economic indicators

Some of crucial releases are behind us, but there is more to come! Tomorrow China, Great Britain, the USA, Germany and Canada have their economic indicators released so don’t miss a thing! Night-morning – 31/03/22 The day begins with the release of Chinese Manufacturing PMI indicator which previously hit 50.2 This one is released at 2:30 a.m. Four and half hours later we move to Great Britain to follow the announcement of GDP (QoQ and YoY). The Quarter on Quarter one reached 1% previously and Year on Year hit 6.5% At 8:55 a.m. German Unemployment Change goes public (prev. -33K). Afternoon – 31/03/22 Shortly after midday (1:30 p.m.) the US Initial Jobless Claims and Canadian GDP are announced. The previous values amounted to 187K and 0% respectively. Source/Data: Investing.com Economic Calendar

The Swing Overview – Week 28 2022 This week's new record inflation readings sent a clear message to central bankers. Further interest rate hikes must be faster than before. The first of the big banks to take this challenge seriously was the Bank of Canada, which literally shocked the markets with an unprecedented rate hike of a full 1%. This is obviously not good for stocks, which weakened again in the past week. The euro also stumbled and has already fallen below parity with the usd. Uncertainty, on the other hand, favours the US dollar, which has reached new record highs.   Macroeconomic data The data from the US labour market, the so-called NFP, beat expectations, as the US economy created 372 thousand new jobs in June (the expectation was 268 thousand) and the unemployment rate remained at 3.6%. But on the other hand, unemployment claims continued to rise, reaching 244k last week, the 7th week in a row of increase.   But the crucial news was the inflation data for June. It exceeded expectations and reached a new record of 9.1% on year-on-year basis, the highest value since 1981. Inflation rose by 1.3% on month-on-month basis. Energy prices, which rose by 41.6%, had a major impact on inflation. Declines in commodity prices, such as oil, have not yet influenced June inflation, which may be some positive news. Core inflation excluding food and energy prices rose by 5.9%, down from 6% in May.   The value of inflation was a shock to the markets and the dollar strengthened sharply. We can see this in the dollar index, which has already surpassed 109. We will see how the Fed, which will be deciding on interest rates in less than two weeks, will react to this development. A rate hike of 0.75% is very likely and the question is whether even such an increase will be enough for the markets. Meanwhile, there has been an inversion on the yield curve on US bonds. This means that yields on 2-year bonds are higher than those on 10-year bonds. This is one of the signals of a recession. Figure 1: The US Treasury yield curve on the monthly chart and the USD index on the daily chart   The SP 500 Index Apart from macroeconomic indicators, the ongoing earnings season will also influence the performance of the indices this month. Among the major banks, JP Morgan and Morgan Stanley reported results this week. Both banks reported earnings, but they were below investor expectations. The impact of more expensive funding sources that banks need to finance their activities is probably starting to show.   We must also be interested in the data in China, which, due to the size of the Chinese economy, has an impact on the movement of global indices. 2Q GDP in China was 0.4% on year-on-year basis, a significant drop from the previous quarter (4.8%). Strict lockdowns against new COVID-19 outbreaks had an impact on economic situation in the country. Figure 2: SP 500 on H4 and D1 chart The threat of a recession is seeping into the SP 500 index with another decline, which stalled last week at the support level, which according to the H4 is in the 3,740-3,750 range. The next support is 3,640 - 3,670.  The nearest resistance is 3,930 - 3,950. German DAX index The German ZEW sentiment, which shows expectations for the next 6 months, reached - 53.8. This is the lowest reading since 2011. Inflation in Germany reached 7.6% in June. This is lower than the previous month when inflation was 7.9%. Concerns about the global recession continue to affect the DAX index, which has tested significant supports. Figure 3: German DAX index on H4 and daily chart Strong support according to the daily chart is 12,443 - 12,500, which was tested again last week. We can take the moving averages EMA 50 and SMA 100 as a resistance. The nearest horizontal resistance is 12,950 - 13,000.   The euro broke parity with the dollar The euro fell below 1.00 on the pair with the dollar for the first time in 20 years, reaching a low of 0.9950 last week. Although the euro eventually closed above parity, so from a technical perspective it is not a valid break yet, the euro's weakening points to the headwinds the eurozone is facing: high inflation, weak growth, the threat in energy commodity supplies, the war in Ukraine. Figure 4: EUR/USD on H4 and daily chart Next week the ECB will be deciding on interest rates and it is obvious that there will be some rate hike. A modest increase of 0.25% has been announced. Taking into account the issues mentioned above, the motivation for the ECB to raise rates by a more significant step will not be very strong. The euro therefore remains under pressure and it is not impossible that a fall below parity will occur again in the near future.   The nearest resistance according to the H4 chart is at 1.008 - 1.012. A support is the last low, which is at 0.9950 - 0.9960.   Bank of Canada has pulled out the anti-inflation bazooka Analysts had expected the Bank of Canada to raise rates by 0.75%. Instead, the central bank shocked markets with an unprecedented increase by a full 1%, the highest rate hike in 24 years. The central bank did so in response to inflation, which is the highest in Canada in 40 years. With this jump in rates, the bank is trying to prevent uncontrolled price increases.   The reaction of the Canadian dollar has been interesting. It strengthened significantly immediately after the announcement. However, then it began to weaken sharply. This may be because investors now expect the US Fed to resort to a similarly sharp rate hike. Figure 5: USD/CAD on H4 and daily chart Another reason may be the decline in oil prices, which the Canadian dollar is correlated with, as Canada is a major oil producer. The oil is weakening due to fears of a drop in demand that would accompany an economic recession. Figure 6: Oil on the H4 and daily charts Oil is currently in a downtrend. However, it has reached a support value, which is in the area near $94 per barrel. The support has already been broken, but on the daily chart oil closed above this value. Therefore, it is not a valid break yet.  

Watch: The next steps for US interest rates The case for raising rates further seems to be building quickly in the US as inflation continues to run well above target. Developments in the debt ceiling stand-off and key data releases ahead of the upcoming Federal Reserve meeting will be pivotal – so what could be next? ING's James Knightley has a few answers To hike or not to hike? The next steps for US interest rates While the minutes of the latest FOMC meeting show a split as to whether there will be a need to raise interest rates further, the balance still leans more towards a pause in June. An impasse in debt ceiling negotiations, tight financial conditions, and forthcoming inflation data will all play a crucial role in determining the outcome.             .

Rates Spark: Debt ceiling deal adds to bond angst A deal to raise the US debt ceiling increases selling pressure on Treasuries, but will also result in tighter financial conditions for the economy. This opens upside to EUR rates but a soggy economic backdrop means wider rate differentials near-term.   Once approved, the debt limit deal paves the way to a liquid crunch  The deal between President Biden and House leader McCarthy amounts to the removal of a tail risk for financial markets, that of a US default. Even if this was a tiny probability event to begin with, it'll allow markets to focus on the more important debate: whether the Fed is indeed done with its hiking cycle. The budget deal, which lifts the debt limit for two years and caps some categories of government spending, still needs to be approved by the House tomorrow.   The outcome of the vote is uncertain but the likely opposition by some Republicans means Democrat votes will be key. We expect the run-up to the vote to see Treasury Yields gradually climb higher if more lawmakers come out in favour of the deal.   Money markets can expect a $500bn liquidity drain over the coming months Beyond tomorrow, US rates will quickly look past the deal and turn their attention to the Treasury's task of rebuilding its cash buffer at the Fed. Two aspects matter here. On the liquidity front, money markets can expect a $500bn drain over the coming months as more debt is issued. In a context of $95bn/month Quantitative Tightening (QT) and of likely tightening of at least some banks' funding conditions, this should amount to an additional drag on financial conditions for the broader economy.   This should ultimately draw a line under the US Treasury selloff but, should the new borrowing come with an increase in maturity, some of that support may be weakened.   The case for a June hike has strengthened after Friday's higher than expected core PCE print and Treasuries are set to trade softly into Friday's jobs report as recent prints have demonstrated the labour market's resilience. 4% yield for 10Y now seems a more achievable level.   Weak European data prevents EUR rates from rising as fast as their US peers        

EUR: Can China come to the euro's rescue? EUR/USD has quietly slipped below support at 1.0700/1.0720 and may be gently making its way to the March lows at 1.0515/0530. As we mentioned last week, we think   EUR/USD is relatively cheap given the massive reversal in energy prices over the last year and that, in time, the 1.05/1.07 area will come to be seen as a summer base.   Helping that proposition would be some kind of recovery in China. The release of the China Beige Book has shown some recovery in the China manufacturing sector in May.   Official May Chinese PMI figures are released later this week. A bounceback here, helping to reverse the recent run-up in USD/CNH, could provide the euro with some support.   For today, the eurozone focus will be on the release of industrial and consumer confidence figures for May. Consensus expects some further deterioration here and if so this should keep EUR/USD on the soft side. We will also hear from a raft of ECB speakers today.   Expect more hawkish rhetoric especially in advance of the May eurozone CPI data on Thursday. Consensus expects core eurozone CPI to edge lower to 5.5% year-on-year in May. Another upside surprise here – feeding the sticky inflation narrative – warns that investors could return to pricing a 4.00% ECB deposit rate.   - Chris Turner

CEE: US dollar remains the region's nightmare The second print of first quarter GDP in the Czech Republic will be published today. Besides the GDP breakdown, we will also see the wage bill, which has been mentioned several times by the Czech National Bank as a potential reason for a rate hike in June.   Tomorrow, inflation for May and the details of first quarter GDP in Poland will be published. We expect headline inflation to fall from 14.7% to 13.0% YoY, below market expectations, mainly due to fuel and energy prices. On Thursday, we will see PMI numbers across the region, where we expect a slight deterioration in sentiment across the board.   Later, we will see state budget data in the Czech Republic, which posted its worst-ever result in April, raising questions about additional government bond issuance. The European Parliament is also scheduled to hold a session on Thursday, which is expected to cover the Hungarian EU presidency and is also likely to touch on the topic of EU money and the rule of law.   The FX market, as usual in recent weeks, will be dominated by the global story and the US dollar. So, even this week, CEE FX will not be in a bed of roses. We still see the Polish zloty as the most vulnerable, which despite some weakening in the past week remains near record highs. The market has built up a significant long position in PLN over the past two months.   Plus, we may hear more election noise. Moreover, the significant fall in inflation should push the interest rate differential lower. Thus, we see EUR/PLN around 4.540.   The Czech koruna remains the most sensitive currency in the region against the US dollar, which should be the main driver this week. On the other hand, the reversal in the rate differential has been indicating a reversal in EUR/CZK for a few days now.   Thus, at least a stable EUR/USD could allow the koruna to move toward 23.600. The Hungarian forint can expect a headline attack from the European Parliament this week, and given the current strong levels, we could easily see weaker levels again closer to 375 EUR/HUF.   However, we believe the market will use any spike to build long positions in HUF again.

Europe set for a mixed open, as debt ceiling deal heads towards a vote. By Michael Hewson (Chief Market Analyst at CMC Markets UK) With both the US and UK markets closed yesterday, there was a rather tepid response to the weekend news that the White House and Republican leaders had agreed a deal to raise the debt ceiling, as European markets finished a quiet session slightly lower. The deal, which lays out a plan to suspend the debt ceiling beyond the date of the next US election until January 1st 2025, will now need to get agreement from lawmakers on both sides of the political divide to pass into law. That could well be the hardest part given that on the margins every vote is needed which means partisan interests on either side could well derail or delay a positive outcome. A vote on the deal could come as soon as tomorrow with a new deadline of 5th June cited by US Treasury Secretary Janet Yellen. US markets, which had been rising into the weekend on the premise that a deal was in the making look set to open higher when they open later today, however markets in Europe appear to be less than enthused. That's probably due to concerns over how the economic recovery in China is doing, with recent economic data suggesting that confidence there is slowing, and economic activity is declining. Nonetheless while European stocks have struggled in recent weeks, they are still within touching distance of their recent record highs, although recent increases in yields and persistent inflation are starting to act as a drag. This is likely to be the next major concern for investors in the event we get a speedy resolution to the US debt ceiling headwind. We've already seen the US dollar gain ground over the last 3 weeks as markets start to price in another rate hike by the Federal Reserve next month, and more importantly start to price out the prospect of rate cuts this year. Last week's US and UK economic data both pointed to an inflationary outlook that is much stickier than was being priced a few weeks ago, with core prices showing little sign of slowing. In the UK core prices surged to a 33 year high of 6.8% while US core PCE edged up to 4.7% in April, meaning pushing back any possible thoughts that we might see rate cuts as soon as Q3. At this rate we'll be lucky to see rate cuts much before the middle of 2024, with the focus now set to shift to this week's US May jobs report on Friday, although we also have a host of other labour market and services data between now and then to chew over. The last few weeks have seen quite a shift, from the certainty that the Federal Reserve was almost done when it comes to rate hikes to the prospect that we may well see a few more unless inflation starts to exhibit signs of slowing markedly in the coming months. In the EU we are also seeing similar trends when it comes to sticky inflation with tomorrow's flash CPI numbers for May expected to show some signs of slowing on the headline number, but not so much on the core measure. On the data front today we have the latest US consumer confidence numbers for May which are expected to see a modest slowdown from 101.30 in April to 99, and the lowest levels since July last year. EUR/USD – has so far managed to hold above the 1.0700 level, with a break below arguing to a move back towards 1.0610. We need to see a rebound above 1.0820 to stabilise. GBP/USD – holding above the 1.2300 area for now with further support at the April lows at 1.2270. We need to recover back above 1.2380 to stabilise. EUR/GBP – currently struggling to move above the 0.8720 area, with main resistance at the 0.870 area. A move below current support at 0.8650 could see a move towards 0.8620. USD/JPY – having broken above the 139.60 area this now becomes support for a move towards 142.50 which is the 61.8% retracement of the down move from the recent highs at 151.95 and lows at 127.20. Further support remains back at the 137.00 area and 200-day SMA. FTSE100 is expected to open unchanged at 7,627 DAX is expected to open 17 points higher at 15,967 CAC40 is expected to open 30 points lower at 7,273

With the White House and Republican leaders agreeing a deal on the debt ceiling at the weekend markets are now obsessing about whether the deal will get the necessary votes to pass into law, as partisan interests line up to criticise the deal.   With the deadline for a deal now said to be next Monday, 5th June a vote will need to go forward by the end of the week, with ratings agencies already sharpening their pencils on downgrades for the US credit rating. European markets sank sharply yesterday along with bond yields, as markets started to fret about a recession, while oil prices sank 4% over demand concerns. US markets also struggled for gains although the Nasdaq 100 has continued to outperform as a small cohort of tech stocks contrive to keep US markets afloat. As we look towards today's European open and the end of the month, we look set for further declines after Asia markets slid on the back of another set of weak China PMIs for May. We'll also be getting another look at how things are looking with respect to economic conditions in Europe, as well as an insight into some key inflation numbers, although core prices will be missing from this snapshot. French Q1 GDP is expected to be confirmed at 0.2% while headline CPI inflation for May is expected to slow from 6.9% to 6.4%. Italian Q1 GDP is also expected to be confirmed at 0.5, and headline CPI for May is expected to slow from 8.7% to 7.5%. We finish up with the flash CPI inflation numbers from Germany, which is also expected to see a slowdown in headline from 7.6% to 6.7% in May. While this is expected to offer further encouragement that headline inflation in Europe is slowing, that isn't the problem that is causing investors sleepless nights. It's the level of core inflation and for that we'll have to wait until tomorrow and EU core CPI numbers for May, which aren't expected to show much sign of slowing.   We'll also get another insight into the US jobs markets and the number of vacancies in April, which is expected to fall from 9.59m in March to 9.4m. While a sizeable drop from the levels we were seeing at the end of last year of 11m, the number of vacancies is still over 2m above the levels 2 years ago, and over 3m above the levels they were pre-pandemic. The size of this number suggests that the labour market still has some way to go before we can expect to see a meaningful rise in the unemployment rate off its current low levels of 3.4%. EUR/USD – slipped to the 1.0673 area before rebounding with the 1.0610 area the next key support. We need to see a rebound above 1.0820 to stabilise.   GBP/USD – rebounded from the 1.2300 area with further support at the April lows at 1.2270. Pushed back to the 1.2450 area and the 50-day SMA, before slipping back. A move through 1.2460 is needed to open up the 1.2520 area.   EUR/GBP – slid to a 5-month low yesterday at 0.8628 just above the next support at 0.8620. A move below 0.8620 opens up the December 2022 lows at 0.8558. Main resistance remains at the 0.8720 area.   USD/JPY – ran into some selling pressure at 140.90 yesterday, slipping back to the 139.60 area which is a key support area. A break below 139.50 could see a return to the 137.00 area, thus delaying a potential move towards 142.50 which is the 61.8% retracement of the down move from the recent highs at 151.95 and lows at 127.20.   FTSE100 is expected to open 22 points lower at 7,500   DAX is expected to open 64 points lower at 15,845   CAC40 is expected to open 34 points lower at 7,175

10Y US Treasury yields are more than 60bp away from the peak they reached in early March, prior to the regional banking crisis. The Fed has been pushing a more hawkish line disappointed by the lack of progress on the inflation front, but end-2023 Sofr futures still price a rate that is 50bp below the early March peak.   At least so far, this doesn’t feel like a wholesale reappraisal of the market’s macro view although a more forceful Fed communication at the 14 June meeting, with potentially a hike and a higher end-2023 median dot, could push us closer to this year’s peak in rates.     ECB pricing is hard to move but markets look to the BoE for guidance In Europe, today’s inflation prints from France, Germany, and Italy will, in addition to yesterday’s Spanish release, give us a pretty good idea of where the eurozone-wide number will fall tomorrow. If the drop in Spain’s core inflation is any guide, EUR markets will struggle to follow their US peers higher.   Add to this that it is difficult for euro rates to price a path for policy rates that materially diverges from their US peers. Even if the Fed hikes in June or July, the EUR swap curve already prices ECB hikes at both meetings. Swaps assign a low probability to another hike in September for now.   That probability may well rise but we think any labour-market induced sell-off in US Treasuries will reflect, in part, in wider rates differentials between the two currencies.   It is difficult for euro rates to price a path for policy rates that materially diverges from their US peers  

Weak Chinese manufacturing data put pressure on the single currency as Europe, particularly Germany, is highly correlated with China.   However, the Eurozone's data is not so bad today. The number of unemployed in Germany rose by 9K, down from 23K and 19K in the previous two months. Unemployment is rising much more slowly than in the recessions of 2009 and 2020, and the unemployment rate (5.6%) is low by historical standards.   Second estimates confirmed a 0.2% q/q and 0.9% y/y rise in French GDP in the first quarter, although private consumption fell by a further 1% in April after a 0.8% decline in the previous two months.   For Italy, the final data pointed to economic growth of 0.6% q/q and 1.9% y/y, 0.1 percentage points higher than previously estimated.   Despite the upbeat economic data, the EURUSD fell to 1.0660 in early European trading, its lowest level since 17 March.

