consumer sentiment

The results presented by the Company in the third quarter of the financial year 2022/23 (January - March 2023) turned out to be higher than our forecasts, especially due to better margins. At the same time, the Ambra Group once again managed to show a double-digit increase in revenues, which this time clearly exceeded the dynamics observed in the first half of the year (+22.0% y/ y).   The increase in sales was possible thanks to the earlier date of Easter (they fell on the second weekend in April - a week earlier than a year ago, which increased sales in March), regularly introduced increases in product prices and the low base from last year. Ambra positively surprised us, especially with an increase in the percentage gross margin on sales by 1.3 p.p. y/y, to 35.6% (we expected flat dynamics), and consequently also the level of operating profit (PLN 6.9 million vs. PLN 4.6 million) and net profit (PLN 2.6 million vs. PLN 1.7 million).     However, we believe that the following quarters may prove to be a greater challenge for the Group, especially when we take into account the high costs of purchasing raw materials, fuels and energy, or the deterioration of consumer sentiment caused by, among others, decline in real household income. Better-than-expected results in Q3 prompt us to raise our current forecasts. We believe that at the end of the current financial year, the Group's sales revenues will total PLN 882.3 million (13.8% y/y), EBIT will increase to PLN 95.4 million (10.9% y/y), and the net result will amount to PLN 55.8 million (7.7% y/y).       Assuming our estimated net profit in the financial year 2022/23, the Company is currently listed with a P/E ratio of 11.4. We are raising the valuation per share of Ambra from PLN 32.1 to PLN 33.6 compared to the last forecast, and we are reiterating our 'buy' recommendation. The change in the valuation of the Company was positively influenced in particular by a slight increase in our expectations as to its future results after a good third quarter, as well as a further increase in the level of ratios of companies from the comparative group.          

The results presented by the Company in the third quarter of the financial year 2022/23 (January - March 2023) turned out to be higher than our forecasts, especially due to better margins. At the same time, the Ambra Group once again managed to show a double-digit increase in revenues, which this time clearly exceeded the dynamics observed in the first half of the year (+22.0% y/ y).   The increase in sales was possible thanks to the earlier date of Easter (they fell on the second weekend in April - a week earlier than a year ago, which increased sales in March), regularly introduced increases in product prices and the low base from last year. Ambra positively surprised us, especially with an increase in the percentage gross margin on sales by 1.3 p.p. y/y, to 35.6% (we expected flat dynamics), and consequently also the level of operating profit (PLN 6.9 million vs. PLN 4.6 million) and net profit (PLN 2.6 million vs. PLN 1.7 million).     However, we believe that the following quarters may prove to be a greater challenge for the Group, especially when we take into account the high costs of purchasing raw materials, fuels and energy, or the deterioration of consumer sentiment caused by, among others, decline in real household income. Better-than-expected results in Q3 prompt us to raise our current forecasts. We believe that at the end of the current financial year, the Group's sales revenues will total PLN 882.3 million (13.8% y/y), EBIT will increase to PLN 95.4 million (10.9% y/y), and the net result will amount to PLN 55.8 million (7.7% y/y).       Assuming our estimated net profit in the financial year 2022/23, the Company is currently listed with a P/E ratio of 11.4. We are raising the valuation per share of Ambra from PLN 32.1 to PLN 33.6 compared to the last forecast, and we are reiterating our 'buy' recommendation. The change in the valuation of the Company was positively influenced in particular by a slight increase in our expectations as to its future results after a good third quarter, as well as a further increase in the level of ratios of companies from the comparative group.          

Unacceptably high core price dynamics will lend a helping hand to ECB officials pushing for a hawkish line The most likely outcome to this week's inflation releases, still unacceptably high core price dynamics, will lend a helping hand to ECB officials pushing for a hawkish line.   Warnings that hikes may have to continue until September will stand a better chance of pushing longer term rates higher even if a subdued economic outlook, and growing doubts about the strength of China's post Covid recovery, should prevent European rates from rising as quickly as their US peers in the coming weeks. Wider USD-EUR rates differentials should only be a temporary development, however, and one resulting from a rise in global rates.   Market participants who, like us, expect lower rates into year-end, should also consider the possibility of US rates falling faster than their European peers, perhaps to sub-100bp levels for 10Y Treasury-Bund spreads.   This is all the more true since European markets have to contend with another dollop of political uncertainty in the form of early Spanish general elections on 23 July. The prime minister called for a vote after local elections defeat at the weekend and the opposition party PP is on the front foot, although it would likely rely on a coalition with another party due to the fragmented nature of the Spanish political landscape.   Spain’s still wide budget deficit (the European commission forecasts 4.1% of GDP this year and 3.3% next) mean a period of uncertainty is an unwelcome development and could lead to underperformance of Spanish government bonds vs peers such as Portugal and Italy.   Early elections mean Spanish bonds are at risk of underperformance vs Italy and Portugal   Today's events and market view Spain kicks off this week’s inflation releases. This will come on top of Eurozone monetary aggregate data and the European Commission’s confidence indicators for the month of May. One theme in European macro releases has been the softening of survey-based data, such as Germany’s Ifo (see above).   US releases feature house prices, the conference board’s consumer confidence, and the Dallas Fed manufacturing activity index.   Bond supply will take the form of Italian 5Y, 10Y fixed rate bonds, as well as 5Y floating rate bonds.    

