. They offer broad market exposure, low fees, and have historically provided solid long-term returns.

Target-Date Funds: Designed for investors with a specific retirement date in mind, target-date funds automatically adjust their asset allocation as the target date approaches, making them a convenient option for long-term retirement planning.

Precious Metals

Gold: As a traditional hedge against inflation and economic uncertainty, gold can be a valuable addition to a long-term investment portfolio. It often retains value and provides diversification.

Silver and Other Metals: Silver, platinum, and other precious metals can also be considered for long-term investing, especially if they align with market trends and economic forecasts.

Cryptocurrencies

Bitcoin and Ethereum: While more volatile and speculative, leading cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) have shown significant long-term potential. They can be part of a diversified portfolio, but investors should be cautious and only allocate a portion of their assets to cryptocurrencies.

Retirement Accounts

401(k) and IRA Accounts: Tax-advantaged retirement accounts such as 401(k)s and IRAs are excellent for long-term investing. They offer various investment options, including stocks, bonds, and mutual funds, and provide tax benefits.

Education and Personal Development

Investing in Skills and Knowledge: Education and skill development can yield significant long-term returns. Investing in yourself by acquiring new skills or advanced degrees can enhance earning potential and career growth.

Strategies for Successful Long-Term Investing

Set Clear Goals: Define your long-term financial objectives, whether it’s retirement, buying a home, or funding education. Clear goals will help you select appropriate investments and stay focused.

Regular Contributions: Consistently invest a portion of your income over time. Dollar-cost averaging—investing a fixed amount regularly—can help mitigate market volatility and build wealth gradually.

Rebalance Your Portfolio: Periodically review and adjust your investment portfolio to maintain the desired asset allocation. Rebalancing ensures that your investments remain aligned with your risk tolerance and goals.

Stay Informed: Keep up with market trends, economic indicators, and developments in the investment landscape. Staying informed will help you make better investment decisions and adapt to changing conditions.

Seek Professional Advice: Consider consulting with a financial advisor to develop a personalized investment strategy and receive guidance on managing your portfolio.

Conclusion

Long-term investing is a powerful strategy for building wealth and achieving financial goals. By focusing on a diversified portfolio of stocks, real estate, bonds, mutual funds, precious metals, and other assets, investors can benefit from compounding returns, market growth, and reduced risk. Adhering to key principles of patience, discipline, and informed decision-making will enhance the potential for success in long-term investing.

Whether you are just starting to build your investment portfolio or looking to refine your existing strategy, understanding the best long-term investment options and implementing effective strategies will set you on the path to financial security and prosperity.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

Investing in dividend stocks can be a powerful strategy for generating steady income and building long-term wealth. Dividend-paying stocks offer investors regular cash payments in addition to potential capital appreciation, making them an attractive option for those seeking both income and growth. This article provides a detailed guide on how to invest in dividend stocks, including key considerations, strategies, and tips for maximizing returns.

Understanding Dividend Stocks

Dividend stocks are shares in companies that distribute a portion of their earnings to shareholders in the form of dividends. These dividends are typically paid on a regular basis—monthly, quarterly, or annually. The appeal of dividend stocks lies in their ability to provide a consistent income stream while also offering the potential for capital gains as the stock price appreciates.

Benefits of Investing in Dividend Stocks

Steady Income: Dividends provide a regular income stream, which can be especially valuable for retirees or those looking to supplement their income.

Compounding Returns: Reinvesting dividends can accelerate wealth accumulation through the power of compounding, as dividends are used to purchase additional shares.

Reduced Volatility: Dividend-paying stocks often exhibit lower volatility compared to non-dividend-paying stocks, as the regular income can cushion the impact of market fluctuations.

Inflation Hedge: Dividend increases can help offset the effects of inflation, preserving the purchasing power of your income.

Attractive Valuation: Dividend stocks can sometimes be undervalued, providing opportunities for capital appreciation in addition to income.

Key Considerations When Investing in Dividend Stocks

Dividend Yield: The dividend yield is the annual dividend payment divided by the stock’s current price. A higher yield indicates a greater return relative to the stock price. However, a very high yield may signal potential risks, so it’s essential to evaluate the sustainability of the dividend.

Dividend Growth: Look for companies with a history of increasing their dividends over time. Consistent dividend growth often reflects strong financial health and a commitment to returning value to shareholders.

Payout Ratio: The payout ratio is the percentage of earnings paid out as dividends. A lower payout ratio suggests that the company retains a larger portion of earnings for reinvestment, which can be a sign of financial stability and future growth potential.

