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Thoughts of the Day

In his testimony before the Congress yesterday, the US Federal Reserve Chair Powell reiterated his view that the US economy is now in better balance and conditions are similar to how the economy was before the pandemic. “The US economy is no longer overheated”. 

He also said that it is just as risky to cut interest rates too late (and weakening the economy too much) as it is to cut too early (as that will risk inflation rising again). This is yet another small step towards cutting interest rates this year. However, he pushed back on committing to any future moves and stressed that they will decide on policy on a meeting-by-meeting basis and wait for all available data before making a decision. 

He will testify again later today, but the message is unlikely to change ahead of the US inflation data (CPI) that will be released tomorrow.

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Tradertainment

Routine jobs raise the risk of cognitive decline by 66% and dementia by 37%, study says


Working your brain hard at your job could pay off in more ways than boosting your career — it may also protect your cognition and help prevent dementia as you age, a new study found.

Having a routine job with little mental stimulation during your 30s, 40s, 50s and 60s was linked to a 66% higher risk of mild cognitive impairment and a 37% greater risk of dementia after the age of 70, according to the study, when compared with having a job with high cognitive and interpersonal demands.

“Our results show the value of having an occupation that requires more complex thinking as a way to maintain memory and thinking in old age,” said lead author Dr. Trine Edwin, a researcher at Oslo University Hospital in Norway. “The workplace is really important in promoting cognitive health.”

“Staying actively engaged in life, maintaining a sense of purpose, learning new things and remaining socially active are powerful tools to protect against cognitive decline as we age,” said Dr. Richard Isaacson, director of research at the Institute for Neurodegenerative Diseases in Florida, in an email.

“Just like we can use physical exercise to grow and maintain our muscles, exercising our brain through more engaging work assignments and ongoing collegial interactions seems to also help fend off dementia.”

Did you miss us on Singapore’s MoneyFM yesterday morning? We got you covered.

We talked about the impending repayment of $9 billion worth of Bitcoin from the defunct crypto exchange Mt. Gox and its potential impact on prices.

We also covered the German authorities’ recent sale of Bitcoins and how it is affecting the market.

Listen here on Spotify: 

Day Ahead

Federal Reserve Chair Powell is due to testify about the Semi-Annual Monetary Policy Report before the Senate Banking Committee.

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What Happened Yesterday

Market Movements as of New York Close 9 Jul 24
  • The Reserve Bank of New Zealand kept its official cash rate at 5.5% at its July 2024 policy meeting as expected, marking the eighth consecutive rate pause. The NZDUSD fell -0.60% from 0.6128 to 0.6090 in reaction to the policy decision. The decision reflects the ongoing need for a restrictive monetary policy to manage inflation, which is expected to return to the 1-3% target range by the end of 2024. Despite the easing of capacity pressures and a decline in headline inflation, domestic inflation has fallen more slowly than anticipated, necessitating the continuation of the current monetary policy stance. However, the RBNZ also said that “The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.”, meaning that they will lower interest rates as they see inflation falter in New Zealand.
  • In her testimony before the House Financial Services Committee, Treasury secretary Janet Yellen noted that inflation will continue to falter and that the labour market, while strong, is unlikely to exert inflationary pressures. Additionally, she mentioned that China AI investment restrictions are narrowly targeted with focus on technologies that are critical and can contribute to military intelligence or cyber capabilities in countries of concern.
  • In his testimony before the Senate Banking Committee, Federal Reserve Chair Powell remarked that the U.S. is “no longer an overheated economy” with a job market that has cooled from its pandemic-era extremes and in many ways is back where it was before the health crisis. He also mentioned that the Fed is aware of the 2 sided risks the economy is facing and inflation is no longer the sole focus.
  • The US stock market opened higher from Monday’s close. It then started to ease off the highs through the session, offsetting the gains made. Hence, the S&P 500 (high: +0.32%, low: -0.03%) & Nasdaq (high: +0.51%, low: -0.22%) closed just +0.07% higher on the day despite closing at new all time highs yet again. The Dow Jones edged -0.13% lower (high: +0.37%, low: -0.50%).
  • The crypto market climbed continues to recover with Bitcoin up +2.32% and Ether up +1.51%.
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Headlines & Market Impact

Fed Chair Powell says holding rates high for too long could jeopardise economic growth

Notable Snippet: Federal Reserve Chair Jerome Powell on Tuesday expressed concern that holding interest rates too high for too long could jeopardise economic growth.