Analyzing Friday's trades: GBP/USD on 30M chart     On Friday, the GBP/USD pair traded flat with a slight bearish bias. The new, upcoming, ascending trend line has not been broken. At the moment, the price has only tested it. However, since the market has entered a flat phase, breaking this trend line will not be a strong signal for a trend reversal.   Of course, the British currency cannot continue to rise indefinitely, especially considering the lack of reasons and grounds for such a move. A correction should start sooner or later, but it is extremely difficult to predict when it will start because the market is currently hardly reacting to fundamental and macroeconomic factors, as confirmed by the entire week.   There was only one report on Friday, and it was the consumer sentiment from the University of Michigan in the US. This indicator unexpectedly showed a much stronger increase than forecasted and... triggered a 20-25 point rise in the dollar. As before, all reports in favor of the dollar were ignored, while any reason to buy the British pound was used to its fullest extent, resulting in a 200% increase.   GBP/USD on 5M chart A huge number of signals materialized on the 5M chart, while the movement was sideways and volatility was only 55 pips, which is very low for the pound. Therefore, almost any level that the price encountered automatically became a source of false signals. Thus, beginners could attempt to execute one or two signals during the European trading session. It is highly likely that the first one resulted in a small loss, while the second one was closed at breakeven when the stop loss was triggered. It was quite challenging to expect other results in a flat market. Trading tips on Monday: As seen on the 30M chart, the GBP/USD pair continues to show strong growth despite the Friday flat. Even if the price consolidates below the trend line, it does not mean that a downtrend is brewing, as traders remain bullish, and crossing the trend line during a flat phase is not a strong signal. The key levels on the 5M chart are 1.2779-1.2801, 1.2848-1.2860, 1.2913, 1.2981-1.2993, 1.3043, 1.3107, 1.3145, 1.3210, 1.3241, 1.3272. When the price moves 20 pips in the right direction after opening a trade, a stop loss can be set at breakeven.   On Monday, there are no important events lined up in the UK or the US, but it is extremely difficult to predict the price movement in conditions of extreme overbought levels and without any news. It could be a correction, a continuation of the rise, or a flat market.     Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.

FX Daily: Waiting game keeps the dollar in demand Another mixed US jobs report on Friday has maintained choppy conditions in FX markets. While consensus expects the dollar to edge lower through the year, we are yet to see both the decline in inflation and activity (particularly jobs data) that would cement this trend. Key inputs to FX markets this week will be Thursday's CPI data and the Treasury refunding.   USD: CPI and quarterly refunding will be the highlights Friday's release of a mixed US July jobs report was enough to deliver some calm to the US bond market. Recall that the sharp sell-off at the long end of the curve had upset benign market conditions on Wednesday and Thursday last week. Lower headline employment in July saw 10-year Treasury yields drop nearly 15bp on Friday and investors jump back into their preferred high-yielding currencies such as the Mexican peso.  Looking ahead, we see two key US highlights this week. The main event will be Thursday's release of July CPI figures. Despite base effects nudging the YoY rate higher, MoM readings should deliver another benign 0.2% outcome at the core level and provide another piece of disinflation evidence for the Fed. The problem for FX markets is that it seems that disinflation is not enough to get the dollar lower. Instead, we also need to see signs of softening activity - especially in the labour markets. Unless initial claims spike on Thursday or consumer sentiment falls sharply on Friday, there are few real signs of softer activity coming through just yet. The second highlight of the week will be the US Treasury's quarterly refunding, where a collective $103bn of three, ten, and thirty-year US Treasuries are auctioned Tuesday through Thursday. It is very rare to have a bad Treasury refunding - e.g. consistently low bid to cover ratios or other such metrics. But the risk is that dealers build concessions into bond prices ahead of the auctions - keeping US yields firm and the investment environment mixed. On the face of it then, this week looks unlikely to trigger the kind of benign dollar decline around which the Rest of the World currencies can rally.  Additionally, events in the Black Sea and what they could mean for food and energy prices could keep investors nervous about embracing disinflation trends. For today, we doubt Fed speakers will have a meaningful impact on the dollar and can see DXY trading well within a 101.80-102.80 range.