FXMAG.COM: Could you please comment on the US NFP? On Friday, the US will publish the employment data for May 2023. The average forecast suggests NFP growth by 180 thousand after rising to 253 thousand earlier.This is not a confident expectation. After a winter during which the US employment market added over 200 thousand new jobs per month, these statistics look modest. However, in this case, high digits might imply a threat to the US economy. If the Federal Reserve System sees that companies continue to compete for high-skilled workers, it might continue with its tough monetary policy.Strong employment market data will encourage further interest rate hikes to prevent inflation from rising.The situation turns out paradoxical. Good employment reports are no longer seen positively because they could be the basis for a further rise in crediting costs.Data that differs from forecasts will cause increased volatility in the US stock market.

UK Mortgage Approvals (Apr) – 31/05 We've started to see a modest improvement in mortgage approvals since the start of the year, after they hit a low of 39.6k back in January, as the sharp rise in interest rates at the end of last year weighed on demand for property as well as house prices.   As energy prices have come down, along with lower rates, demand for mortgages has started to pick up again with March approvals rising to 52k, while net consumer credit has also started to improve after similar weakness at the end of last year.   With inflationary pressures starting to subside we could see this trend continue in the coming months, as long as energy prices remain at their current levels, and the Bank of England starts to signal it is close to being done on raising rates.     Manufacturing PMIs (May) – 01/06 Last week saw the latest flash PMIs show that manufacturing activity in France and Germany remained weak, while in Germany activity deteriorated further to its lowest levels since June 2020, when economies were still reeling from the effects of pandemic lockdowns.   We also found out that the German economy was in recession after Q1 GDP was revised lower to -0.3%. The UK and US on the other hand were able to see a modest pickup in economic activity. It is clear that manufacturing globally is in a difficult place, we're also seeing it in China, as well as copper and iron ore prices, which suggests that global demand is weakening sharply.   Italy and Spain economic activity is also expected to see further weakness in manufacturing when their latest PMIs are released later this week.

Analysis of transactions and tips for trading EUR/USD The price test of 1.0719, coinciding with the significant rise of the MACD line from zero, limited the upward potential of the pair. Even so, market players continue to buy in anticipation of further interest rate hikes despite inflation in the eurozone starting to slow down. Clearly, market players do not expect any changes in the European Central Bank's monetary policy.     The empty economic calendar today will push traders to focus on upcoming US labor market data, as growth in unemployment and disappointing non-farm payrolls will convince the Fed to continue its tight approach to monetary policy. Only a pause in the rate hike cycle will weaken dollar demand and lead to a further rise in EUR/USD.     For long positions: Buy when euro hits 1.0780 (green line on the chart) and take profit at the price of 1.0816. Growth could occur. However, when buying, traders should make sure that the MACD line lies above zero or rises from it. Euro can also be bought after two consecutive price tests of 1.0754, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0780 and 1.0816.   For short positions: Sell when euro reaches 1.0754 (red line on the chart) and take profit at the price of 1.0722. Pressure may return amid very good labor market statistics in the US. However, when selling, traders should make sure that the MACD line lies below zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0780, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0754 and 1.0722.       What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.  

On Friday, there will be a few macroeconomic reports, but all of them will be very important. Neither the European Union nor the United Kingdom will issue data today. All the information will come from the US. There will be three reports, two of which are of the highest significance. Nonfarm Payrolls show the number of jobs created in a month outside the agricultural sector. This is a key labor market indicator. It is expected that 180-190 thousand jobs were created in May. Any number lower than this will be considered negative.       The unemployment rate is the second key labor market indicator. It is expected that by the end of May, the rate will increase to 3.5%. However, even 3.6% should not shock traders as it is still a very low value, close to the lowest one recorded 50 years ago. The average hourly earnings is the last report that will be issued today.   This indicator has a direct impact on the inflation rate. The annual increase in wages should not exceed the previous month's value. However, this data is less significant than the first two reports. Analysis of fundamental events:     There are no fundamental events planned for Friday. In recent days, both pairs have been showing a persistent desire to grow, which is not always justified by specific factors. If the growth in the euro makes sense, the pound's appreciation is raising many questions. However, the short-term trend has changed to ascending for both pairs. Thus, further growth can be expected unless the reports from the US are much stronger than the forecasts.   General conclusions: On Friday, there will be two important reports. Both of them will be published at the start of the US trading session. There will be no important events in the first half of the day. Also, yesterday, it was reported that the US House of Representatives approved an increase in the debt ceiling. Thus, there will be no default in the US. Yesterday's fall in the dollar was partially caused by this event. However, it is not logical. The market could have priced in the approval of the increase (since there were no other options, really), and now it could be benefiting from short orders. Nevertheless, we still expect a stronger drop from the euro and the pound.   Basis trading rules: 1) The strength of a signal is judged by the time it took to form the signal (a bounce or overcoming level). The less time it took, the stronger the signal is. 2) If two or more trades were opened around any level based on false signals, then all subsequent signals from this level should be ignored. 3) In a flat market, any pair can form a multitude of false signals or not form them at all. In any case, at the first signs of a flat movement, it is better to stop trading. 4) Trades are opened in the time period between the beginning of the European session and the middle of the US one when all trades should be manually closed. 5) In the 30-minute period, you can trade using signals from the MACD indicator only when there is good volatility and a trend, which is confirmed by a trend line or a trend channel. 6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered as a support or resistance area.     What we see on the chart: Price levels of support and resistance are levels that act as targets when opening buy or sell orders. Take profit levels can be placed near them. Red lines are channels or trend lines that show the current trend and indicate in which direction it is preferable to trade now. MACD indicator (14,22,3) is a histogram and signal line, that is an auxiliary indicator, which can also be used as a source of signals. Important speeches and reports (always included in the macroeconomic calendar) can have a significant influence on the movement of a currency pair. Therefore, during their release, you should trade with maximum caution or exit the market to avoid a sharp price reversal against the previous movement. Beginners should remember that not every trade can be profitable. A clear strategy and money management are key to success in long-term trading.      

Polish first-quarter GDP shows disinflationary structure, with odds of a rate cut growing. Poland's statistics office has revised the first-quarter GDP estimate to -0.3% year-on-year. In 2023 as a whole, we expect economic growth to be around 1% on the back of the improving foreign trade balance.   Seasonally adjusted GDP rose by a hefty 3.8% quarter-on-quarter in the first quarter of 2023, following a decline of 2.3% QoQ in the fourth quarter of last year. But seasonally adjusted data have shown surprisingly high volatility in recent quarters and should be taken with a pinch of salt.   The composition of the first quarter GDP was also revealed and shows a quite disinflationary picture, with some caveats. Domestic demand contracted by 5.2% year-on-year amid a deepening decline in consumption, which fell by 2.0% YoY, following a drop of 1.1% YoY in the fourth quarter of 2022. Investment activity continues to hold up well, expanding by 5.5% YoY in the first quarter of this year (vs +5.4% YoY increase in the fourth quarter of last year).   As expected, the change in inventories had a negative impact on activity, subtracting 4.1 percentage points from the annual GDP growth rate. This was offset by an improvement in the foreign trade balance. The positive impact of net exports on the change in annual GDP amounted to 4.3 percentage points. The exports of goods and services increased by 3.2% YoY, while imports were 4.6% lower than a year earlier. The GDP deflator reached 15.6%.     With respect to value added, we saw declines in trade and repair (-4.4% YoY), industry (-1.4% YoY) and transport and storage (-1.2% YoY). Most other sectors of the economy recorded increases.   2023 GDP and inflation outlook As expected, the start of 2023 brought a decline in GDP on a year-on-year basis, but on a markedly smaller scale than we had feared. However, this does not mean that the outlook for the year as a whole is markedly better. High-frequency data point to weakness in retail sales, industry and housing construction in the second quarter. At the same time, growth in infrastructure-related construction continues.   This is accompanied by continued elevated levels of inflation, which negatively affects consumers, dragging on the performance of the economy. On the other hand, investment activity will have a positive impact on the economy. Investments will most likely concentrate in large companies and the public sector (including defence spending). We expect that the main driving force of the economy will continue to be the improving foreign trade balance, mainly due to low imports.   The structure of GDP growth should be disinflationary this year due to the weakness of consumption, rising investment and the large role of foreign trade in shaping economic activity. Combined with the eradication of the direct impact of the energy shock, this should favour a further decline in inflation, with its pace being constrained by core inflation. The latter is more sticky than the headline CPI.   One factor in the slower deceleration of core inflation will be a tight labour market and high wage growth. We forecast that by the end of 2023, both the headline CPI and core inflation may moderate to single-digit levels, but the outlook for 2024 is more uncertain.     National Bank of Poland rates outlook Expectations for a cut by the National Bank of Poland (NBP) may rise (we see 30-40% odds in the second half of the year). Theoretically, today's data show an improvement in the inflation outlook: a better GDP structure, month-on-month core CPI slowing, and NBP more vocal on rate cuts.   But the cross-country comparison (especially with the Czech Republic) suggests this could be a premature move.   Moreover, we still see important inflationary risks in the long term: a strong public acceptance of price increases, an election spending race, and strong investment mainly in energy (other sectors are still performing poorly to offset high costs).   In our view, an NBP cut would not help Polish government bonds (POLGBs) with longer maturities.   The premature cut would extend the return of CPI to the target, which is already a distant prospect (in 2025-26).

France: consumption plunges while inflation moderates The second quarter got off to a poor start in France, with household consumption falling for the third consecutive month in April, and the outlook has been revised downwards. Against a backdrop of falling demand, inflationary pressures are moderating more quickly than expected.   Consumption continues to plummet In April, for the third consecutive month, consumer spending on goods fell. This time, the fall was 1% over the month, following a 0.8% fall in March. Household consumption of goods is now 4.3% lower than a year ago and 6.3% below its pre-pandemic level. The fall is due to lower energy consumption (-1.9% over one month) and a further fall in food consumption. Food consumption is now 11% below its pandemic level.   The magnitude of the fall shows the significant impact of the inflationary context and the fall in purchasing power, which has led households to significantly alter their consumption habits.   These figures were eagerly awaited, as they are the first real activity data available for the second quarter. And we can now say that the second quarter got off to a poor start. It is clear that the French economy is slowing sharply. It is unlikely that consumption will make a positive contribution to GDP growth in the second quarter, especially as the slowdown is beginning to have an impact on the labour market, as suggested by the employment climate data published by INSEE last week.   The prospect of a recovery later in the year seems to be fading. This has led us to revise our growth outlook slightly downwards. We are now expecting GDP growth of 0.6% in 2023 and 0.7% in 2024, with the risks still tilted to the downside. Although France escaped recession last winter, today's indicators are a reminder that a recession in the coming months cannot be ruled out.   Strong moderation in inflationary pressures Against this backdrop of falling demand, inflationary pressures are moderating. As expected, the pace of consumer price inflation eased in France in May. Inflation stood at 5.1%, down from 5.9% in April, while the harmonised index, which is important for the ECB, reached 6% in May, compared to 6.9% in April. The good news is that the fall in inflation is now visible in all consumer categories. Energy inflation fell sharply to 2% year-on-year in May.   Unlike in other European countries, it remains positive, however, as the rise in household energy bills did only take place at the start of 2023, rather than in 2022, as a result of the "tariff shield" introduced by the government last year. Food inflation remains very high but is starting to fall, to 14.1% in May from 15% in April.   At 4.1% year-on-year, compared with 4.6% in April, growth in the prices of manufactured goods is also moderating, as is that of services, which stood at 3% compared with 3.2% in April. These last two developments are very good news, as they signal that the inflation peak is behind us, but also that inflation is likely to fall rapidly over the coming months. Indeed, the signs of moderation in inflationary pressures are mounting.   For example, tensions in supply chains have disappeared and the growth in industrial producer prices, which gives an indication of changes in production costs for the manufacturing sector, slowed sharply to 5% year-on-year in April (compared with 9.5% in March). Over one month, producer prices fell sharply, by 4.1%, after +1.2% in the previous month. This indicates that growth in the prices of manufactured goods is set to slow markedly over the coming months.   Furthermore, business forecasts for selling prices fell sharply in May, particularly in the industrial and construction sectors, but also in services. Inflation in services should therefore continue to weaken over the coming months.   Finally, given the fall in agricultural commodity prices on international markets and the weakness of demand, food inflation should continue to fall gradually, and more rapidly once the impact of the price agreement between food producers and big retailers has been absorbed, i.e. during the summer. Ultimately, inflation is likely to fall over the coming months, helped by weak demand. We are expecting inflation to average 4.7% over the year (5.7% for harmonised inflation).

FXMAG.COM: Do you expect any radical moves of EUR/GBP price in the near future? What can cause such fluctuations?  As forex traders keenly observe the EUR/GBP currency pair, there is speculation surrounding the likelihood of substantial price movements in the near future. Examining the underlying factors that can trigger notable fluctuations is essential for making informed decisions in the market.   Macroeconomic indicators, including GDP growth, inflation rates, and employment figures, offer valuable insights into the potential for significant moves in the EUR/GBP price.   Based on the latest available data for Q1 of 2023, Eurozone GDP growth experienced a 1.3% increase, while the UK maintained a stable growth rate of 0.10%. Political developments exert a considerable impact on the EUR/GBP exchange rate. Notably, events such as the recent UK election or updates related to Brexit have proven to be catalysts for volatility.   Staying well-informed about key political developments is crucial, as they can significantly influence the price of this currency pair. Central bank policies play a pivotal role in shaping the EUR/GBP exchange rate.   The European Central Bank (ECB) and the Bank of England (BoE) periodically announce monetary policy decisions that affect this currency pair. It is important to keep a close watch on interest rate adjustments, quantitative easing programs, and forward guidance statements.   As of the latest interest rate decision on February 2, 2023, the ECB maintained rates at 3%, while the BoE held rates at 4.5% with a slight increase of 0.25% on May 11, 2023. Global economic trends and market sentiment can also influence the EUR/GBP price.   Trade relations between the Eurozone and the UK, as well as global economic conditions, can cause significant fluctuations. Monitoring geopolitical events, risk appetite indicators, and market sentiment can provide valuable insights into potential radical moves in this currency pair.   Predicting significant shifts in the EUR/GBP price is a complex task. However, analysing key factors such as macroeconomic indicators, political developments, central bank policies, and global economic trends can enhance your understanding of potential fluctuations. As of the latest available data on May 23, 2023, at 12:51, the EUR/GBP exchange rate stands at 0.87057. Stay well-informed about the latest news and events to navigate the market effectively and make informed trading decisions.

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.    