Financial Health: Assess the company’s overall financial health by examining key metrics such as revenue, earnings, debt levels, and cash flow. A strong balance sheet and robust cash flow are critical for sustaining dividend payments.

Sector and Industry: Certain sectors, such as utilities, consumer staples, and real estate, are known for offering reliable dividend payouts. Consider diversifying your dividend stock investments across different sectors to manage risk.

Strategies for Investing in Dividend Stocks

Dividend Growth Investing: Focus on companies with a track record of consistently increasing their dividends. Dividend growth investors seek stocks that offer both a high yield and the potential for future dividend increases.

Dividend Reinvestment Plans (DRIPs): Many companies offer DRIPs that allow investors to reinvest dividends automatically to purchase additional shares. DRIPs can help build your investment position over time without incurring additional fees.

Dividend Aristocrats: These are companies in the S&P 500 that have increased their dividends for 25 consecutive years or more. Dividend Aristocrats are considered reliable investments due to their long-standing commitment to returning value to shareholders.

High-Yield Dividend Stocks: While high-yield stocks can offer attractive income, they may also come with higher risk. Evaluate the sustainability of the high yield and ensure that the company has the financial strength to support its dividend payments.

Diversification: To reduce risk, diversify your dividend stock investments across different sectors, industries, and geographic regions. Diversification helps mitigate the impact of poor performance in any single stock or sector.

Dividend ETFs and Mutual Funds: If you prefer a more hands-off approach, consider investing in dividend-focused exchange-traded funds (ETFs) or mutual funds. These funds pool investments in a diversified portfolio of dividend-paying stocks, providing exposure to a broad range of companies.

How to Get Started with Dividend Stocks

Research and Select Stocks: Begin by researching dividend-paying stocks that align with your investment goals and risk tolerance. Use financial news, company reports, and stock screeners to identify potential candidates.

Evaluate Performance: Review the historical performance of the stocks you are considering, including their dividend yield, growth history, payout ratio, and financial health.

Open an Investment Account: To purchase dividend stocks, you’ll need to open a brokerage account. Choose a broker that offers competitive fees, a user-friendly platform, and access to research tools.

Build Your Portfolio: Start by investing in a diversified mix of dividend stocks based on your research. Regularly monitor your investments and adjust your portfolio as needed to stay aligned with your goals.

Monitor and Review: Continuously monitor the performance of your dividend stocks and review the company’s financial health and dividend policies. Stay informed about market conditions and any changes that may impact your investments.

Reinvest Dividends: Consider reinvesting your dividends to compound your returns and build your investment position over time.

Conclusion

Investing in dividend stocks can be a rewarding strategy for generating income and building long-term wealth. By focusing on stocks with strong financial health, consistent dividend payments, and growth potential, investors can create a reliable income stream while benefiting from capital appreciation. Employing strategies such as dividend growth investing, diversification, and using DRIPs can enhance your investment outcomes.

Whether you are new to investing or an experienced investor looking to add income-generating assets to your portfolio, understanding the key factors and strategies for investing in dividend stocks will help you make informed decisions and achieve your financial goals.

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

The premium France pays to borrow is the “new normal” as the nation’s finances deteriorate, according to Pacific Investment Management Co (Pimco).

The extra yield investors demand to hold French bonds versus German debt is hovering around 70 basis points amid the ongoing political confusion and budget concerns since President Emmanuel Macron held a snap election in June.

The spread reflects “the increased fiscal uncertainty,” Nicola Mai, sovereign credit analyst at Pimco, told Bloomberg TV.

While Macron is expected to name the next prime minister in the coming days, the centrist government that likely emerges will be “weak” and faces “tough” negotiations with the European Commission in the fall, Mai said.

Finding a new head of government is increasingly urgent as France prepares next year’s budget. A caretaker administration has governed since the election in June and investors are watching closely after sending French borrowing costs soaring on concern a new administration won’t control the nation’s large fiscal deficits.

According to research by Bloomberg Economics, the French yield will hold north of 70 basis points through 2024 before widening significantly in 2025. Though borrowing costs will drop as the European Central Bank cuts rates in the coming months, riskier French bond yields won’t decline as much as safer German bonds in 2025, the research predicts.

The spread between French bonds and German debt blew out in June to the widest since the euro-area debt crisis in 2012. The premium was below 50 basis points before Macron called the snap vote.

Despite the challenges faced by France and other European countries managing their debt burden, Mai said he sees a low risk of another sovereign debt crisis in the region.

“The fiscal infrastructure has improved. The ECB has asserted its role as a lender of last resort,” Mai said.

“Nonetheless, I think fiscal dynamics are challenged in several countries apart from Germany. We’ll see a bit of a higher credit spread, including France.”