In a world where economic indicators and market movements can shift with the blink of an eye, staying updated on the latest offerings and promotions within the financial sector is crucial. Today, we delve into one such noteworthy development that has emerged on the horizon, enticing individuals to explore a blend of banking and insurance services. As markets ebb and flow, being vigilant about trends and opportunities can lead to financial benefits. Let's explore this exciting promotion that brings together the worlds of banking and insurance to offer a unique proposition for consumers.     By Michael Hewson (Chief Market Analyst at CMC Markets UK) US non-farm payrolls (Aug) – 01/09 – the July jobs report saw another modest slowdown in jobs growth, as well as providing downward revisions to previous months. 187k jobs were added, just slightly above March's revised 165k, although the unemployment rate fell to 3.5%, from 3.6%. While the official BLS numbers have been showing signs of slowing the ADP report has looked much more resilient, adding 324k in July on top of the 455k in June. This resilience is also coming against a backdrop of sticky wages, which in the private sector are over double headline CPI, while on the BLS measure average hourly earnings remained steady at 4.4%. This week's August payrolls are set to see paint another picture of a resilient but slowing jobs market with expectations of 160k jobs added, with unemployment remaining steady at 3.5%. It's also worth keeping an eye on vacancy rates and the job opening numbers which fell to just below 9.6m in June. These have consistently remained well above the pre-Covid levels of 7.5m and have remained so since the start of 2021. This perhaps explain why the US central bank is keen not to rule out further rate hikes, lest inflation starts to become more embedded.                          US Core PCE Deflator (Jul) – 31/08 – while the odds continue to favour a Fed pause when the central bank meets in September, markets are still concerned that we might still see another rate hike later in the year. The stickiness of core inflation does appear to be causing some concern that we might see US rates go higher with a notable movement in longer term rates, which are now causing the US yield curve to steepen further. The June Core PCE Deflator numbers did see a sharp fall from 4.6% in May to 4.1% in June, while the deflator fell to 3% from 3.8%. This week's July inflation numbers could prompt further concern about sticky inflation if we get sizeable ticks higher in the monthly as well as annual headline numbers. When we got the CPI numbers earlier in August, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. We can expect to see a similar move in this week's numbers with a move to 3.3% in the deflator and to 4.3% in the core deflator.       US Q2 GDP – 30/08 – the second iteration of US Q2 GDP is expected to underline the resilience of the US economy in the second quarter with a modest improvement to 2.5% from 2.4%, despite a slowdown in personal consumption from 4.2% in Q1 to 1.6%. More importantly the core PCE price index saw quarterly prices slow from 4.9% in Q1 to 3.8%. The resilience in the Q2 numbers was driven by a rebuilding of inventory levels which declined in Q1. Private domestic investment also rose 5.7%, while an increase in defence spending saw a rise of 2.5%.             UK Mortgage Approvals/ Consumer Credit (Jul) – 30/08 – while we have started to see evidence of a pickup in mortgage approvals after June approvals rose to 54.7k, this resilience may well be down to a rush to lock in fixed rates before they go even higher. Net consumer credit was also resilient in June, jumping to £1.7bn and a 5 year high, raising concerns that consumers were going further into debt to fund lifestyles more suited to a low interest rate environment. While unemployment remains close to historically low levels this shouldn't be too much of a concern, however if it starts to edge higher, we could start to see slowdown in both, as previous interest rate increases start to bite in earnest.            