Indonesia: Inflation back within target but BI likely on hold until end of year. Headline inflation finally reverted to target in May, with headline inflation slipping to 4.0% year-on-year   Headline inflation back to target after a year Headline inflation slipped below expectations to 4.0% YoY, roughly 0.1% higher compared to the previous month. Inflation is back within Bank Indonesia's (BI) 2-4% target after 12 months and will likely stay within target for the rest of the year. Headline inflation enjoyed a much more pronounced moderation this year, sliding back within target even ahead of BI's expectations. Lower energy and food prices from a year ago level helped push headline inflation lower or unchanged across all items in the CPI basket. Meanwhile, core inflation was also down, dipping to 2.7% YoY and also lower than market expectations (2.8%).       Price stability objective reached but BI likely on hold to steady the IDR Bank Indonesia was one of the first central banks in the region to pause its tightening cycle earlier this year. BI Governor Perry Warjiyo who had expected inflation to slow gradually and revert to target by 3Q, has kept rates at 5.75% since the 16 February policy meeting. Despite the quick reversion to target for inflation, we believe BI will carry out an extended pause to shore up support for the Indonesian rupiah, which was down roughly 2.15% for the month of May. Thus we expect BI to retain policy rates at 5.75% until the end of the year and only consider cutting policy rates should global central banks opt to ease monetary policy.

A hawkish hold from the Bank of Canada next week We expect the BoC to leave the policy rate at 4.5% next week, but after stronger-than-expected consumer price inflation and GDP and with the labour data remaining robust we cannot rule out a surprise interest rate increase. The market is pricing a 25% chance of a hike on 7 June, and a hawkish hold should be anough to keep the Canadian dollar supported.   Canadian resilience means a rate hike can't be ruled out The Bank of Canada last raised rates on 25 January and have held it at 4.5% ever since. The statement from the last meeting in April commented that global growth had been stronger than expected and that in Canada itself, “demand is still exceeding supply and the labour market remains tight”. The bank warned that it was continuing to “assess whether monetary policy is sufficiently restrictive and remain prepared to raise the policy rate further” to ensure inflation returns to 2%.   Since then we have had additional warnings from Governor Tiff Macklem that the bank remains concerned about upside inflation risks with the latest CPI report showing a month-on-month increase in prices of 0.7% versus a consensus forecast of 0.4%, resulting in the annual rate of inflation rising to 4.4%. The economy added another 41,400 jobs in April, more than double the 20,000 expected with wages rising and unemployment remaining at just 5%. The resilience of the economy was then emphasised further by first quarter GDP growth coming in at 3.1% annualised, beating the 2.5% consensus growth forecast. Consumer spending was the main growth engine, rising 3.1%.     But we favour a hawkish hold – signalling action unless inflation softens again soon Nonetheless, the BoC accept that monetary policy operates with long and varied lags and continue to believe that “as more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year”. This will help to dampen inflation pressures and with commodity price softening we still believe that inflation can get close to the 2% target by the early part of 2024.   With the US economic outlook also looking a little uncertain, we doubt that the BoC will want to restart hiking interest rates unless it is certain that inflation pressures will not moderate as it has long been forecasting. Consequently we favour a hawkish hold, signalling that if there isn’t clearer evidence of softening in price pressures it could raise rates again in July.     The loonie's resilience can continue The Canadian dollar has been the best G10 performing currency in the past month, largely thanks to its high beta to the US economic narrative and a repricing of Canada’s domestic rate and growth story. These factors have outshadowed crude’s subdued performance in May and some risk sentiment instability.   A hawkish tone by the Bank of Canada at the June meeting is clearly an important element to keep the bullish narrative for CAD alive. As shown below, the recent repricing in Fed rate expectations caused a rebound in short-term USD swap rates relative to most currencies (like the euro), while the USD-CAD 2-year swap rate differential has remained on a declining path also throughout the second half of May.     As long as the BoC does not push back against the pricing for a hike in the summer, we expect CAD to remain supported. Some lingering USD strength in June can put a floor around 1.33/1.34 in USD/CAD, but we expect a decisive move to 1.30 in the third quarter and below then level before the end of the year.  

China: Further rate cuts and weak activity data After the rate cuts yesterday, the 1Y medium-term lending facility (1Y MLF) was cut 10bp today. Weak activity data mean that this is probably not the end of the stimulus, though the more important measures are likely to be fiscal.   1Y MLF cut 10bp After the cut of the 7-day reverse repo rate by 10bp yesterday, it was no surprise to see the 1Y MLF rate also cut by 10bp, taking it down to 2.65%. Lending volumes also rose to CNY237bn, above the CNY200bn expected. Still, this is not going to move the needle for Chinese activity particularly. More easing will be needed, and though there does look like a good case for further monetary policy easing in the months ahead, the bulk of the authorities' response will probably need to come from targeted fiscal measures.   New home prices still rising, but only just Ahead of the bulk of the activity data, new home prices showed a fifth consecutive month without falling. Though the rate of increase was only 0.1% MoM, which is down on the recent trend and may indicate momentum slowing in this part of the economy.   70-city new home prices

The current situation in the financial markets has been a topic of great interest and speculation. To shed light on this matter, we had the opportunity to speak with an analyst from RoboForex, who provided valuable insights. Starting with the FOMC decision, the US Federal Reserve opted to maintain the interest rate at 5.25% per annum, aligning with expectations. However, the regulator's comments presented a mixed outlook. While it acknowledged the possibility of further interest rate hikes, it is anticipated that any future increases will be more modest, with a shift from 50 basis points to 25 basis points.   The Federal Reserve also indicated its intention to continue reducing the volume of assets on its balance sheet, with potential sales of securities starting in 2024. Despite the neutral nature of the recent statements and decisions, there are concerns about the negative impact on the US capital market due to potential future lending cost increases. The risks of a recession are expected to persist until the end of 2023.   Moving on to the ECB decision, the European Central Bank raised all three interest rates at its recent meeting. The deposit rate increased by 25 basis points to 3.25% per annum, while the key rate and marginal rate were lifted to 4.00% and 4.25% per annum, respectively. The ECB made it clear that its interest rate hike campaign is not yet over, as it aims to bring rates to sufficiently restrictive levels for inflation to reach the target of 2% in the medium term. It is anticipated that there will be at least two more rate hikes of 25 basis points each, followed by a possible pause for data analysis.     FXMAG.COM: Could you please comment on the FOMC decision? The decision of the US Federal Reserve turned out to be as expected. The interest rate was kept at the level of 5.25% per annum. The regulator's comments came out mixed.For example, the Fed believes it is reasonable to consider further interest rate hikes. This means that the pause will probably not last long. There may be one or two rate hikes ahead. The nuance is that the rate increase will be more modest, at 25 basis points and not at 50 bp as before.The Fed will continue to reduce the volume of assets on its balance sheet as announced earlier. Since May this year, the indicator has fallen to 8.4 trillion USD from 8.5 trillion USD. The Committee refuses to reinvest funds generated from matured securities. Sales of securities from the Fed's balance sheet might start in 2024.Locally, all statements and decisions are of a neutral nature. In the medium term, this can have a negative impact on the US capital market due to the possibility of a further increase in the cost of lending. The risks of a recession persist until the end of 2023.   FXMAG.COM: Could you please comment on the ECB decision? The European Central Bank raised all three interest rates at its meeting on Thursday. The deposit rate rose by 25 basis points to 3.25% per annum. The key rate increased to 4.00% per annum, and the marginal rate was lifted to 4.25% per annum.The ECB made it clear in its comments that its unprecedented interest hike campaign is not over yet.As stated by the CB, rates must be brought to levels that will be sufficiently restrictive for a timely return of inflation to the 2% medium-term target. Rates will be kept high for as long as necessary.Everything happened exactly as expected. The ECB will likely further raise the rates at least twice by the same interval of 25 basis points each time. Thereafter, a pause will probably be needed to collect data and analyse it. This will not necessarily indicate that the series of hikes has come to an end, but that the ECB has received signals that its monetary strategy is working.   FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH? Gold is currently not in demand as a safe-haven asset. At the same time, physical demand for the precious metal is low, which does not provide any support for gold.Gold has declined to 1,946 USD per troy ounce. This year's high was recorded on 3 May, when gold was priced at 2,071.30 USD.There are a lot of risks for gold associated with the prospects of the monetary policy of the US Federal Reserve. While investors were expecting a pause in the series of interest rate hikes by the Fed, they now received indications of a probable further tightening of monetary policy. If gold can cope with this statement, it could trigger price increases.The crux of the matter is that the Fed is on the verge of altering its monetary policy stance. Everyone understands that. The question remains about the timing of when the regulator will begin lowering rates. While there is a lot of uncertainty here, there is almost no doubt that this could happen in the next 6-8 months.A shift in the Fed's monetary framework will be a vital support for gold from a long-term perspective. In the medium term, a sideways trend has formed within the range of 1,935-1,985 USD, while a decline is the most likely scenario in the short term.     Visit RoboForex

In the ever-evolving landscape of financial markets, decisions made by major central banks have a significant impact on shaping trends. We recently had the opportunity to speak with Matthew Weller, an analyst at StoneX, to gain insights into the current state of affairs.   Read more   The European Central Bank (ECB) recently made headlines with its "Hawkish Hike," raising its key interest rate by 25 basis points to 3.5%. This move aims to combat the escalating inflation in the eurozone, marking the eighth consecutive rate hike since July 2022. The ECB's determination to bring inflation down from its current 6.1% to its target of 2% is evident. ECB President Christine Lagarde has hinted at the possibility of further rate hikes at the next meeting in July, emphasizing the need to tackle inflation head-on. Lagarde made it clear that the ECB has no plans to pause its rate hikes. While the ECB focuses on inflation control, other central banks, such as the US Federal Reserve, have taken a pause in their rate hikes to assess their impact on economic growth and employment. However, the Fed's projections indicate the potential for two more rate hikes this year. Similarly, central banks in Australia and Canada have resumed rate increases after a temporary pause, underscoring the global challenge of high inflation. The ECB's decision to raise rates comes at a time of economic uncertainty, influenced by factors such as the ongoing conflict between Russia and Ukraine and potential wage agreements that may further fuel inflationary pressures. The ECB acknowledges that short-term economic growth may remain subdued, but it expects improvements as inflation subsides and supply disruptions ease. While concerns persist regarding the potential negative impact of higher rates on the economy and the risk of a recession, the ECB remains committed to addressing inflation as a top priority   FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH? Gold Consolidates Amid Hawkish Central Bank Actions   With major central banks continuing to tighten monetary policy and inflation still receding (if more gradually than before) gold prices are likely to remain on the back foot in the near term. As of writing, the yellow metal is trading in the mid-$1900s, where it has spent the last three weeks consolidating. Bulls will be looking for a break above the June high near $1990 to signal a potential retest of the record highs near $2075 as we move into July, whereas a confirmed break below $1930 could open the door for a retest of the 200-day EMA near $1900 next.

German Business Confidence falls for second straight month ECB’s Lagarde hosts central banking conference in Portugal EUR/USD is drifting higher on Monday. In the European session, EUR/USD is trading at 1.0917, up 0.20%.   German business confidence slips Germany once prided itself as being the locomotive of the eurozone, which blazed the way with a strong economy. The country is still by far the largest economy in the bloc, but hard times in the global economy haven’t spared Germany. The week started with disappointing news as the German Ifo Business Climate index dropped for a second straight month, falling from 91.7 to 88.5 in June. This missed the consensus of 90.7 and was the index’s weakest level this year. The Ifo release did not indicate reasons for the decline, but a weak global economy, exacerbated by China’s wobbly recovery, and the ECB’s aggressive tightening appear to be weighing on business sentiment. Last week’s German PMI data indicated slower activity in manufacturing and services. Manufacturing has been mired in a recession and fell from 43.5 to 41.0 points. Services is showing growth, but slipped from 54.7 to 54.1 points. The 50 line separates contraction from expansion. The ECB has been playing catch-up with inflation but has made progress as higher rates have dampened economic activity in the eurozone. The ECB has hinted strongly that it will raise rates in July and there is a strong possibility of another hike in September or October. ECB President Christine Lagarde will be in the spotlight as host of the ECB forum on Central Banking in Sintra, Portugal this week. The markets will be monitoring her remarks and looking for insights into future rate policy, which could result in stronger movement from the euro. . EUR/USD Technical EUR/USD is testing resistance at 1.0916. Next, there is resistance at 1.0988 1.0822 and 1.0780 are providing support

According to the CME FedWatch tool, markets are currently seeing a ~74% probability that a hike will not take place at the Fed monetary policy committee meeting in June. In addition, expectations of future rate cuts closer to the end of 2023 and continued rate cuts through 2024 are increasing, further boosting investor sentiment, supporting valuations of technology companies, growth sectors in general and contributing to the upward trajectory of the market.   Lower inflation has also played a role in the positive market performance. Inflationary pressures continue to fall, allowing consumers to maintain their purchasing power and businesses to plan for the future with greater certainty, removing uncertainty about inflation. This favourable inflation environment has strengthened investor confidence in the resilience of the economy in the 2nd half of the year, given the expected policy shift from the Fed. Moreover, the US economy has demonstrated its resilience, continuing to show growth despite relatively high interest rate levels. Key economic indicators such as GDP growth, employment figures, labour market strength and consumer spending are showing signs of stability, indicating sustained and balanced economic growth. Expectations of a soft economic landing have allayed fears of a prolonged recession and laid a solid foundation for market recovery.

Recent PMI readings in the European economy have raised concerns about the future of the region. The Euro area composite PMI dipped below the 50-point mark, indicating a contraction for the first time this year. This significant shift in momentum suggests a potential 3 to 6-month period of economic decline.  The tightening monetary policy by the European Central Bank (ECB) aimed at reducing inflation has contributed to these contracting indicators. The drop in composite PMI was driven by a decline in both manufacturing and services PMI, with manufacturing consistently below the expansion territory. However, services PMI still remains in expansion, although a continued decrease could indicate contracting business confidence. Job creation in the Euro area remained limited to the services sector, while employment in factories declined for the first time in over two years. This slowdown in hiring, coupled with a decrease in business confidence, may lead to rising unemployment rates. On a positive note, the weakness in PMI readings can be partly attributed to destocking activities, which can benefit businesses in the long run. Additionally, there have been slight improvements in new order numbers, particularly in Italy's construction sector, suggesting a potential turnaround. These dynamics will likely influence the ECB's monetary stance moving forward.   FXMAG.COM:  How would you comment on the entire series of PMI readings from the European economy? What do the sentiment in industry and services say about the future of the European economy?   Santa Zvaigzne-Sproge, CFA: The Euro area composite PMI came out below the 50-point level indicating that it has entered the zone of contraction for the first time this year. This was a considerable change in momentum in comparison to April’s reading of 54.1 and even the previous month’s reading of 52.8. Furthermore, the historical data show us that once the PMI slides below the 50-point mark, it tends to stay there for a 3 to 6-month period. As tightening monetary policy by the ECB has been performed with the key aim to draw down inflation by reducing economic activity, contracting economic indicators such as PMI may not be a big surprise.    The drop in composite PMI resulted from a combination of lowering manufacturing PMI and services PMI data. However, the difference between both is nearly 10 points with services PMI still being in the expansion territory while manufacturing has not been there since August 2022. The large difference might be partially explained by the nature of both sectors. Manufacturing generally implies more capital intensity and longer production times, therefore, requiring more planning ahead, while services may be more flexible and adapt faster. However, if the services PMI data continues to lower, it may indicate that business confidence is contracting also in this sector.    In June, private companies in the Euro area maintained their efforts to expand their workforce, but job creation was limited to the services sector, while employment in factories declined for the first time since January 2021. The slowdown in hiring coincided with a decrease in business confidence across the Euro area. While firms maintained an optimistic outlook, the level of positive sentiment reached its lowest point in 2023 thus far. Growth expectations also softened in both the manufacturing and services sectors. In case job growth continues to stagnate, it may translate into increasing unemployment rates across the Euro area, which may give the ECB a reason to reconsider its hawkish monetary stance.    To finish on a more positive note, we need to point out that the weakness in PMI readings has been partially associated with destocking, leading to lower new order numbers. While negatively affecting PMI numbers, destocking may be considered as cyclical activity performed by managers beneficial to their businesses. Furthermore, destocking cannot last endlessly – once the stock levels reach a certain point, new orders may need to go up to support the “restocking”. There has been a somewhat positive development in this section in Italy where according to the latest construction PMI report, new orders increased marginally ending the six-month-long strike of contraction.  Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. 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FX Daily: How much more fuel in the disinflation tank? Last week’s US disinflation shock altered the FX landscape, but a few days without key data releases will tell us whether that impulse can keep the dollar on the back foot as the FOMC risk event draws nearer. EUR/USD appears a bit overstretched in the short term and could face a correction this week.   USD: Some caveats to the bearish narrative On Friday, we published FX Talking: The dollar’s break point, where we discuss our updated views on G10 and EM currencies and present our latest forecasts. The radical shift in the FX positioning picture since the US CPI and PPI releases last week now forces a reassessment of the dollar outlook. The Commodity Futures Trading Commission (CFTC) data on speculative positioning offers little help in understanding how much dollar positioning has changed since the latest reported positions were as of Tuesday, before the inflation report. Back then, the weighted aggregate positioning against reported G9 currencies (i.e., G10 excluding SEK and NOK) had already inched into net-short territory (-2% of open interest, in our calculations). When making the parallel with the November-December 2022 dollar decline, positioning shows a key difference. At the end of October 2022, markets were still speculatively long on the dollar (around 10% of open interest against CFTC-reported G9). Another important factor – especially for EUR/USD – is the degree to which other central banks outside of the US can still surprise on the hawkish side, which is significantly lower than it was last autumn. These caveats to the rather compelling bearish dollar story mean that it may not be one-way traffic from here in FX, even if we see the dollar weaken further into year-end. On the fundamental side, the disinflation story puts risk assets on a sweet spot, favours a re-steepening of the US yield curve and should make pro-cyclical currencies more attractive. However, the Federal Reserve may not turn into a USD-negative that swiftly. Our US economist still sees a 25bp hike next week as likely. It is fully priced in, but will the Fed be ready to throw the towel on more hikes just yet? Core inflation is declining, but the jobs market remains very tight and other economic indicators remain resilient. The dot plot is still showing another hike before a peak and Fed Chair Jerome Powell may prefer to err on the hawkish side, especially through a rate cut pushback (first cut priced in for the first quarter of 2024). This week will be interesting to watch since the lack of tier-one data in the US will offer a clue on how FX markets will trade from now on; the question is whether investors now see enough reasons to add short positions on the dollar ahead of the FOMC or take a more cautious approach. The latter – which appears marginally more likely in our eyes – may see the dollar reclaim some portions of recent losses. DXY could find some support after climbing back above 100.00.