Setting the stage for a two-day appearance on Capitol Hill this week, the central bank leader said the economy remains strong as does the labour market, despite some recent cooling. Powell cited some easing in inflation, which he said policymakers stay resolute in bringing down to their 2% goal.

“At the same time, in light of the progress made both in lowering inflation and in cooling the labour market over the past two years, elevated inflation is not the only risk we face,” he said in prepared remarks. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

“After a lack of progress toward our 2 percent inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress,” Powell said. “More good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”

But Powell said the data is showing that “the U.S. economy continues to expand at a solid pace” despite the deceleration in GDP.

“Private domestic demand remains robust, however, with slower but still-solid increases in consumer spending,” he said.

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China’s consumer inflation falls short of expectations, but faster recovery expected

Notable Snippet: China’s consumer price growth marginally fell short of expectations in June, continuing over a year of weakness, but analysts have still predicted a faster recovery in the coming months as demand for residential services consumption improves.

China’s consumer price index (CPI), a key gauge of inflation, grew by 0.2 per cent year on year in June, compared to an increase of 0.3 per cent in May, the National Bureau of Statistics (NBS) said on Wednesday.

The reading fell short of the expected 0.42 per cent growth projected by economists polled by Chinese financial data provider Wind.

Meanwhile, China’s producer price index (PPI) – which measures the cost of goods at the factory gate – slipped by 0.8 per cent last month, falling for the 21st consecutive month, having also fallen by 1.4 per cent in May.

The reading fell short of the expected 0.75 per cent decrease projected by Wind.

Elsewhere, China’s core inflation, which excludes volatile food and energy prices, rose by 0.6 per cent last month compared to a year earlier.

On a month-on-month basis, China’s inflation in June remained negative after falling by 0.2 per cent following a 0.1 per cent decrease in May, according to the NBS.

Amid an overall economic slowdown, consumers in China are unwilling to spend due to a prolonged property slump and a bleak job market, with the CPI having stagnated around zero since April last year.

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Japan’s wholesale inflation picks up as weak yen raises import costs

Notable Snippet: Japan’s wholesale inflation accelerated in June as the yen’s declines pushed up the cost of raw material imports, data showed on Wednesday, keeping alive market expectations for a near-term interest rate hike by the central bank.

Rising global commodity costs and a phase-out of gasoline and fuel subsidies also pushed up wholesale prices, the data showed, a sign of heightening inflationary pressure.

The data will be among factors the Bank of Japan (BOJ) will scrutinise at its next policy meeting on July 30-31, when the board will release fresh growth forecasts and debate whether to raise interest rates from current near-zero levels.

The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 2.9% in June from a year earlier, BOJ data showed, matching a median market forecast.

It accelerated from the previous month’s revised 2.6% gain and rose at the fastest year-on-year pace since August 2023. The index, at 122.7, hit a record high for the seventh straight month.

The yen-based import price index climbed 9.5% in June from a year earlier, accelerating from a revised 7.1% rise in May, in a sign the weakening currency was inflating the price companies charge each other for imported raw material. The pace of increase in the index was the fastest since February 2023.

“Import prices are likely to keep rising due to sustained yen declines and elevated energy prices,” said Yutaro Suzuki, an economist at Daiwa Securities.

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Phan Vee Leung
CIO & Founder, TrackRecord