EU flash CPI (Aug) – 31/08 – due to increasing concerns over deflationary pressures, recent thinking on further ECB rate hikes has been shifting to a possible pause when the central bank next meets in September. Since the start of the year the ECB has doubled rates to 4%, however anxiety is growing given the performance of the German economy which is on the cusp of three consecutive negative quarters. On the PPI measure the economy is in deflation, while manufacturing activity has fallen off a cliff. Despite this headline CPI is still at 5.3%, while core prices are higher at 5.5%, just below their record highs of 5.7%. This week's August CPI may well not be the best guide for further weakness in price trends given that Europe tends to vacation during August, however concerns are increasing that the ECB is going too fast and a pause might be a useful exercise.     Best Buy Q2 24 – 29/08 – we generally hear a lot about the strength of otherwise of the US consumer through the prism of Target or Walmart, electronics retailer Best Buy also offers a useful insight into the US consumer's psyche, and since its May Q1 numbers the shares have performed reasonably well. In May the retailer posted Q1 earnings of $1.15c a share, modestly beating forecasts even as revenues fell slightly short at $9.47bn. Despite the revenue miss the retailer reiterated its full year forecast of revenues of $43.8bn and $45.2bn. For Q2 revenues are expected to come in at $9.52bn, with same store sales expected to see a decline of -6.35%, as consumers rein in spending on bigger ticket items like domestic appliances and consumer electronics. The company has been cutting headcount, laying off hundreds in April as it looks to maintain and improve its margins. Profits are expected to come in at $1.08c a share.        HP Q3 23 – 29/08 – when HP reported its Q2 numbers the shares saw some modest selling, however the declines didn't last long, with the shares briefly pushing up to 11-month highs in July. When the company reported in Q1, they projected revenues of $13.03bn, well below the levels of the same period in 2022. Yesterday's numbers saw a 22% decline to $12.91bn with a drop in PC sales accounting for the bulk of the drop, declining 29% to $8.18bn. Profits, on the other hand did beat forecasts, at $0.80c a share, while adjusted operating margins also came in ahead of target. HP went on to narrow its full year EPS profit forecast by 10c either side, to between $3.30c and $3.50c a share. For Q3 revenues are expected to fall to $13.36bn, with PC revenue expected to slip back to $8.79bn. Profits are expected to fall 20% to $0.84c a share.         Salesforce Q2 24 – 30/08 – Salesforce shares have been on a slow road to recovery after hitting their lowest levels since March 2020, back in December last year, with the shares coming close to retracing 60% of the decline from the record highs of 2021. When the company reported back in June, the shares initially slipped back after full year guidance was left unchanged. When the company reported in Q4, the outlook for Q1 revenues was estimated at $8.16bn to $8.18bn, which was comfortably achieved with $8.25bn, while profits also beat, coming in at $1.69c a share. For Q2 the company raised its revenue outlook to $8.51bn to $8.53bn, however they decided to keep full year revenue guidance unchanged at a minimum of $34.5bn. This was a decent increase from 2023's $31.35bn, but was greeted rather underwhelmingly, however got an additional lift in July when the company said it was raising prices. Profits are expected to come in at $1.90c a share. Since June, market consensus on full year revenues has shifted higher to $34.66bn. Under normal circumstances this should prompt a similar upgrade from senior management.   Broadcom Q3 23 – 31/08 – just prior to publishing its Q2 numbers Broadcom shares hit record highs after announcing a multibillion-dollar deal with Apple for 5G radio frequency components for the iPhone. The shares have continued to make progress since that announcement on expectations that it will be able to benefit on the move towards AI. Q2 revenues rose almost 8% to $8.73bn, while profits came in at $10.32c a share, both of which were in line with expectations. For Q3 the company expects to see revenues of $8.85bn, while market consensus on profits is expected to match the numbers for Q2, helping to lift the shares higher on the day. It still has to complete the deal with VMWare which is currently facing regulatory scrutiny, and which has now been approved by the UK's CMA.