In a recent interview with FXMAG.COM, we had the privilege of discussing the current state of inflation in the United States with Michael Stark, an experienced analyst from Exness. As inflation has been a hot topic of discussion and concern for both investors and policymakers, we sought Stark's insights on whether the downward trend in inflation will continue in the third quarter. According to Stark, unless there are any significant unforeseen events, it is likely that inflation will continue to fall in the U.S., albeit not by a substantial margin. He points out that American non-core inflation has been steadily slowing since the previous summer, with monthly fluctuations showing some variability. One of the primary factors contributing to the deceleration in inflation is the strong cycle of monetary tightening, which has been one of the most robust in history. Coupled with the relatively steady price of oil compared to the previous year and supply chains returning to a semblance of normalcy for most products, the pressures on inflation have become less evident. Additionally, weaker job data in the USA, traditionally considered a significant driver of inflation, have also played a role in the moderation of price increases. FXMAG.COM: Will inflation continue to fall in the U.S. in the third quarter? Barring some exceptional event, yes, but maybe not by very much. American non-core inflation has slowed consistently since last summer although the monthly declines in the rate have been somewhat variable. This has been one of the strongest cycles of monetary tightening in history and, combined with the price of oil remaining relatively steady compared to last year and supply chains back to normal or something resembling normal for most products, the biggest pressures on inflation are much less clear now. Job data in the USA – traditionally cited as being a key driver of inflation – have also been weaker overall since the second quarter. However, it’s probably too early to start expecting a return to 2% inflation even by the end of the year. Now that the Fed is likely to pause hikes and possibly start cutting in the second quarter of 2024, we might see inflation stick above the old target. Inflation is quite unpredictable more than a few months ahead, but holding PMIs might suggest that it could remain above target for longer.  

As this week's macroeconomic readings unfold, providing insights into the state of the British economy, certain trends and challenges have emerged. The UK is facing a potential inflation rally, with average wages increasing by 6.9% over the three months ending in May, indicating a competitive labor market that can drive inflation higher. This pro-inflationary factor is closely monitored by the Bank of England, which stands ready to react if necessary. The central bank's ongoing efforts to raise interest rates are aimed at gaining control over inflationary pressures. However, the GDP data for May reflects a recessionary phase, with the economy contracting by 0.1% month-on-month. While this decline was not as severe as initially anticipated, the UK continues to grapple with inflation, logistic chain disruptions, and domestic challenges. Despite the current recessionary signals, there is optimism that the Bank of England's measures will yield positive results, leading to a decline in inflation and a normalization of economic processes. It is hoped that with time, negative statistics will gradually subside.   FXMAG.COM: What do this week's macroeconomic readings - wages, GDP, industrial production - tell us about the state of the British economy? Will the recession be deep? Will the BoE continue to raise rates   The UK faces a risk that the inflation rally will develop further. This week, statistical data has demonstrated that average wage over the three months ended in May increased by 6.9% against a rise of 6.7% earlier. There had been forecast an increase but a less expressed one. The growth of wages shows that the employment market is vigorous enough to compete over labour resources through raising payments. It is an apparent pro-inflationary factor. The Bank of England monitors this and will react if needed. The BoE's interest rate will be growing until inflation gets under control. The GDP data for May in the UK reflected a recession. The economy lost 0.1% m/m after a rise of 0.2% in April. The expectations had been gloomier, suggesting a decrease of 0.3%. The indications of a recession were not unexpected. The UK suffers greatly from inflation, logistic chain breaches, and domestic problems. It is doubtful whether the recession will be profound. Most probably, the Bank of England's effort will soon bring fruit, inflation will go down, and economic processes will start normalising. There might be a month or two more of negative statistics.     What does the industrial production reading from the Eurozone tell us about the state of the European economy and European industry? In May, industrial production in the Eurozone increased by 0.2% m/m, turning out inferior to the forecast. Calculated year by year, it dropped by 2.2% after a rise of 0.2% in April. It is very weak data. It was not unexpected, but the decrease in industrial production had been predicted to be less expressed. The statistics are comprised of extremely high purchase prices and increased salaries, and capacity maintenance expenses. At the same time, enterprises cannot count on future improvements and prefer to decrease production volumes, which allows for cutting down on estimated loss. Most probably, the picture of industrial production will be similar in June.     Visit RoboForex

In the intricate web of global economics, few elements have as profound an impact as the price of oil and inflation rates. These two factors are not only interconnected but also indicative of the overall health and trajectory of economies around the world. In an exclusive conversation with RoboForex analyst, we delve into the intricate dynamics that are currently shaping the oil market and U.S. inflation trends, offering insights into what lies ahead.     FXMAG.COM: How long can the oil price rise? Since 28 June, Brent has increased in price by 18% and is approaching resistance at 87 USD. A breakout beyond this level could result in further price growth, with the potential to reach 100 USD. However, the PMI, which tracks business activity in the manufacturing sectors of the US and Europe, fell below 50 again in July. This decline signals a slowdown in economic activity and, as a result, a decrease in demand for oil. To stabilise oil prices, OPEC+ members, particularly Saudi Arabia, reduced production by 1 million barrels per day in July and continued into August. Russia also joined in August, announcing a cut in oil exports by 500 thousand barrels per day. The decline in business activity in the US and EU along with reduced oil production could potentially stabilise the price in the range of 83-87 USD per barrel, but this balance could be disrupted by China and the US. In China, regulators are urging local authorities to accelerate bond sales to finance infrastructure projects and support the economy. The funds allocated for this purpose must be spent by November 2023. China is putting words into action, and this move could increase the demand for oil. Meanwhile, strategic oil reserves in the US have been depleted to the lowest level since 1983, reaching 354 million barrels, as they were sold to control fuel prices. The potential re-entry of the US into the oil market to replenish reserves could further push oil prices upward. On 1 August, it was reported that the US administration cancelled an order to purchase 6 million barrels of oil for reserve replenishment due to high prices. This indicates that the authorities are following a strategic approach to buying oil and potentially increasing demand – by monitoring the situation and waiting for the right moment to buy. In addition, the impact of the ongoing trend towards green energy is adding fuel to the fire, resulting in a lack of investments in the US oil industry. This is evident from the reduced number of active drilling rigs, which, according to Baker Hughes, decreased from 618 to 522 since the beginning of the year. Production cuts, China's economic stimulus, replenishment of strategic reserves in the US, and underinvestment in the oil sector – all these factors act as catalysts for potential further growth in crude oil prices. Consequently, we can assume that the price of oil in Q3 may continue to rise. The only event that could change this scenario is a global economic recession.     FXMAG.COM: Will inflation continue to fall in the U.S. in the third quarter? Since August 2022, the annual inflation rate in the US has been steadily decreasing, and according to July data, it has reached 3%. The Fed aims to achieve an inflation rate of 2%. To combat inflation, the Fed is raising interest rates and reducing its balance sheet to cool down the economy. Additionally, to curb fuel prices, the US government has turned to selling off strategic oil reserves, which also impacts the inflation level, leading to US oil reserves falling to levels not seen in 40 years. As a result, fuel prices in the US have been on a decline since August 2022, and during the same period, the inflation rate has also been decreasing. However, this trend reversed in June 2023. Along with the increase in the price of crude oil, petrol, and diesel prices in the US surged, surpassing the values seen in April. This could have a negative effect on the inflation rate. To control fuel prices, the US government can no longer rely on strategic reserves; instead, it is now attempting to replenish them, which could lead to a further increase in oil prices, and, consequently, fuel prices in the US. Another factor that may impact inflation is the unexpectedly high number of new jobs, reaching 324 thousand in July, compared to the forecasted 189 thousand. The data on the number of jobs in the US has significantly exceeded forecasts for the fourth consecutive month. As more people work and earn an income, the demand for goods and services increases, which is another factor supporting inflation growth. As a result, the decline in the inflation rate may halt in Q3, and if oil prices and job numbers continue their upward trend, we may even see a slight increase in inflation in September or October.     Visit RoboForex

Rates Spark: Energy and food inflation is ringing more alarm bells Suddenly some inflation alarms are ringing again: energy and food prices are under rising pressure, as are market inflation expectations. We'll get US CPI today, which will paint a picture for July. What's beyond that is becoming a little more nuanced and troubling for bonds.   US inflation ahead is key, but so also are the wider impulses which can trouble bonds There is heightened discussion on where we are with inflation. While the US CPI reading is key for the near term, there is also an acknowledgement that inflation expectations coming from the market discount have become a little less anchored than they had been. The 5yr * 5yr inflation rate has returned to the 2.5% area, and the inflation swaps measure of the same has it up in the 2.7% area. These are not awful levels when you consider where inflation was, and at least these expectations are still comfortably below 3%. But it’s the path they’ve been on that creates the issue, as that path has been pointing upwards. At the same time, there is an ongoing rise in food and energy prices in play, which risks adding to headline pressure down the line. Given this backdrop, the US 10yr has managed to remain above 4%, and we think it should continue to do so. And remember, once we get through tomorrow’s US inflation report, we’ll likely see headline US inflation closer to 3.5% than 3% and core US inflation closer to 5% than 4%. There’s been progress made to the downside, but the burning issue for bonds is whether the inflation threat has actually been dealt a death blow. Based on the market expectations for inflation, it hasn’t. For that reason, we stick to our cautious approach to bonds, eyeing higher yields. We also remain under considerable supply pressure this week. Decent US 10yr auction yesterday. Minor tail, virtually none. High indirect bid, and reasonable cover. Not as good as the 3yr. But it did not tail, as some had feared. The 30yr auction is up next.   Market's long term inflation expectations still trended higher     Risk to inflation outlook also sets floor to EUR rates In the eurozone, the upward leg in the longer-term inflation swaps over the past weeks up until the latest correction has been even more striking. Although other measures, such as the European Central Bank surveyed consumer inflation expectations, have displayed further moves in the right direction earlier this week, the recent swings in the price for natural gas also highlight the lingering risk of supply disruptions to the more benign inflation dynamics of late. The ECB may have sounded less determined at the last meeting, not having pre-committed to a hike in September. But one should not underestimate the ECB’s resolve and persistence. Markets are still seeing a 70% chance for one more hike, even if a bit later than September. Further out, though, there is already a full discount of three 25bp cuts over 2024, which suggests not too much room for pricing in more.   Collateral scarcity remains a sensitive topic Bunds moderately cheapened relative to swaps on the back of an ICMA official’s opinion that the ECB would not follow the Bundesbank’s lead in cutting the remuneration of government deposits at the central bank to 0%. That would mean starting in October, only the roughly €50bn sitting at the Bundesbank would be impacted, but not the remaining around €200bn with other national central banks. Until October, the actual impact of the Bundesbank’s changes will remain a source of uncertainty and likely keep Bunds asset swap spreads elevated, but countering collateral scarcity fears are the ECB’s ongoing quantitative tightening, which was accelerated last month and the prospect of higher-than-anticipated issuance from Germany itself. Headlines to that end came from the government which announced yesterday that it was ramping up its climate fund from €30bn to €212bn from 2024 to 2027.      Bundesbank's government deposits are not the largest   Today's events and market view US CPI is key today. Expected are an increase to 3.3% in the headline and only a marginal decrease to 4.7% in the core year-on-year rates. This still means that the Fed’s inflation target is some distance away, although month-on-month readings of 0.2% for both headline and core point to more encouraging dynamics recently. The other release that has seen larger market reactions in the recent past is the initial jobless claims. Especially since the last official jobs data was a mixed bag, a more contemporaneous reading might get more weight to gauge the state of the jobs market. That said, consensus is looking for little change with 230k this week compared to last week’s 227k figure. Fed speakers Bostic and Harker are scheduled to speak on the topic of employment later today. In supply, the US Treasury caps off this week’s supply slate by auctioning US$23bn in a new 30Y bond.

UK inflation and wage data to help shape BoE path after November The Bank of England has made it abundantly clear that it’s watching services inflation and wage data, and not a whole lot else, to judge how many further rate hikes are needed. We discussed recently why a September pause is unlikely but not totally out of the question, and why we think a November hike can hopefully be avoided. But that latter prediction hinges on the data showing a bit of improvement, and here’s what we expect over the next week: Jobs/wages (Tuesday): The jobs market has been cooling, and we expect to see further signs of improving worker supply in next week’s figures. Indeed there’s a risk that the unemployment rate ticks another 0.1pp higher. For now though wage pressures remain strong and we think private sector wage growth will remain at 7.7% (measured as the last three month’s average compared to the same period last year). That will slip back over the next few readings, but the downtrend is going to be slow. We tend to agree with the BoE’s forecasts that this will have only fallen to around 6% by year-end. Inflation (Wednesday): Household energy bills fell by almost 20% in July, so it should be no surprise that the headline inflation rate should have fallen by more than one percentage point. A further improvement in food inflation should also help. But the BoE is watching services CPI and expects this to nudge up from 7.2% to 7.3% on a year-on-year basis. While the start of summer holidays leaves plenty of scope for package holidays/air fares to throw this around, we think the risk to that Bank of England forecast is to a lower reading. We expect services inflation to remain flat or in fact go slightly lower, and if so, that would support our tentatively held view that the Bank will only hike once more. Retail sales (Friday): If June’s decent retail figures were helped by warmer weather, then the washout that was July should see a bit of weakness creep back in. July was the sixth wettest on record. Ultimately though the retail figures are of little consequence to the Bank of England right now, which is squarely focused on inflation.      

In this interview, we sit down with Paweł Majtkowski to delve into the intricate web of macroeconomic data shaping the British economy. As a seasoned economic analyst, Mr. Majtkowski provides his expert insights on the latest series of economic indicators from the UK. From GDP growth and inflation figures to employment rates and trade balances, we explore the trends, challenges, and potential opportunities that lie ahead for the UK's economic landscape. Join us as we navigate through the numbers and uncover the narratives behind the data-driven journey of the British economy.   FXMAG.COM: Let me ask you to comment on the whole series of macroeconomic data from the British economy. However, will it enter a recession? What does this data say about further potential rate hikes in the UK? The UK continues to struggle with high inflation. In June, it stood at 7.3 per cent year-on-year. The British economy is therefore experiencing difficult times, not least because of 14 consecutive interest rate rises in a row. Domestically, there is economic stagnation. However, the GDP results - 0.5 % growth last month and 0.2 % in the second quarter - are better than analysts' expectations. With such modest growth, it is the details that count. Economic activity increased in June due to very good weather (the best since 1884), there were more working days in May than in previous years and this helped to offset the effects of ongoing strike action. The services sector, which dominates UK GDP, is benefiting from low (structural) unemployment and rising wages. This, in turn, is a cause for concern for the Bank of England and especially its hawkish representatives. Further rate rises cannot therefore be ruled out. The manufacturing sector and the real estate market, on the other hand, are performing worse. Not insignificant for the UK is the fact that its second largest trading partner, Germany, has already slipped into recession. This is a result of falling manufacturing and a very slow recovery in China.   Paweł Majtkowski, eToro Market Analyst

06:00BST Tuesday 22nd August 2023 UK public sector borrowing set to slow in July   By Michael Hewson (Chief Market Analyst at CMC Markets UK)     We saw a lacklustre start to the week yesterday, European markets just about managing to eke out a small gain, although the FTSE100 finished the day slightly below the flat line, closing lower for the 7th day in a row.    The retreat from the intraday highs appeared to be driven by a rise in yields with both UK and German yields seeing strong gains towards their highs of last week. The move higher in yields also saw US 10-year and 30-year yields hit their highest levels since 2007, but unlike in Europe the rise in yields didn't act as a brake on US markets, which managed solid gains led by the Nasdaq 100. US chipmaker Nvidia was a notable outperformer looking to revisit its record highs of earlier this month ahead of its Q2 earnings which are due to be released tomorrow. As we look ahead to today's European open the strong finish in the US looks set to translate into a similarly positive start here in a couple of hours' time, however it's difficult to escape the feeling that stock markets are starting to look increasingly vulnerable.     Economic uncertainty in China, stagnation or weak growth in Europe and the UK, the only positives appear to be coming from the US where the economy is looking reasonably resilient, hence the rise in yields there. It's slightly harder to explain why yields in the UK and Europe are rising aside from the fact that rates are likely to stay higher for longer.     On the economic data front the only data of note is the latest July public sector borrowing numbers for the UK, which are expected to see a fall to £3.9bn from £17.1bn in May. With total debt now at levels of 100% of GDP the rise in rates is extraordinarily painful given how much of its existing debt is linked to inflation and the retail price index. Having to pay out over £100bn a year in interest is money that might have been better spent elsewhere. It's just a pity that the government didn't take greater advantage of the low-rate environment we saw less than 2 years ago, as had been suggested from a number of quarters at the time. We also have the latest CBO industrial orders for August which are expected to slip back to -12 from -9 in July.     In the US we have July existing home sales which are expected to decline for the second month in a row, by -0.2%. We also have comments from the following Federal Reserve policymakers. Chicago Fed President Austan Goolsbee who leans towards the dovish side will be speaking at an event on youth unemployment alongside the more hawkish Fed governor Michelle Bowman.     We also have Richmond Fed President Thomas Barkin whose most recent comments suggest he sees the prospect of a soft landing for the US economy, although he is not a voting member this year.     EUR/USD – finding support just above the 1.0830 area. Still feels range bound with resistance at the 1.1030 area. Below 1.0830 targets the 200-day SMA.     GBP/USD – continues to look supported while above the twin support areas at 1.2610/20. We need to see a move through the 1.2800 area, to signal potential towards 1.3000. A break below 1.2600 targets 1.2400.       EUR/GBP – continues to find support for now at the 0.8520/30 area. A move below 0.8500 could see 0.8480. Above the 100-day SMA at 0.8580 targets the 0.8720 area.     USD/JPY – looks to be retesting the August highs on the way towards the 147.50 area. Below the 144.80 area, targets a move back to the 143.10 area.     FTSE100 is expected to open 6 points higher at 7,264     DAX is expected to open 48 points higher at 15,651     CAC40 is expected to open 30 points higher at 7,228  

Expect the US dollar rally to extend    The US dollar broadly weakened across the board, helping majors to take some breather. The dollar index fell back towards its 200-DMA, the EURUSD settles above the 1.09 mark this morning, while Cable bulls eye a further rise toward the 50-DMA, which stands a touch below the 1.28 level. But looking at the US dollar and the real yields, the end of last year's dollar really coincides with a peak in 10-year real yield. Both started retreating in Q3 of last year. The dollar retreated relatively faster. And now that the real yields are on the rise again, there is little reason to keep the USD on a bearish trend for the months ahead.   The dollar rally which started by mid-July should further develop, and there is significant room for further correction before we could technically call the end of the dollar's bearish trend. In numbers, the dollar index will still be in a bearish trend below the 105.40 mark. Until that level is reached, investors don't have much to lose for jumping on the back of a bull.  

Rates Spark: Kicking off with new highs The week has started with new yield highs for the cycle, with 10Y USTs having topped 4.34%. The bearish set-up with a waning Fed cut discount prevails, and with the 20Y Treasury sale and the Jackson Hole symposium looming large later this week, the appetite to take the other side is small.   The bearish set-up for rates persist The week has kicked off with rates selling off again. The 10Y UST yield has in fact hit a new cycle high of 4.35%, surpassing the previous peak seen last October. One now has to look back to November 2007 to find yields at similar levels. It is not clear where the impulse came from this time around. There were no data releases of note, although risk assets had stabilised somewhat. There is of course the anticipation of the Jackson Hole symposium, which may be the reason for market participants' reluctance to take the opposite side of the trade. The general consensus appears to be for a slightly hawkish leaning tone from the Fed Chair, not necessarily with regards to where the terminal rate should be, but with a pushback against the discount of rate cuts further out. We have cautioned for some time now that the waning discount of Fed cuts with the Fed funds strip pricing a trough not materially below 4% would even support 10Y UST yields at 4.5% accounting for a term premium. Looking to Europe, we note that Bunds also sold off, but the 10Y Bund yield has not managed to rise beyond last week’s highs, holding around 2.7%. The expectations of weaker flash PMIs tomorrow may provide some tailwind to Bunds. However, we did see the 30Y push to new cycle highs at 2.8%. With the macro outlook bleak, the eurozone narrative for higher rates is still more centred around inflation risks. Energy, and in particular gas prices, remain volatile. And more generally the German Bundesbank yesterday warned in its monthly bulletin that inflation could stay above target for longer. The Bundesbank presented a survey that showed the European Central Bank’s 2% target has gradually lost relevance in wage negotiations, and highlighted the risk of higher inflation expectations becoming entrenched.     

The Japanese yen faced considerable losses on Monday as USD/JPY surged to 146.23 during the North American session, marking a 0.57% increase for the day. The US dollar's strength has propelled it dangerously close to pushing the yen below the critical 146 line, a scenario witnessed last week when the robust US dollar drove the struggling yen to a nine-month low. Once synonymous with deflation, the Japanese economy has undergone a significant transformation in the era of high global inflation. With Japan's inflation hovering slightly above 3%, a level that many major central banks would eagerly welcome, the landscape has shifted. Notably, inflation remains relatively high by Japanese standards, as both headline and core inflation have consistently outpaced the Bank of Japan's (BoJ) 2% target. Japan's inflation data is closely scrutinized as the prospect of elevated inflation sparks speculations that the BoJ might need to tighten its lenient policy stance. Although the central bank has maintained that the high inflation is transitory, it's worth remembering that other central banks have made similar claims only to backtrack later. The Federal Reserve (Fed) and the European Central Bank (ECB) come to mind as examples. In the previous week, July's Consumer Price Index (CPI) remained steady at 3.3% year-on-year, while Core CPI experienced a slight dip to 3.1% year-on-year from the previous 3.3%. Looking ahead, Tuesday brings the release of BoJ Core CPI, the central bank's favored inflation metric, which is projected to decrease to 2.7% for July, down from June's 3.0%.   USD/JPY pushes above 146 line Bank of Japan’s Core CPI is expected to ease to 2.7% The Japanese yen has posted significant losses on Monday. USD/JPY is trading at 146.23 in the North American session, up 0.57% on the day. The US dollar has looked sharp and is within a whisker of pushing the yen below the 146 line, as was the case last week when the strong US dollar pushed the ailing yen to a nine-month low. The Japanese economy was once synonymous with deflation, but that has changed in the era of high global inflation. Japan’s inflation is slightly above 3%, a level that other major central banks would take in a heartbeat. Still, inflation is relatively high by Japanese standards and both headline and core inflation have persistently been above the Bank of Japan’s 2% target. Japan’s inflation reports are carefully monitored as higher inflation has raised speculation that the BoJ will have to tighten its loose policy. The central bank has insisted that high inflation is transient, but the BoJ wouldn’t be the first bank to make that claim and then backtrack with its tail between its legs. Remember the Fed and the ECB? Last week, July’s CPI remained unchanged at 3.3% y/y. Core CPI dropped to 3.1% y/y, down from 3.3%. On Tuesday, Japan releases BoJ Core CPI, the central bank’s preferred inflation gauge, which is expected to dip to 2.7% in July, down from 3.0% in June. China’s economic troubles have sent the Chinese yuan sharply lower, with the Chinese currency falling about 5% this year against the US dollar. A weak yuan makes Chinese exports more attractive, but this is at the expense of other exporters including Japan. As a result, there is pressure in Japan to lower the value of the yen in order to compete with Chinese exports.   USD/JPY Technical USD/JPY pushed above resistance at 145.54 earlier today. The next resistance line is 146.41 There is support at 144.51 and 143.64    

The euro started the week on a stable note, with little response to the eurozone inflation report released on Friday. In the North American session, EUR/USD is trading at 1.0886, reflecting a minor increase of 0.13%. Given the sparse data calendar for Monday, it is expected that the euro will maintain its calm trajectory for the rest of the day. Eurozone Inflation Trends: Headline Falls, Core Remains Unchanged The past week concluded with a eurozone inflation report that brought about a mixed reaction. The euro displayed minimal volatility in response to the data. The headline inflation rate for June was confirmed at 5.3% year-on-year (y/y), down from 5.5% in the previous month. This decline marked the lowest level observed since January 2022, primarily driven by a drop in energy prices.     Markets show little reaction to Friday’s eurozone inflation report Headline inflation falls but core rate unchanged The euro is steady at the start of the week. In the North American session, EUR/USD is trading at 1.0886, up 0.13%. With a very light data calendar on Monday, I expect the euro to remain calm for the remainder of the day.   Eurozone headline inflation falls, core inflation unchanged The week ended with a mixed inflation report out of the eurozone and the euro showed little reaction. Inflation was confirmed at 5.3% y/y in June, down from 5.5% in June. This marked the lowest level since January 2022 and was driven by a decline in energy prices. Core CPI remained unchanged at 5.5% in July, confirming the initial reading. The news was less encouraging from services inflation, which rose from 5.4% to 5.6% with strong wage growth driving the upswing. The labour market remains tight and inflation is still high, which suggests that wage pressure will continue to increase. Inflation has been moving in the right direction but core inflation and services inflation remain sticky and are raising doubts, within the ECB and outside, if the central bank’s aggressive tightening cycle can bring inflation back to the 2% target. The deposit rate stands at 3.75%, its highest level since 2000. The ECB’s primary goal is to curb inflation but policy makers cannot ignore that additional rate hikes could tip the weak eurozone economy into a recession. The ECB meets next on September 14th and there aren’t many key releases ahead of the meeting. ECB President Lagarde has said that all options are open and investors will be listening to any comments coming out of the ECB, looking for clues as to whether the ECB will raise rates next month or take a pause.   EUR/USD Technical EUR/USD tested resistance at 1.0893 earlier. Above, there is resistance at 1.0940 There is support at 1.0825 and 1.0778    

EUR: ECB cannot ignore PMIs Any forward-looking economic indicator is, at this stage, quite important for the euro and the European Central Bank. The bank is officially fully focused on inflation, but evidence of a slowdown in key parts of the euro area has mounted and is now too blatant to be overlooked. Core inflation dynamics will still remain the main input for the ECB – but should we see more indications from today’s PMIs that the eurozone outlook is deteriorating, then policymakers might see the window for one last hike closing rapidly and opt for a September hike rather than delaying it until the fourth quarter.  The focus will also be on Germany’s PMIs. Manufacturing is expected to have flattened in August at 38.8, and services to have declined modestly to 51.5. Overall, the eurozone numbers are not expected to show any further material deterioration. Later today, the euro area consumer confidence will also be published. EUR/USD came under pressure yesterday and unless we receive some encouraging news from PMIs, or a drop in the dollar (e.g., caused by an equity rally after Nvidia results), we suspect markets may marginally prefer to stay bearish on the pair as for some pre-Jackson Hole positioning.   EUR/USD is testing the early-July 1.0834 low this morning, a break lower puts the next support at 1.0800 (200-day MA).

GBP: Volatile pricing ahead of PMIs Bank of England rate expectations have been quite volatile since the upside surprise in wages and CPI last week. The miss in retail sales on Friday saw peak Bank rate expectations as measured in the Sonia rate drop more than 10bp. Markets are currently looking at 5.95-6.0%, but today’s PMI release in the UK may well move pricing again. Consensus is expecting some slowdown in both manufacturing (already in contraction territory) and services (to 51.0). The Bank of England will also look at the details of the survey searching for evidence that price pressures are abating. EUR/GBP can make another attempt at breaking 0.8500 today, although the sustainability of sub-0.8500 levels is questionable unless markets price in more rate hikes in the UK or price out tightening in the eurozone.

SEK: Enjoying a breather The Swedish krona is emerging as an outperformer this week without any clear domestic driver justifying its strength against peers. EUR/SEK had risen above 11.90 and eyed 12.00, reaching new highs last week, and we suspect this week’s correction is primarily technically driven. News on the troubled landlord SBB continues to worry investors, although at these levels, SEK is pricing in quite a good deal of domestic risks. Incidentally, the housing market has shown signs of stabilisation, which might leave slightly wider manoeuvring room for the Riksbank to deal with high inflation. Keep a close eye on today’s Nvidia quarterly results. SEK is generally the most correlated G10 currency with US tech stocks. A disappointment on that side could trigger another EUR/SEK rally, even though some EUR softness is now helping put a cap on the pair. For the moment, a break above 12.00 is not our baseline scenario, and we see instead greater chances of a gradual – although bumpy – decline in the pair into year-end.  

New inflation methodology offers hope for BoE 1.28 could be major resistance point for GBPUSD A break of 1.26 could be bearish signal   Recent UK economic data has been a mixed bag, with wages rising at a much-accelerated rate but inflation decelerating as expected. While the Bank of England will be relieved at the latter, the former will remain a concern as wage growth even near those levels is not consistent with inflation returning sustainably to target over the medium term. The ONS released new figures overnight that appeared to suggest core inflation is not rising as fast as the CPI data suggests. The reportedly more sophisticated methodology concluded that core prices rose 6.8% last month, down from 7% the previous month and 7.3% the month before. The official reading for July was slightly higher at 6.9% but down from only 7.1% in May. So not only is the new methodology showing core inflation lower last month but the pace of decline is much faster. That will give the BoE hope that price pressures are easing and they’re expected to do so much more over the rest of the year.     GBPUSD Daily     It’s not clear whether this will prove to be a resumption of the uptrend or merely a bearish consolidation. It is currently nearing 1.28, the area around which it has previously run into resistance this month and around the 38.2% Fibonacci retracement level. Another rebound off here could be viewed as another bearish signal, which may suggest we’re currently seeing a bearish consolidation, while a move above could be more promising for the pound. If the pair does rebound lower then the area just above 1.26 will be key, given this is where it has recently seen strong support. It is also where the 55/89-day simple moving average band has continued to support the price in recent months.

NZD/USD posts strong gains on Tuesday New Zealand retail sales are expected to decline by 2.6%   The New Zealand dollar has posted strong gains on Tuesday. In the European session, NZD/USD is trading at 0.5959, up 0.55%. On the data calendar, New Zealand retail sales are expected to decline by 2.6% q/q in the second quarter, compared to -1.4% in Q1. The New Zealand dollar has gone on a dreadful slide since mid-July, falling as much as 500 basis points during that spell. The current downswing has been driven by weak global demand and jitters over China’s economy, which is showing alarming signs of deterioration. Chinese releases have been pointing downward recently. Exports and imports have fallen, manufacturing activity is weak and the world’s second-largest economy is experiencing deflation. Last week, Evergrande, a huge Chinese property developer, filed for bankruptcy in the United States, raising fears of contagion to other parts of the economy. It wasn’t long ago that the Chinese ‘miracle’ was being touted as an economic powerhouse on the global stage, but now the world’s second-largest economy is in deep trouble and is dragging down global growth. An interesting silver lining is that deflation in China could help lower inflation worldwide, which would be good news for the Fed, ECB and other central banks that are battling to push inflation lower. The People’s Bank of China (PBOC) has responded in recent days to the economic slowdown with some cuts to lending rates, but surprisingly, has not trimmed the five-year loan prime rate, which has a major impact on mortgages. The PBOC’s lukewarm move to the economic crisis could mean China’s economy will continue to sputter, and that is bad news for the New Zealand dollar, as China is by far New Zealand’s largest trading partner. If Chinese releases continue to head lower, we can expect the New Zealand dollar to continue losing ground.   NZD/USD Technical NZD/USD has pushed above resistance at 0.5941 and is putting pressure on resistance at 0.5978. There is support at 0.5885 and close by at 0.5848  

Eurozone PMI paints worrisome growth picture Another weak PMI for the eurozone confirms a sluggish economy with recession as a downside risk. Inflation pressures for services remain stubborn as wage pressures continue to be a concern. The latter adds to our expectations that the ECB's hiking cycle is not over yet.   There is very little to like about today’s PMI. In recent months, the PMI has painted a worsening picture of eurozone activity, and August data are no different. The composite PMI dropped from 48.6 to 47 with the services PMI also dropping below 50. Inflationary concerns are not over though. The manufacturing sector has been in contraction for some time, with new orders falling and backlogs of work easing. This is helping inflationary pressures subside quickly. Services activity held up for a while but is now also showing contraction, according to the survey. While goods inflation is easing on the back of lower costs and weak demand, services inflation remains elevated for now due to increased wage cost pressures – despite weakening demand. The economic picture that we're seeing is quite worrisome. Growth in the bloc was decent at 0.3% quarter-on-quarter between April and June, but strong Irish growth masked a lot of underlying weakness. While we expect tourism to have contributed positively to third-quarter growth, business surveys like the August PMI show a picture of deteriorating activity. This makes a recession a realistic downside risk to the outlook. The main concern that the European Central Bank will have with this reading is the inflationary effect of wage pressures. The economy is cooling off significantly, but hawks on the ECB board will be tempted to push for one more hike as wage pressures are translating into elevated inflation pressures for services. The fact that the selling price inflation indicator from the PMI inched up this month clearly leaves the door open to another ECB rate hike.