Food inflation finally cools in Europe after a long hot summer Food price rises are finally subsiding in Europe. We saw the first Month-on-Month decline in almost two years in July. Many branded food manufacturers, however, are reporting lower sales as shoppers turn to more affordable goods. And a combination of high food prices and sluggish growth means those volumes won't be returning anytime soon.   Extraordinary rally in consumer food prices comes to an end Food inflation rates have been cooling for the past couple of months, and July’s inflation figures even showed a small Month-on-Month decrease in the European Union. That said, food prices remain at high levels. A typical EU consumer currently pays almost 30% more for groceries compared to the start of 2021, with some considerable differences across the continent. In Hungary, prices have gone up by more than 60% since January 2021, while food prices in Ireland went up by ‘only’ 19%. Across Europe, consumers reacted by buying less, shopping more at discount supermarkets and favouring private label products over brands. The trend in the US looks fairly similar. The main difference is that 'cooling down' set in a little earlier, and the relative increase was lower compared to Europe. That's partly explained by the fact that US food makers are less exposed to the energy price shock compared to their peers in Europe. American food prices started to move sideways in the first quarter of this year; a typical American consumer currently pays 20% more for groceries compared to the start of 2021.   Food inflation reaches a plateau in the EU and the US Consumer price index for food, 2020 = 100   Is Germany really leading the way on prices? Within the eurozone, Germany has been the only country seeing consumer food prices drop for several months in a row. According to Eurostat data, prices of food and non-alcoholic beverages in Germany were 1.4% lower in July compared to their peak in March this year. This is largely the result of lower prices for dairy products, fresh vegetables, margarine and sunflower oil.   What distinguishes the German food retail market from most other European countries is that discounters have a relatively large market share. Schwarz Group (Lidl) and Aldi have a combined market share of around 30%, and other major retailers such as Edeka and Rewe also own discount subsidiaries. Given the large and competitive German market, food retailers seem to have negotiated more strongly with suppliers than their counterparts in other European countries, even at the risk of losing those suppliers. As a result, retail food prices started to drop earlier. Also, the highly competitive market delivered special sales offers for consumers since the spring. For now, German consumers are benefiting from a reversal of the price trend, and consumers in other European countries might experience a similar trend in the months ahead. However, we believe that consumers shouldn’t get their hopes up too high given that some inflationary trends in the cost base of food manufacturers and retailers are still present. That’s also why we deem it too early to forecast a prolonged period of decreasing food prices.   Modest drop in German consumer prices due to lower dairy, vegetables and margarine prices Consumer price index, 2020 = 100   Underlying costs for food manufacturers show a mixed picture Throughout 2022, almost all of the costs for food manufacturers moved in one direction, and that was up. That picture has changed when we look at some important types of costs.   Input costs are by far the most important cost category, and agricultural commodities are a major part of these inputs. Prices for agricultural inputs are moving in different directions. World market prices for wheat, corn, meat, dairy and a range of vegetable oils are down year on year, which is partly on the back of reduced uncertainty around the war in Ukraine. However, prices for commodities such as sugar and cocoa rallied considerably in 2023. The prospects of the El Niño weather effect potentially upsetting the production of commodities like coffee and palm oil in Southeast Asia alongside India’s partial export ban on rice have given rise to new concerns.We estimate that energy costs make up about 3 to 5% of the costs of food manufacturing, but this will also depend on the subsector and the type of energy contracts. Current energy prices in Europe are much lower compared to their peak in 2022, but they are still much higher compared to their pre-Covid levels. Volatility continues to linger, in part because more exposure to global LNG (Liquified National Gas) markets makes European gas markets more susceptible to price fluctuations. Uncertainty about where energy costs will be headed over winter can make food manufacturers more reluctant to reduce prices.Continuing services price inflation means companies along the food supply chain will face higher fees for the services they contract, such as accounting services and corporate travel.     Wages account for a bit more than 10% of the costs of a typical food manufacturer in the EU (excluding social security costs). Both the spike in inflation in 2022 and 2023 and the continued tightness in labour markets are leading to a series of wage increases in food manufacturing and food retail. In our view, wages will be an important driver for the production costs of food and for consumer prices over the next 18 months, given that wages go up in subsequent steps. Examples of wage increases in the food industry In the German confectionery industry, 60,000 employees get an inflation compensation of €500 in 2023 and 2024 on top of a 10-15% increase in regular wages. We see similar patterns for wage agreements at individual companies, such as for the German branch of Coca-Cola Europacific Partners. In the Dutch dairy industry, wages will increase by 8% in 2023 and another 2.65% in 2024, while the collective labour agreement in the Dutch meat industry contains a three-tiered increase of 12.25% in total between March 2023 and 2024. In France, it's expected that average wages in the commercial sector will rise by 5.5% in 2023 and 4.2% in 2024. This also gives an indication for wage development in industries such as food manufacturing.   