US Treasury yields continue to rise, with 2-year bonds exceeding 2% for the first time since 2009, the 10-year rate at its highest since 2007, and 30-year T-bonds setting a record.   On the one hand, the increase in Treasury yields indicates a decrease in risks, as a sell-off in bonds means a sell-off in risky assets. On the other hand, the burden on the US budget increases, and inflation expectations can grow again at any time. The risks on the path of inflation moving to the target level remain high.   The main threat to New Zealand and Australia is China's economic slowdown. Financial stress is increasing, and there are signs that China is heading towards a full-blown financial-economic crisis. The Chinese authorities have tools to prevent such an outcome, but a slowdown in GDP growth is almost inevitable, resulting in a decrease in foreign trade volumes. NZD/USD As expected, the Reserve Bank of New Zealand left the rate at 5.5% at the meeting that ended last week. The tone of the accompanying statement unexpectedly gained an additional hawkish tilt due to a slight increase in the rate forecast (by 9bps). The GDP and inflation forecasts changed little, but the updated OCR track from 0.25% indicates that the RBNZ does not consider the current level as sufficiently restrictive as it did three months ago.     The risks for the New Zealand economy are diverse and to some extent offset each other, but in some cases, they intensify. High net migration is a good thing for the labor market, as the increase in labor supply will raise the unemployment rate but simultaneously allow wage growth to be contained, an essential criterion in the fight against inflation. At the same time, domestic demand is getting weaker, despite the influx of migrants. Exports fell by 14% YoY in July, while a decrease of only 4% was expected.   Imports fell by 15% (forecast 8%), partly due to lower global commodity and goods prices. On Thursday, a quarterly retail trade report will be published, which will serve as the basis for the forecasts for consumer demand. The net short position in the NZD increased by $123 million during the reporting week to -$145 million. Market positioning remains neutral with a slight bearish bias. The price is certainly falling, with no signs of a reversal.   A week earlier, we identified the support zone of 0.5870/5900 as a target, the pair has reached this target, and from a technical perspective, a bullish correction is possible. The nearest target is 0.5975, followed by 0.6010. At the same time, the primary trend remains bearish, so in the long term, after the corrective phase has ended, we expect another wave of sales, with the target being the support zone of 0.5830/50.     AUD/USD Australia's economic calendar for the week is calm, with no significant economic reports to take note of. The next week will be much more saturated - on August 29, Reserve Bank of Australia Deputy Governor Michele Bullock will speak, and we can look forward to several reports, including the monthly Consumer Price Index for July, retail sales, and investment dynamics for the 2nd quarter, which will allow a preliminary assessment of GDP growth rates. The RBA rate forecast assumes another increase in November, as the RBA will likely respond to rising business costs, rent, and energy prices. Inflation is declining more slowly than in the United States. The net short position in the AUD increased by an impressive $620 million over the reporting week and reached -$3.45 billion, with market positioning firmly bearish. The price is below the long-term average but has lost momentum, suggesting an attempt at a corrective phase.  

UK Services PMI falls to 48.7 (50.8 expected, 51.5 in July) UK Manufacturing PMI falls to 42.5 (45 expected, 45.3 in July) Cable tests support but rebounds for the third time The UK services and manufacturing PMI surveys fell well short of forecasts this morning, the former deep into contraction territory. What’s more, the weakness was widespread from new orders to hiring and prices paid, which suggests we’re not just talking about a blip in the data, but rather the prospect of a recession in the second half of the year. From the Bank of England’s perspective, there’s a lot within the data that will be viewed as encouraging, with slower employment resulting in less tightness in the labor market and lower prices paid across manufacturing and services sectors indicating easing inflationary pressures, in theory at least. The surveys alone won’t be enough to convince the MPC and another rate hike in September looks a near-certainty but beyond that, traders have been paring back expectations on the back of these releases, with only one more then priced in this year.   A bearish or bullish signal for cable? The pound headed lower after the report having drifted higher over the last week or so but once again it ran into trouble around a previous support level.       That level is just above 1.26 where it also rebounded off a little over a week ago and a little over a week before that. This is clearly now a very notable support level, one which if broken could send a strong bearish signal. What’s interesting is that it’s now rebounded back into the 55/89-day simple moving average band and a close within this would further suggest there’s still plenty of support around this important support zone too. This was a crucial support zone a few months ago and it’s proving so again. To the upside, 1.28 continues to look significant, having provided plenty of resistance over the last few weeks and it also roughly coincides with the 38.2% Fibonacci retracement level.  

Canadian retail sales post weak 0.1% gain Markets eye Jackson Hole Symposium as tightening cycles near end The Canadian dollar remains under pressure on Wednesday. In the North American session, USD/CAD is trading at 1.3554, up 0.04%. Earlier, the Canadian dollar fell below the 1.36 line for the first time since May 31st.   Canada’s retail sales stagnant in June Canada’s retail sales for June barely moved, with a gain of just 0.1% m/m. This was unchanged from the May reading, which was downwardly revised from 0.2%, and just above the consensus estimate of zero. On a yearly basis, retail sales slipped 0.8% in June, compared to a gain of 0.2% (revised downwards from 0.5%) and shy of the estimate of 0.3%. The data indicates that consumer consumption is cooling down as higher interest rates continue to filter through the economy. Canada’s GDP in the first quarter was solid at 3.1%, but second-quarter growth is expected to be much more modest, at around 1%. Consumer spending has been a key factor in the Bank of Canada’s rate decisions. Earlier in the year, stronger-than-expected consumer spending resulted in the BoC raising interest rates in June and July. Today’s soft retail sales figures will provide support for the central bank to take a pause at the September 6th meeting, with GDP the final key release ahead of that meeting.   Markets await Jackson Hole There has been a whole lot happening this week and investors will be hoping for some interesting comments from central bankers who are meeting this week in Jackson Hole, Wyoming. Many of the major central banks, including the Federal Reserve, are winding up their rate-tightening cycles and Jackson Hole has often served as a venue for announcing shifts in policy. That said, Fed Chair Powell has insisted that the fight against inflation is not done, although the dark days of high inflation appear to be over. There is talk in the markets of the Fed trimming rates next year, but I doubt that Powell will mention any cuts to rates, when he is yet to acknowledge that the Fed is done tightening.   USD/CAD Technical USD/CAD put strong pressure on the resistance at 1.3606 earlier. Above, there is resistance at 1.3660 1.3522 and 1.3468 are providing support    

Governor Thedeen say krona is fundamentally undervalued Markets fulling pricing in September Riksbank quarter-point rate hike Sweden’s government expects economy shrink by -0.8% in 2023 (previously eyed -0.4%) Sweden’s krona has been punished as the economy appears to be headed for a tough recession. Core inflation is coming down too slowly and that will keep the Riksbank hiking even as expectations grow for a lengthy recession.  The krona has not been getting any relief as many Swedes have started to embrace holding euros given the krona’s record plunge this year. Riksbank Governor Thedeen Riksbank governor Thedeen said that “the krona is too weak and it is fundamentally undervalued.” He added that “it should strengthen and we think that it will, but we know that it is almost impossible to predict currency moves over the short and medium term.” It is tough to call for a reversal after watching the krona fall to a fresh all-time low against the euro.  The current market expectations for the September meeting is to see the Riksbank raise rates by 25bps to 4.00%.  A freefalling krona is complicating the inflation fight, but that could see some relief as the outlook for the eurozone deteriorates. Expectations for the Sweden’s GDP are not seeing a strong consensus emerge.  Given the currency and inflation situation, it seems that the economy could be entering a recession that last more than a handful of quarters. The Swedish government is expecting a 0.8% decline in 2023 and a 1.0% growth for 2024.  It seems hard to believe that households will be a better position anytime soon, so a recession extending beyond 2024 seems likely.   The EUR/SEK weekly chart     EUR/SEK (weekly chart) as of Thursday (8/24/2023) shows the uptrend to record high territory is showing overbought conditions have arrived.  If the krona is able to firm up here, a mass exodus of EUR/SEK bullish bets could see price action tumble towards the 11.7118 region. If the plunge deeper into record low territory continues, EUR/SEK could make an attempt at the 12.000 which is just below the 141.% Fibonnaci expansion level of the 2020 high to 2021 low move. Last week, the krona was the most volatile G10 currency, so we should not be surprised if that volatility extends further given the chaos in the bond markets.    

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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.

Powell signals Fed to tread carefully, but that rates will stay high Chair Powell acknowledges that monetary policy is “restrictive” and that policymakers will “proceed carefully” in determining whether to hike rates further. September is set for a pause, but robust growth means the door remains ajar for a further potential hike. Markets see a 50-50 chance of a final hike while we think rates have most probably peaked. 2% remains the target with the Fed prepared to hike further In his Jackson Hole address, Federal Reserve Chair Jerome Powell reaffirmed that the Fed remains focused on hitting the 2% inflation target and keeping it there. He spends a considerable amount of time breaking down inflation into different components and explaining the drivers, but as is usually the case, emphasises the non-energy, non-housing services. This remains the stickiest portion given relatively high labour input costs in a tight jobs market environment. Here, “some further progress… will be essential to restoring price stability”, but the expectation is that “restrictive monetary policy” will bring supply and demand into better balance and it will come down. In fact, the description “restrictive” with regards to monetary policy is used on seven occasions in his speech with higher borrowing costs and tighter lending conditions acknowledged as factors that will act as a brake on the economy and slow inflation to 2% over time. But Powell is wary the recent strength in activity data mean that the “economy may not be cooling as expected”. In turn, this “could put further progress on inflation at risk and could warrant further tightening of monetary policy.” As a result, the Fed "are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective". Monetary policy signalled to stay tight Nonetheless, he acknowledges that monetary policy assessment is “complicated by uncertainty about the duration of the lags” between implementation and the real world impact. With real interest rates “well above mainstream estimates for the neutral policy rate” there is clearly a concern that the Fed don’t want to tighten too much. This view point was echoed in the minutes to the July FOMC meeting that said  “a number of participants judged that… it was important that the Committee's decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening”. With Chair Powell concluding that “we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data” we expect the Fed to leave the Fed funds target range unchanged at 5.25-5.5% at the September meeting. However, given the tight jobs market and strong third quarter activity the Fed will continue to signal the potential for one further rate rise before year-end in their forecast update, and will likely scale back the median forecast for 100bp of rate cuts in 2024 that it published in June.   We think rates have peaked and cuts will come in 2024 We don't think it will carry through with that final forecast hike though. The combination of higher borrowing costs, which is resulting in mortgage rates, credit card, auto loan and personal loan borrowing costs hitting two-decade plus highs, together with less credit availability, pandemic-era savings being run down and student loan repayments restarting should intensify the financial squeeze in the fourth quarter and beyond. So while the US economy may well expand at more than a 3% annualised rate in the current quarter, we expect to see a weaker performance in the fourth quarter together with further significant progress on inflation returning towards target. Our base case continues to be interest rate cuts through 2024 as monetary policy is relaxed to a more neutral footing.

Australia retail sales rebounds with 0.5% gain Fed’s Powell keeps door open to further hikes The Australian dollar started the week with gains but then retreated. In the European session, AUD/USD is trading at 0.6408, up 0.09%. Last week, the Australian dollar showed significant swings of around 1%. Australia’s retail sales surprise on the upside Australian retail sales rebounded in July with a respectable gain of 0.5% m/m.  This followed a dismal -0.8% reading in June and beat the consensus estimate of 0.3%. The welcome uptick was driven by the Women’s World Cup which was held in Australia and was a massive boost for Australia’s travel and retail sectors. Much of the tournament took place in August, which means that the August retail sales report should also receive a shot to the arm. The August report showed that consumers still have an appetite for spending, but there are unmistakable signs that the economy is cooling. Inflation has been falling, wage growth in the second quarter was weaker than expected and unemployment rose to 3.7%. This all points to the Reserve Bank of Australia holding rates at the September 5th meeting, and the future markets have priced a hold at around 90%. The slowdown in China, which is Australia’s largest trading partner, could throw a monkey wrench into the central bank’s efforts to guide the economy to a soft landing. There is a always the concern that aggressive tightening, with the aim of curbing inflation, will choke economic growth and tip the economy into a recession. The Australian dollar is sensitive to Chinese releases and the recent batch of soft Chinese data has weighed on the struggling Australian dollar.   Federal Chair Jerome Powell delivered the keynote speech on Friday, but anyone looking for dramatic headlines walked away disappointed. Powell reiterated that the battle to lower inflation to the 2% target “still has a long way to go”. Powell was somewhat hawkish with regard to interest rates, saying that the Fed would “proceed carefully” with regard to raising rates or putting rates on hold and waiting for additional data. This was a deliberate omission of any mention of rate cuts, a signal that the Fed isn’t even thinking about lowering rates. The future markets responded by raising the odds of a rate hike in September to 21%, up from 14% a week ago.     AUD/USD Technical AUD/USD is testing resistance at 0.6424. Above, there is resistance at 0.6470 There is support at 0.6360 and 0.6317    

Australia retail sales rebounds with 0.5% gain Fed’s Powell keeps door open to further hikes The Australian dollar started the week with gains but then retreated. In the European session, AUD/USD is trading at 0.6408, up 0.09%. Last week, the Australian dollar showed significant swings of around 1%. Australia’s retail sales surprise on the upside Australian retail sales rebounded in July with a respectable gain of 0.5% m/m.  This followed a dismal -0.8% reading in June and beat the consensus estimate of 0.3%. The welcome uptick was driven by the Women’s World Cup which was held in Australia and was a massive boost for Australia’s travel and retail sectors. Much of the tournament took place in August, which means that the August retail sales report should also receive a shot to the arm. The August report showed that consumers still have an appetite for spending, but there are unmistakable signs that the economy is cooling. Inflation has been falling, wage growth in the second quarter was weaker than expected and unemployment rose to 3.7%. This all points to the Reserve Bank of Australia holding rates at the September 5th meeting, and the future markets have priced a hold at around 90%. The slowdown in China, which is Australia’s largest trading partner, could throw a monkey wrench into the central bank’s efforts to guide the economy to a soft landing. There is a always the concern that aggressive tightening, with the aim of curbing inflation, will choke economic growth and tip the economy into a recession. The Australian dollar is sensitive to Chinese releases and the recent batch of soft Chinese data has weighed on the struggling Australian dollar.   Federal Chair Jerome Powell delivered the keynote speech on Friday, but anyone looking for dramatic headlines walked away disappointed. Powell reiterated that the battle to lower inflation to the 2% target “still has a long way to go”. Powell was somewhat hawkish with regard to interest rates, saying that the Fed would “proceed carefully” with regard to raising rates or putting rates on hold and waiting for additional data. This was a deliberate omission of any mention of rate cuts, a signal that the Fed isn’t even thinking about lowering rates. The future markets responded by raising the odds of a rate hike in September to 21%, up from 14% a week ago.     AUD/USD Technical AUD/USD is testing resistance at 0.6424. Above, there is resistance at 0.6470 There is support at 0.6360 and 0.6317    

Gold is traditionally seen by investors as a hedge against inflation. However, it is not inflation that drives the XAU/USD quotes, but recession. In the spring, the precious metal confidently rose towards historical highs amid expectations of an impending downturn in the U.S. economy. However, a stable labor market and positive macroeconomic indicators suggested a soft landing. This led to a collapse in the price of gold during the summer. As autumn approaches, the cooling economy is once again translating into its rise. Disappointing statistics from the U.S. are a reason to buy gold. The weaker the data, the less likely the Federal Reserve will implement its June forecast and raise the federal funds rate to 5.75%. Regardless of how much Fed Chairman Jerome Powell argues otherwise in Jackson Hole.   Furthermore, once a tightening monetary policy cycle ends, a dovish pivot usually follows. Monetary expansion creates a favorable environment for XAU/USD. Dynamics of the federal funds rate and gold     In this respect, the sharp decline in consumer confidence from the Conference Board in August and the continued peak in job vacancies and layoffs in the U.S. labor market in June are alarming signs for the U.S. economy and great news for gold enthusiasts. The chances of the Fed raising borrowing costs in 2023 have once again dropped below 50%, which adversely affected the dollar and allowed XAU/USD to counterattack. In essence, asset managers who reduced their net short positions on precious metals to their lowest levels since mid-March were mistaken. Aswere investors who withdrew money from ETFs for 13 weeks in a row. They were betting on the highest yield of U.S. Treasury bonds in over a decade. However, as soon as the U.S. macro data began to deteriorate, U.S. debt market rates declined, and XAU/USD quotes went up.   Dynamics of market expectations on the Federal Reserve rate   What's next? Gradual cooling of the labor market, a sharp reduction in excess savings, and mortgage rates rising above 7% paint a picture of new cracks in the U.S. economy. The tightening of the Fed's monetary policy occurs with a temporary lag. The more time that passes since the beginning of the cycle, the more painful the monetary restriction will be. Under such circumstances, recession risks will increase again.   In the end, the markets will return to the original conditions that existed in the spring and pushed gold to $2,075 per ounce. However, there is another scenario. The U.S. economy will continue to pleasantly surprise; the likelihood of forming a new inflation peak increases, as do the chances of raising the federal funds rate to 5.75%. Technically, on the daily chart of the precious metal, there is a "Double Bottom" pattern. Thanks to this, gold broke above the EMA and has the opportunity to continue its rally towards the fair value of $1,962 per ounce. As long as prices hold above $1,929, traders should focus on buying.    