Wages make up 13% of German food manufacturers' costs with some variation between subsectors Wage costs as a percentage of total costs, 2020     Adverse weather pushes up prices for potatoes and olive oil Following the warmest July on record, it’s evident that people are wondering to what extent weather will push up food inflation in the months ahead. The most recent monthly crop bulletin from the European Commission notes that weather conditions were on balance negative for the yield outlook of many crops and thus supportive for prices. Although the picture can be different from crop to crop and from region to region, there are certain food products where inflation is accelerating due to weather. One of the biggest victims of unfavourable weather in Europe this year is olive oil. The continued drought in Spain, and particularly a lack of rain during spring, leads to estimates that olive oil production will be down by 40% this marketing year. It will be quite difficult to find enough alternative supplies outside the bloc, given that the EU is the top exporter of olive oil. This is also the case for potatoes and potato products. Here, a wet start of the year in northwestern Europe followed by dry weather in May and June and abundant rain in July means conditions have been very unfavourable for potato yields and quality.   Food prices are likely to hover around their current levels for a while The developments in underlying costs for food producers lead us to the view that consumer food prices will likely hover around their summer levels for a while. When there are decreases in general prices, those will be the result of trends in specific categories, such as dairy, rather than being widely supported across all categories. This view is also supported by business surveys which show that sales price expectations of food manufacturers are now clearly past their peak, as you can see in the chart below.  Multiple major food companies, including Danone, Heineken and Lotus Bakeries, have signalled in their second-quarter earnings calls that there will be less pricing action in the second half of this year. However, some companies are indicating that they’re not yet done with pricing through their input cost inflation. Unilever, for example, reported that we should expect moderate inflation in ice cream in the second half of the year, for instance. In any case, we do see a likely increase in promotional activity as brands step up their efforts to re-attract consumers and boost volume growth. But given the elevated price levels and the muted macro-economic outlook, it’s likely to take a while before volumes fully recover.   European food manufacturers expect fewer price increases in the months ahead Sales price expectations for the months ahead, balance of responses       Price negotiations remain tense Food manufacturers have fought an uphill battle to get their higher sales prices accepted by their customers, such as food retailers. Negotiations in the current phase won’t be easy either because food and beverage makers will be heavily pushed by major retailers to reduce prices. Retailers that lost market share will be especially looking to secure better prices in a bid to re-attract consumers. Whether there is room for price reductions will vary from manufacturer to manufacturer depending on the agricultural commodities they rely on, the energy contracts they have and cross-country differences in wage developments. As such, explaining why prices still need to go up, cannot go down (yet) or can only go down by so much will be a significant task for food manufacturers in the coming months.

Next to Italy, Portugal has also been ramping up its funding via the retail sector, although to a greater degree via short-dated instruments – savings certificates. From mid-2022 until mid-2023, their outstanding amount has increased from just over €30bn to almost €46bn. That does not appear much in absolute terms, but it means that the retail segment went from making up 11% to 15.6% of direct state debt. The last time we observed a share that high was in 2008.   Portugal ramped up its share of (short-term) retail debt instruments   It is likely no coincidence that the outperformance of Portuguese government bonds versus Spanish bonds or the overall resilience of Italian spreads versus Bunds occurred alongside a larger reliance on domestic households for funding. To be sure, it is not the only driver as for instance in the summer of 2022, the European Central Bank also revealed its Transmission Protection Instrument. But it can also be a supportive factor going into a renewed debate around the speed of the ECB's quantitative tightening.     Next week: ECB meeting and US inflation Next week is a busy one for markets, the key event being the ECB meeting on Thursday. It will be a close call, but overall we think the chance that we get another hike is greater than markets think. The upside for rates still seems somewhat limited, because it would be pulling forward the hike that markets currently view as happening before year-end with a chance of roughly 70%. We doubt that markets would readily embrace the idea of further tightening on top of that. They could sense that this is the likely end of the cycle as concerns about macro weakness gain more weight, also in the ECB’s own deliberations. Still, the ECB will probably want to counter the notion that this is the definitive end. The degree to which this is successful will determine how much of a bear flattening we could get in the case of a hike. A renewed focus on QT, in particular, could help prop up longer rates. In the US, the upcoming week will be about inflation dynamics. The CPI release is the key event here ahead of the FOMC meeting the following week. The headline is seen picking up to 3.6%, but we think that is largely in the price already. More important is what happens to the core rate, which is seen dropping to 4.3% from 4.7% year-on-year, with the month-on-month rate steady at 0.2%. We will also see the release of producer and import prices as well as the University of Michigan consumer sentiment survey with its reading on inflation expectations. The ISM services this week has highlighted lingering inflation risks, even if the overall dynamics are gradually improving. In terms of market impact, the inflation narrative seems to be driving the curve more from the front end as it determines whether more near-term action from the Fed is required.   Today's events and market view The ECB is already in its pre-meeting blackout period, and the Fed will follow this weekend. The data calendar is light today which may leave markets with more room to contemplate the busy week ahead with a US inflation theme and the chance for another, possibly final ECB hike. We think markets are still trading with an upward bias to rates. The different backdrops against which the next policy meetings are held, a position of macro strength versus a position of growing weakness, has seen UST rates more buoyant again, with the 10-year yield gap over Bunds creeping wider again to 166bp.   

New Zealand Services PMI declines US manufacturing data climbs, consumer sentiment falls The New Zealand dollar has started the week in positive territory. NZD/USD is trading at 0.5918 in the North American session, up 0.34%. New Zealand’s Services PMI declines New Zealand’s Services PMI eased to 47.1 in August, down from 47.8 in July. The reading marked a third straight decline in activity and was the lowest level since January 2022. This comes on the heels of Friday’s Manufacturing PMI, which fell to 46.1 in August, down from 46.6 a month earlier. This was the sixth consecutive month of contraction (the 50.0 line separates contraction from expansion). The Reserve Bank of New Zealand has been forecasting a recession and the weak PMIs support this view. New Zealand’s economy has cooled down due to the central bank’s steep tightening and global demand has weakened, most notably with China experiencing a slowdown and deflation. The RBNZ paused at the August meeting and interest rates may have peaked. If economic data remains weak, I would expect the RBNZ to prolong the pause at next month’s meeting. The US ended last week with mixed releases. The Empire State Manufacturing Index surprised and jumped to 1.9 in September, up from -19 in August and above the market consensus of -10. The UoM consumer sentiment index slowed to 67.7 in September, down from 69.5 in August and shy of the market consensus of 69.1 points. Inflation Expectations fell to 3.1% in August, down from 3.5% in July and the lowest level since March 2021. This is another sign that inflation is weakening and supports a pause at the Federal Reserve meeting on Wednesday. The markets have priced in a pause at 99%, according to the CME FedWatch tool, up from 92% one week ago.   NZD/USD Technical NZD/USD is testing resistance at 0.5908. The next resistance line is 0.5936 There is support at 0.5871 and 0.5843  

Rates Spark: Drawing out the cycles With the Bank of England's hold, while retaining all optionality, another central bank is attempting to draw out the cycle. That may keep bull steepening impulses at bay for now and leave room for a steepening more driven via the back end first if data broadly holds. The PMIs are the main data event for today.   Steepening impulses from here on are probable, but not necessarily via the front end first Following the Federal Reserve, the Bank of England has now also decided to keep rates on hold in a close 5-4 vote by the committee. But all options for another hike remain on the table. Maybe the BoE decided that the Fed’s approach was better suited to its needs than the European Central Bank’s. The ECB had hiked, but in signalling that rates had reached levels sufficiently high to make a substantial contribution to reaching the inflation goal had been interpreted as rates having essentially topped. ECB officials have since pushed against this notion, emphasising that this still means rates can rise under certain conditions. And some have resorted to shifting the discussion to the balance sheet. And the idea that speeding up quantitative tightening should precede rate cuts – as some officials have hinted – may be another strategy to draw out the cycle. Especially given that anything involving the ECB’s balance sheet, including discussion about potentially adjusting the minimum reserve ratio, also ties in with the review of the operational framework, which is slated to conclude only by the end of the year. The bullish steepening impulses that would typically unfold once cycle peaks have been reached are being held back by the optionality to do more that central bankers have retained. Still, we feel the room for policy rates to rise further is running out as headwinds are accumulating, but until markets see an actual smoking gun they remain more cautious. Having been caught off-guard by the surprisingly hawkish Fed and its impact bear flattening, even if quickly reversed, is a case in point. In the meantime, the steepening impulses could continue to come from the back end as long as the data broadly holds, although the outright levels now look elevated at the back end. Still, the initial jobless claims data has just proven its relevance again yesterday, accelerating the steep sell-off in 10Y USTs towards 4.5%. If cracks become more obvious, a brief bull flattening seems possible if central bankers are reluctant to embrace the signs of an impending downturn as they remain focussed on inflation risks – the effect of conducting policies via the rear mirror to which especially the ECB appears susceptible. The overly rosy outlooks from the Fed and also the ECB’s own very optimistic view make room for disappointments. But we feel these could be brief interludes only or even just play out in relative terms.   The long end is pulling the curve steeper   Today's events and market view The US data have shown again what is relevant for the market. In the end, everything hinges on the data and whether it finally topples over. Today, the flash PMIs are the main event. Recall that in the US the larger surprise is the S&P PMI services last month had sent jitters through the market, but sentiment was probably also driven by the even larger disappointment in the European PMIs. For today, markets are seeing eurozone services slipping deeper below 50, while the manufacturing index is seen only slowly climbing out of its hole. All are still in recessionary territory.    Next week data will remain the main theme. In the US, the main focus is on the consumer with confidence readings as well as personal income and spending data – the consumer story is a crucial input for the soft landing scenario. We will also get the PCE deflator, the Fed’s preferred inflation measure. In the eurozone, the main highlight is the September flash CPI, and it should give us more reasons to believe we have already seen the last ECB hike.