Metals – China's zinc imports surge to four-year high The latest trade data from China’s Customs shows that refined zinc imports surged to a four-year high of 76.8kt in July, up by around 70% from the previous month. Cumulatively, China’s refined zinc imports have increased by 243% YoY to 175kt over the first seven months of the year. Stronger prices of zinc in the Chinese market compared to LME prices combined with healthy demand for galvanizing material has helped China’s zinc imports to recover strongly this year. Zinc inventories in SHFE warehouses have also dropped to a 7-month low of around 43kt, reflecting supply tightness in the physical market, which should also support stronger imports over the coming months. The latest data from the International Aluminium Institute shows that global alumina output dropped by 0.2% YoY to 12.2mt in July as supply losses from Oceania, Europe and other regions offset the growth from China. China’s alumina production recovered to around 7.3mt in July, up from around 7.1mt in July last year. Cumulatively, global alumina production has dropped by around 0.8% YoY to 80.7mt over the first seven months of the year. China’s alumina output has increased by 4% YoY to 47.5mt over Jan-Jul, while alumina output from the rest of the world dropped 6.9% YoY to 33.1mt over the same period.

China PMIs remain downbeat A further slowdown in the service sector recovery coupled with a slight moderation in manufacturing contraction does not amount to any meaningful improvement to the overall economic backdrop.   Mixed news - but no real improvement in total The latest official PMI data were not uniformly bad. The manufacturing index actually rose slightly, to 49.7, and this is the third consecutive increase since the May trough of 48.8. But it remains below the 50-level that is associated with expansion, and so merely represents a moderation in the rate of decline. That may be of some comfort to those of a sunny disposition.  The non-manufacturing series, which had reflected the bulk of the post-re-opening recovery, fell further in August. The index of 51.0 was a little lower than the forecast figures (51.2) but it is at least still slightly above contraction territory.   China official PMIs (50 = threshold for expansion / contraction)   Brighter signs in manufacturing Looking at the components underlying both series and starting with the manufacturing series: the latest data show an improvement in production to a point which actually points to expansion. That has to be tempered by the forward-looking elements of orders. Here, the data is mixed. Total orders have improved to hit the 50 threshold signalling that contraction has ended. This must be mainly domestic orders, as the export orders series remains bombed out. But that at least provides some encouragement about the near-term outlook.    Manufacturing PMI components   Outlook for service sector remains negative The forward-looking elements of the service sector PMI index remain in contraction territory, unlike their manufacturing counterparts, and that suggests that the headline index has probably not yet troughed and will fall further. A glimmer of hope may be in the export series, which, while clearly continuing to signal contraction, did fractionally rise this month.  Overall, though, both series seem to be converging on a point close to 50 consistent with an economy that is neither expanding nor contracting. Things could be worse. But markets are not likely to take too much comfort from this set of data.      Non-manufacturing PMI sub-components

JPY: Where is the alarm? USD/JPY has quietly drifted into the 145-150 intervention zone without triggering many alarm bells in Tokyo. One difference between now and the intervention period last September and October is that FX conditions are much more orderly. For example, one month USD/JPY implied volatility is trading near 9% today versus levels in the 14-15% region during Japanese FX intervention last year.  At the same time, there is no sense of a 'sell Japan' mentality emerging, and Japanese authorities may actually tolerate a softer yen given the deflationary forces emerging from China and the weak export markets in Asia and Europe. Unless we see some financial shock that triggers an unwind of the carry trade, it looks as though USD/JPY can hang around this 145/150 region longer than we had originally forecast. A decisive turn lower may have to wait until the late September and October period when more evidence of a US slowdown should have emerged and speculation will be growing over a Bank of Japan policy change at the meeting in late October.

Eurozone inflation stagnates ahead of ECB September meeting Inflation in the eurozone did not fall in August, which could tip the ECB in favour of a final 25bp hike at the governing council meeting in two weeks' time. Still, overall inflation dynamics remain relatively benign, and we still expect inflation to trend much lower at the end of the year. The eurozone inflation rate was stable at 5.3% in August, with core inflation also dropping to 5.3% (from 5.5% in July). Headline inflation was slightly higher than expectations due to energy price developments which increased by 3.2% month-on-month. This will fuel concern about inflation remaining more stubborn than anticipated. The overall trend in inflation remains cautiously disinflationary though as developments in goods and services inflation were more or less as expected. By country, we see that rising prices mainly came from France and Spain, while drops in the Netherlands and Italy kept inflation broadly in check. Energy effects and how they translate to consumer prices – look at rising regulated prices in France – were important drivers of differences this month. Looking ahead, more declines in inflation are in the making. In Germany, we expect a significant drop next month as base effects from government support drop from the data. Surveys also point to a sizable disinflationary effect for goods prices, while services inflation is set to fall more slowly thanks to higher wage costs. Indeed, wage growth is still trending above a level consistent with 2% inflation. For the European Central Bank, these August inflation data were among the most important data points ahead of the governing council meeting in two weeks’ time. While inflation remains stubborn enough to make ECB hawks uncomfortable, it does look like a further deceleration in inflation is in the making for the months ahead. Given the ECB mantra over recent months that doing too little is worse than doing too much in terms of hikes, we still expect another 25 basis point rate rise, despite this being a close call.

Bank of England The Bank of England looks poised to hike rates again in September, but November is less certain. Private sector wage growth is at a cycle high and looks unlikely to slow dramatically by the end of the year, and certainly not before November. Meanwhile, services inflation has risen higher again. And while we think the impact of lower gas prices should start to show through here with a lag, progress is likely to be limited by the time of the November meeting. That said, the wider economy is showing signs of slowing amid higher interest rates, and the jobs market is also noticeably cooling. We’re likely to see more evidence of this over the next couple of months. We’re erring on the side of a pause in November, but we don’t rule out another hike. Bigger picture, the BoE is clear that it wants to keep rates high for a prolonged period. We’ve pencilled in the first cut for the second quarter of next year but we acknowledge that may end up being delayed.  

The US confounded 2023 expectations that it would fall into recession as households used pandemic-era savings and their credit cards to maintain lifestyles amidst a cost-of-living crisis. But with loan delinquencies on the rise, savings being exhausted, credit access curtailed and student loan repayments restarting, financial stress will increas.   Robust resilience in the face of rate hikes At the beginning of the year, economists broadly thought the US economy would likely experience a recession as the fastest and most aggressive increase in interest rates inevitably took its toll on activity. Instead, the US has confounded expectations and is on course to see GDP growth of 3%+ in the current quarter with full-year growth likely to come in somewhere between 2% and 2.5%. What makes this even more surprising is that this has been achieved in the face of banks significantly tightening lending conditions while other major economies, such as China, are stuttering and even entering recessions, such as in the eurozone.   Consumers still happy to spend with the jobs market looking so strong So why is the US continuing to perform so strongly? Well, the robust jobs market certainly provides a strong base, even if wage growth has been tracking below the rate of inflation. Maybe that confidence in job security has encouraged households to seek to maintain their lifestyles amidst a cost-of-living crisis by running down savings accrued during the pandemic and supplementing this with credit card borrowing. The housing market was another source of concern at the start of the year, but even with mortgage rates at 20-year highs and mortgage applications having halved, prices have stabilised and are now rising again nationally. Home supply has fallen just as sharply, with those homeowners locked in at 2.5-3.5% mortgage rates reluctant to sell and give up that cheap financing when moving to a different home and renting remains so expensive. This has helped lift new home construction at a time when infrastructure projects under the umbrella of the Inflation Reduction Act are supporting non-residential construction activity.   But lending is stalling and savings have been run down The Federal Reserve admits monetary policy is now restrictive, and while it could raise interest rates further, there is no immediate pressure to do so. With inflation showing encouraging signs of slowing nicely, this is fueling talk of a soft landing for the economy. With less chance of an imminent recession, financial markets have scaled back the pricing of potential interest rate cuts in 2024, with the resiliency of the US economy prompting a growing belief that the equilibrium level of interest rates has shifted structurally higher. This resulted in longer-dated Treasury yields hitting 15-year highs earlier this month.   Outstanding commercial bank lending ($bn)   Nonetheless, the threat of a downturn has not disappeared. We estimate that around $1.3tn of the $2.2tn of pandemic-era accumulated savings has been exhausted and at the current run rate all will be gone before the end of the second quarter of 2024. At the same time, banks are increasingly reluctant to lend to the consumer with the stock of outstanding bank lending flat lining since the banking stresses in March, having increased nearly $1.5tn from late 2021. We suspect that financial stresses have seen middle and lower income households accumulate the bulk of the additional consumer debt and have run down a greater proportion of their savings vis-à-vis higher income households so a financial squeeze for the majority is likely to materialise well before the second quarter of 2024.   Rising delinquencies will accelerate as student loan repayments resume Indeed, consumer loan delinquencies are on the rise, particularly for credit card and vehicle loans with the chart below showing data up until the second quarter of this year. Since then the situation has deteriorated further based on anecdotal evidence with Macy’s CFO expressing surprise at the speed and scale of the rise in delinquencies experienced through June and July on their own branded credit card (Citibank partnered). With credit card interest rates at their highest level since 1972 and with household finances set to become more stressed with the imminent restart of student loan repayments, something is likely to give. We see the risk of a further increase in delinquencies, which will hurt banks and lead to even further retrenchment on lending, together with slower consumer spending growth and potentially even a contraction.   Percent of loans 30+ days delinquent   Downturn delayed, not averted The manufacturing sector is already struggling and we see the potential for consumer services to come under increasing pressure too. On top of this there are the lingering worries about the demand for office space and the impact this will have on commercial real estate prices in an environment where there is around $1.5tn of loans needing to be refinanced within the next 18 months. With small banks the largest holder of these loans, we fear we could see a return to banking concerns over the next 12 months. Consequently, we are in the camp believing that it's more likely that the downturn has been delayed rather than averted. Fortunately, we think inflation will continue to slow rapidly given the housing rent dynamics, falling used car prices and softening corporate pricing power and this will give the Federal Reserve the flexibility to respond swiftly to this challenging environment. We continue to forecast the Federal Reserve will not carry through with the final threatened interest rate rise and instead will switch to policy loosening from late first quarter 2024 onwards.  

Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. Markets have been reassessing Bank of England rate hikes Rewind to the start of the summer, and the view that the UK had a unique inflation problem had become very fashionable. At its most extreme, market pricing saw Bank Rate peaking at 6.5%, some 125bp above its current level. Since then, this story has begun to lose traction. The differential between USD and GBP two-year swap rates, a gauge of interest rate expectations, has halved. That reflects the growing reality that the UK inflation story looks less of an outlier than it did a few months back. Like most of Europe, food inflation has begun to slow, and further aggressive falls are likely judging by producer prices. Consumer energy bills fell by 20% in July, and another 5% decline is baked in for October. The Bank of England itself is now describing the level of interest rates as “restrictive” – a statement of the obvious perhaps, but nevertheless tells us that policymakers think they’ve almost done enough with rate hikes.   UK and US rate expectations have narrowed   A September hike is likely but November is less certain Still, we’re not quite there yet, and recent inflation data has continued to come in on the upside. Private sector wage growth – measured on a three-month annualised basis – is running at a cycle-high of 11%. Services inflation also edged higher in July, although this was partly attributable to some unusual swings in specific categories rather than broad-based moves. A September hike is therefore highly likely. Whether markets are right to be pricing another hike for November is less certain. We’ll only get one round of CPI and wage data between the September and November meetings. Wage growth is unlikely to have slowed much, but we’re hopeful for early signs that services inflation is inching lower. Various surveys suggest few service-sector firms are raising prices, and we think that reflects the sharp fall in gas prices. A lot also hinges on whether we continue to see signs of weakness in economic activity. Like Europe, the UK’s PMIs look worrisome and will have prompted some pause for thought at the Bank of England. The jobs market is also cooling, and the vacancy-to-unemployment ratio – which BoE Governor Andrew Bailey has consistently referenced – is closing in on pre-Covid highs. There’s also been an ongoing improvement in worker supply. We’re now at a point where survey numbers and various bits of official data suggest that both economic growth and inflation are losing steam. The inflation and wage growth figures aren’t there yet, but these are lagging perhaps most out of all economic indicators. A November pause isn’t guaranteed, but it remains our base case. To some extent, we’re splitting hairs. In the bigger picture, the Bank is becoming much more focused on how high rates need to go – and instead, the central goal will increasingly become keeping market rates elevated long after it stops hiking. Any further rate hikes should be seen as a means to that end.      

The current international debate on whether or not Germany is once again the 'Sick man of Europe' could finally bring about the long-awaited sense of urgency for a new reform programme by the government. It has been the big summer theme in Europe: weak growth, worsening sentiment and pessimistic forecasts have brought back headlines and public discussion about whether Germany is once again the ‘Sick man of Europe’. The Economist reintroduced the debate this summer more than two decades after its groundbreaking front page. The infamous headline seems currently justified when looking at the state of the German economy. The 'Sick man of Europe' debate The optimism at the start of the year seems to have given way to more of a sense of reality. In fact, the last few weeks have seen an increasingly heated debate about Germany’s structural weaknesses under the placative label “sick man of Europe”. Disappointing industrial data, ongoing problems in the energy-intensive industry and a long list of structural problems have fuelled the current debate. And indeed, no other eurozone economy is currently facing such a high number of challenges as the German economy. Cyclical headwinds like the still-unfolding impact of the European Central Bank’s monetary policy tightening, high inflation, plus the stuttering Chinese economy, are being met by structural challenges like the energy transition and shifts in the global economy, alongside a lack of investment in digitalisation, infrastructure and education. To be clear, Germany’s international competitiveness had already deteriorated before the Covid-19 pandemic and the war in Ukraine. To a large extent, Germany's issues are homemade. Supply chain frictions in the wake of the pandemic, the war in Ukraine and the energy crisis have only exposed these structural weaknesses. These deficiencies are the flipside of fiscal austerity and wrong policy preferences over the last decade. Fiscal stimulus during the pandemic years and last year to tackle the energy crisis have prevented the German economy from falling deeper into recession. However, with our current forecast of a contraction of the entire economy by roughly 0.5% over the entire year and yet another contraction next year, the economy would basically be back to its 2019 level in late 2024. There are many varieties of illness and the German economy has clearly caught a few bugs due to its own lifestyle choices.    