Retail sales and construction point to signs of recovery in Poland Retail sales showed the first signs of annual growth since January, rising by 2.3% YoY. Construction output also expanded by 9.8% YoY, pointing to a solid start to the fourth quarter for the Polish economy. This recovery should continue on the back of reviving private and public consumption, and in 2024, GDP could grow by around 3%.   A solid start to the fourth quarter for retail sets the stage for consumption bounce back Retail sales of goods rose by 2.8% year-on-year in October (versus our expectations of 2.3% and the consensus view of 1.4%) after shrinking by 0.3% YoY a month earlier. This was the first increase in goods sales in real terms since the turn of 2022/23. The seasonally adjusted data showed the fifth consecutive month of sales growth. The highest double-digit increases were recorded in fuel sales (16.7% YoY) and car sales (12.3% YoY). Weakness persisted in sales of durable goods other than auto. Double-digit declines were recorded in the furniture, consumer electronics, and household appliances category (-10.9% YoY) and in the group comprising newspapers, books and other sales in non-specialised shops (-11.1% YoY).   Retail sales turned positive again after months of declines Retail sales of goods, %YoY   The start of the fourth quarter of this year is encouraging for the retail trade. The recovery of real household disposable income is continuing. In October, real wages in the corporate sector increased by nearly 6% YoY. Consumer sentiment – including willingness to make major purchases – has been steadily improving since the beginning of the year. We expect the fourth quarter to see a year-on-year increase in household consumption, with a further rebound continuing into 2024. Next year, economic growth should reach 3%, driven mainly by private and public consumption growth. Private consumption would be supported by an increase in real disposable income due to lower inflation, while public consumption would benefit from high valorisation of social benefits (with more than 800 pensions) and planned salary increases in public services and administration.   Construction output growth still close to double-digits Construction output jumped up by 9.8% YoY in October after 11.5% in September, slightly below the market consensus of 10.5%. The annual growth was supported by a higher number of working days (22 vs. 21 a year earlier) and favourable weather conditions for construction activity (the average air temperature was 10.9˚C, 2.1 ˚C higher than the multi-year average for that month). On a monthly basis, output rose by 2.5% MoM after 11.4% in September, although on a seasonally adjusted basis, it fell by 1.1% MoM.   Almost double-digit growth in construction Construction output, %YoY

With just two trading days remaining until the new year, attention in the City of London is shifting towards the prospects for 2024. Questions about the pace of interest rate cuts, the possibility of the UK avoiding a recession, the timing of the general election, and the potential victor are in focus.  One point of view indicates a more optimistic outlook for the UK as it "turns a page from the difficult post-pandemic years." PwC identifies various reasons for this optimism, including an anticipated improvement in conditions for households as the minimum wage is set to increase by almost 10% in the spring. Predictions suggest a faster-than-expected decline in inflation, nearing the UK's 2% target, contributing to a positive shift in consumer sentiment and while growth is anticipated to be modest, the UK is projected to exhibit a faster recovery relative to pre-pandemic levels compared to Germany, France, or Japan. Forecasts indicate that the UK will be the fourth-best performing G7 economy concerning pre-pandemic levels, with real GDP expected to be around 2.7% higher in 2024 on average relative to 2019 levels. However, challenges persist as consumer prices, despite an expected cooling of inflation, are projected to remain about a quarter higher than in early 2021 and with London's average rents are forecasted to continue rising, reaching over £2,000 per month by the end of 2024, approximately three times higher than the north-east's average while the rest of the UK is also expected to witness a continued uptrend in rents, with an average increase of over 5% in 2024. Additionally, a notable surge in corporate insolvencies is anticipated, with nearly 30,000 firms expected to face challenges due to high interest rates and increased costs which is likely to be felt more acutely by smaller businesses, particularly in sectors such as hotels & catering, manufacturing, and transport & storage and which could cause significant issues if it were to lead to an increase in unemployment just as the Bank of England is beginning to shift its policy and in particular around election period, potentially further influencing the ultimate results.