US spending surges, but it’s not sustainable US consumer spending is on track to drive third quarter GDP growth of perhaps 3-3.5%. However, this is not sustainable. American consumers are running down savings and using their credit cards to finance a large proportion of this. With financial stresses becoming more apparent and student loan repayments restarting, a correction is coming.   Inflation pressures are moderating Today’s main data release is the July personal income and spending report and it contains plenty of interesting and highly useful information. Firstly, it includes the Federal Reserve’s favoured measure of inflation, the core Personal  Consumer Expenditure deflator, which is a broader measure of  prices than the CPI measure that is more widely known. It rose 0.2% month-on-month for the second consecutive month, which is what we want to see as, over time, that sort of figure will get annual inflation trending down to 2% quite happily.   Services PCE deflator (YoY%)   The slight negative is the core services ex housing, which the Fed is watching carefully due to if being more influenced by labour input costs. It posted a 0.46% MoM increase after a 0.3% gain in June so we are not seeing much of a slowdown in the year-on-year rate yet as the chart above shows. With unemployment at just 3.5% a tight jobs market could keep wage pressures elevated and mean inflation stays higher for longer so we could hear some hawkishness from some Fed officials on the back of this. Nonetheless, the market is seemingly shrugging this off right now given signs of slackening in the labour market from the latest job openings data and the Challenger job lay-off series.

Consumer spending is strong, but is unlikely to be sustainable We then turn to personal spending, which was strong, rising 0.8% MoM nominally and 0.6% MoM in real terms. This gives a really strong platform for third quarter GDP growth, which we are currently estimating to come in at an annualised rate of somewhere between 3% and 3.5%. However, the key question is how sustainable this is – we don't think it is. The robust jobs market certainly provides a strong base, but wage growth has been tracking below the rate of inflation. Note incomes rose just 0.2% MoM in July. Maybe it is that confidence of job security that is encouraging households to seek to maintain their lifestyles amidst a cost-of-living crisis, via running down savings accrued during the pandemic and supplementing this with credit card borrowing. The problem is savings are finite and the banks are tightening lending standards significantly. Credit card borrowing costs are the highest since records began in 1972 so there is going to be a lot of pain out there. The chart below shows the monthly flows of excess savings since the start of the pandemic. Fiscal support (stimulus checks and expanded unemployment benefits) more than offset falling income resulting from job losses in 2020. Meanwhile, less spending versus the baseline due to Covid constraints further boosted the accumulation of savings.   Contributions of monthly changes in income and spending to the flow of savings ($bn)     Then through 2021 spending picked up, but then through 2022-2023 the nominal pick-up in incomes has been less than the increase in spending. Consequently we have seen savings flows reverse and now we are running them down each and every month, which is not sustainable over the long term.    Stock of excess savings peaked at $2.2tn, but we have been aggressively running this down ($tn)   Excess savings will soon be exhausted and financial pressures will intensify Based on this data, the $2.2tn of excess savings accumulated during the pandemic, $1.3tn has already been spent. At the current run-rate it will all be gone by the end of the second quarter of 2024 and for low and middle incomes that point will come far sooner. With banks far more reluctant to provide unsecured consumer credit, based on the Federal Reserve’s Senior Loan Officer Opinion survey, the clear threat is that many struggling households may soon find their credit cards are being maxed out and they can’t obtain more credit. With student loan repayments restarting, we expect consumer spending to slow meaningfully from late fourth quarter onwards and turn negative in early 2024.

Production measures also looking promising GDP, or more precisely GVA (gross value added) measured in terms of industrial sector production, is also with a quick look.  Here, we see that the main engine for growth is not industry, which has slowed a little, but the service sector. And that ties in with the consumer spending observation we made earlier. Agriculture contributed a little less this quarter - perhaps reflecting the erratic monsoons we have seen this year.    GVA by sector (contribution to growth pp)   RBI easing not a priority Putting all of this together, it looks like the Reserve Bank of India (RBI) will be in no hurry to cut rates. Growth is clearly very strong and it looks like it will remain so in the quarters ahead. A growth rate of about 7% for the full calendar year looks probable, and something in the 6-7% range for next year is also looking likely.  The recent upward spike in inflation is, for now, almost entirely food price-driven, and there are already signs that the worst increases in tomatoes and onions are behind us, so there is equally little need for the RBI to tighten rates in response to this growth backdrop. The 6.5% policy rate will already look quite restrictive once the inflation numbers settle down again, which we believe they will do soon. Rate cuts are most likely the next direction for the RBI, but these can wait until next year. 

FX Daily: Peso too strong, renminbi too weak, dollar just right FX markets await today's release of the August US jobs report to see if we've reached any tipping point in the labour market. Probably not. And it is still a little too early to expect the dollar to embark on a sustained downtrend. Elsewhere, policymakers in emerging markets are addressing currencies that are too weak (China) and too strong (Mexico).   USD: The market seems to be bracing for soft nonfarm payrolls data Today's focus will be the August nonfarm payrolls jobs release. The consensus expects around a +170k increase on headline jobs gains, although the "whisper" numbers are seemingly nearer the +150k mark. Importantly, very few expect much change in the 3.5% unemployment rate. This remains on its cycle lows, continues to support strong US consumption, and keeps the Fed on its hawkish guard. We will also see the release of average hourly earnings for August, which are expected to moderate to 0.3% month-on-month from 0.4%. As ING's US economist James Knightley notes in recent releases on the US economy and yesterday's US data, there are reasons to believe that strong US consumption cannot roll over into the fourth quarter and that a recession is more likely delayed than avoided. But this looks like a story for the fourth quarter. Unless we see some kind of sharp spike higher in unemployment today, we would expect investors to remain comfortable holding their 5.3% yielding dollars into the long US weekend. That is not to say the dollar needs to rally much, just that the incentives to sell are not here at present. If the dollar is at some kind of comfortable level, policy tweaks in the emerging market space over the last 24 hours show Beijing trying to fight renminbi weakness and Mexico City trying to fight peso strength (more on that below). We suspect these will be long, drawn-out battles with the market. DXY can probably stay bid towards the top of a 103-104 range.

GBP: Table top mountain The UK rates curve softened by 9-10bp yesterday on comments by Bank of England Chief Economist Huw Pill, that the policy rate profile would look more like a "table mountain" – the inference here is that high rates would be kept for longer than the need to take rates much higher per se. However, the market still prices another 50bp of tightening into next year, which is 25bp too much in our opinion. The risk of re-pricing looks greater for the BoE than the ECB curve and keeps us positive on EUR/GBP. Levels in the 0.8500/8550 area should be good for corporates to hedge GBP receivables or EUR payables.  

MXN: Banxico expressing a view over a strong peso Unlike Chinese authorities which are battling renminbi weakness and cut the FX deposit required reserve ratio last night, Mexican authorities are seemingly expressing a view that the peso is too strong. Here USD/MXN spiked more than 2% last night after Banxico announced that it would allow its "hedge book" or short USD/MXN position in the FX forward market to roll off rather than be extended.  By way of background, Banxico has intervened to support the peso during two periods (February 2017 and March 2020) and has done this by auctioning dollars through the FX forward markets using one-month to 12-month tenors. The total size of those positions is now around $7.5bn. Banxico announced yesterday that it would allow this position to roll off gradually, effectively over the next 12 months. Investors have read this as Banxico expressing a view that the peso has come far enough. And given the peso has been a prime beneficiary of the carry trade, we should not underestimate the risk of a further correction higher in USD/MXN ahead of this long US weekend. Yet USD/MXN has traded below 17.00 for very good reasons, including high carry and nearshoring trends. And given our view that the dollar does turn lower next year, we see the Banxico move as slowing rather than reversing the USD/MXN trend. Two further quick points: returns on the MXN carry trade may now come more from carry than nominal MXN appreciation, and speculation may grow in the TIIE market (Mexican swap curve) that Banxico may prefer early rate cuts after all if it does not want its currency to strengthen much more.

Metals – Fresh stimulus from China for the property sector Base metals prices extended this week’s gains this morning as healthy economic data and fresh stimulus measures in China buoyed sentiment. Caixin manufacturing PMI in China increased to 51 in August compared to 49.2 in July; the market was expecting the PMI to remain around 49. This is the strongest manufacturing PMI number since February. Meanwhile, Beijing has announced fresh stimulus measures aimed at supporting the property sector. The People’s Bank of China has lowered the minimum downpayment for mortgages for both first-time buyers (from 30% to 20%) and second-time buyers (from 40% to 30%) while the minimum interest premium charged over the Loan Prime Rate has also been reduced. China is also allowing customers and banks to renegotiate interest rates on existing housing loans which could reduce interest expenses for borrowers. LME continues to witness an inflow of copper into exchange warehouses. LME copper stocks increased by another 3,675 tonnes yesterday, taking the total inventory to a year-to-date high of 102.9kt. Meanwhile, cancelled warrants for copper remain near zero levels, hinting that there may not be any inventory withdrawals from LME in the short term and total stocks could continue to climb over the coming weeks. Europe witnessed an inflow of 2,700 tonnes yesterday whilst 950 tonnes were added in the Americas and 25 tonnes in Asia. Gold prices have held steady at around US$1,940/oz as the latest economic data from the US eased some pressure on the Federal Reserve to continue with rate hikes. The core PCE (Personal Consumption Expenditure) deflator in the US increased at a flat 0.2% month-on-month in July, the second consecutive month at 0.2% which should help the Fed in getting inflation back on track to around 2%. On the other hand, data from Europe was not that supportive with core CPI falling gradually from 5.5% to 5.3% and CPI estimates remaining flat at 5.3%. The focus is now turning to today’s US non-farm jobs report which is expected to show a smaller rise in payrolls in August.

Flash HICP in August 5.3% (5.1% expected, 5.3% in July) Flash core HICP in August 5.3% (5.3% expected, 5.5% in July) Key moving average provides resistance once again   Eurozone economic indicators this morning have been something of a mixed bag, although traders seem enthused on the back of them rather than disappointed. We’ve seen regional data over the last couple of days which gave us some indication of how today’s HICP report would look and a drop in the core reading in line with expectations combined with no decrease in the headline seemed to make sense. Unemployment, meanwhile, remained at a record low despite an increase in the number of those unemployed. Perhaps there’s some relief that the headline HICP rate didn’t tick a little higher while the core did decline which combined with expectations for the coming months gives the ECB plenty to debate. Another hike in September still strikes me as more likely than not but on the back of this release, markets are swinging the other way, pricing in a near 70% chance of no increase.   ECB Probability   That’s helped the euro to slide more than 0.5% against the dollar this morning – similar against the yen and a little less against the pound while regional markets are seemingly unmoved and continue to trade relatively flat.   Further bearish technical signals following the eurozone data While the fall against the pound was a little less significant, it has enabled it to once again rotate lower off the 55/89-day simple moving average band, reinforcing the bearish narrative in the pair. EURGBP Daily   Source – OANDA on Trading View It’s run into resistance on a number of occasions around the upper end of this band, with the 100 DMA (blue) arguably being a more accurate resistance zone over the summer. Regardless, that still leaves a picture of lower peaks and relatively steady support around 0.85. While that may simply be consolidation, the lower peaks arguably give it a slight bearish bias, a significant break of 0.85 obviously being needed to confirm that.    

US ISM reports remain consistent with GDP slowdown despite the construction boom Construction spending is performing strongly, but the ISM reports shows manufacturing has contracted for 10 consecutive months while next week's ISM services index is expected to post a headline reading consistent with the economy growing at a rate closer to 1% year-on-year rather than the 2.5% rate recorded in the second quarter.   ISM manufacturing index signals 10 months of contraction US ISM manufacturing index rose more than expected in August to stand at 47.6 versus 46.4 in July (consensus 47.0), but this is the tenth consecutive month it has come in below the break-even 50 level i.e. indicating contraction. The ISM surveys asks companies a range of questions on employment levels, orders, output, supplier delivery times and price pressures in order to come up with a broader picture of the state of the sector rather than measuring output alone such as in the industrial production report. The output index improved to 50 from 48.3, but new orders slipped back to 46.8. Prices paid moved higher to 48.4 from 42.6 but because this is below 50 it merely means that the rate of price declines are slowing rather than prices are moving higher. As such inflation pressures emanating from the manufacturing sector remain minimal and are consistent with goods consumer price inflation slowing closer to zero.     ISM reports suggest the economy is weaker than the GDP report has been signalling   Construction boom is a clear positive Meanwhile, construction spending rose 0.7% month-on-month versus the 0.5% consensus with June’s growth rate revised up to 0.6% from 0.5%. The housing market was a source of concern at the start of the year, but even with mortgage rates at 20-year highs and mortgage applications having halved, prices have stabilised and are now rising again nationally. Home supply has fallen just as sharply, with those homeowners locked in at 2.5-3.5% mortgage rates reluctant to sell and give up that cheap financing when moving to a different home and renting remains so expensive. This rise in property prices has boosted builder sentiment and lifted new home construction with residential construction rising 1.4% MoM in July after gains of 1.5% in June and 3.5% in May. Meanwhile, infrastructure projects under the umbrella of the Inflation Reduction Act are supporting non-residential construction activity, which posted the 14th consecutive monthly gain to stand 16.5% higher than 12 months ago.   Slower GDP growth ahead Construction is the stand out performer in the US right now, but next week's service sector ISM is predicted to slow to 52.4 from 52.7 and the combination of the two ISM series has historically been consistent with US GDP growth of 0-1% YoY, rather than the 2.5% the US posted in the second quarter (see chart). Just as the jobs report did earlier today, the ISM indices suggest little need for any further interest rate rises from the Federal Reserve.    

RBA expected to pause US nonfarm payrolls rise slightly to 187,000 The Australian dollar has started the week with slight gains. In Monday’s European session, AUD/USD is trading at 0.6464, up 0.21%.   RBA expected to pause The Reserve Bank of Australia is expected to hold interest rates at 4.10% when it meets on Tuesday and a rate hike would be a huge surprise. The central bank has paused for two straight meetings and the odds of a third pause stand at 86%, according to the ASX RBA rate tracker. The most important factor in RBA rate policy is of course inflation. In July, CPI fell to 4.9% y/y, down from 5.4% y/y and better than the consensus of 5.2% y/y. Inflation is moving in the right direction and has dropped to its lowest level since February 2022. A third straight pause from the RBA will likely raise expectations that the current rate-tightening cycle is done but I don’t believe we’re at that point just yet. This is Governor Lowe’s final meeting and he is expected to keep the door open to further rate hikes. Incoming Governor Bullock stated last week that the RBA “may still need to raise rates again”, adding that the Bank will make its rate decisions based on the data. The RBA isn’t anywhere near declaring victory over inflation and has projected that inflation will not fall back within the 2%-3% inflation target until late 2025.   The week wrapped up with the US employment report for August. The Fed will be pleased as nonfarm payrolls remained below 200,00 for a third straight month, rising from a revised 157,000 to 187,000. Wage growth fell to 0.2% in August, down from 0.4% in July and below the consensus of 0.3%. The data cements a rate hold at the September 20th meeting, barring a huge surprise from the CPI report a week prior to the rate meeting. . AUD/USD Technical AUD/USD is testing resistance at 0.6458. Above, there is resistance at 0.6516 There is support at 0.6395 and 0.6337    

Rates Spark: Close calls EUR rates have drifted higher, contemplating the chances of further ECB tightening. Returning US markets today could extend the momentum of the late Friday sell-off while busy issuance could add to the upward pressure. Eventually data decides for how long 10Y UST yields can be supported in the 4 to 4.25% area, with eyes this week on tomorrow's ISM services.   With the US out for Labor Day, EUR rates drifted higher at the start of the week with the usually more policy-sensitive belly of the curve in the lead. European rates' main focus remains the ECB, given the proximity of the next meeting and given that it's the final chance officials have to communicate their policy preferences ahead of the quiet period. ECB President Lagarde’s speech yesterday yielded little concrete information regarding the ECB's  next steps –  even though the speech centred around the importance of communication. She did remark that “action speaks louder than words”. While she was arguably talking more about what the ECB has already achieved, hiking rates by 425bp over a relatively short time span of 12 months, the comment surely resonates with the ECB’s hawks' current thinking about the upcoming decision. Over the weekend the ECB’s Wunsch already opined that "a bit more" tightening was necessary. Bundesbank’s Nagel delved into more technical matters around the ECB’s decision to end the remuneration of banks' minimum reserves. He argued that more should be done on reserves – if via not rates, it seems some hawks are ready to consider other options for tightening financial conditions. Important inputs to the upcoming decision are measures of expected inflation. Market based measures, such as the 5y5y forward inflation swap, have recently come off their peaks but remain mired in relatively elevated territory. The aforementioned 5y5y forward is still close to 2.6%. As ECB's Schnabel noted in last week's speech this is also a reflection of growing uncertainty surrounding the longer inflation outlook and could in turn reflect slowly eroding credibility of the ECB’s commitment to get inflation to 2%. Today the ECB will release its consumer survey which has seen 3y median inflation expectations already drop from 3% at their peak to 2.3% as of June. That is also ready close to 2%, but before the turmoil of 2022 median expectations were usually even closer to 2%. The June survey results also pointed to a more pronounced tail in the distribution, towards higher inflation outcomes.   The last ECB hike had little traction further out the curve

The previous trading week was filled with important events and reports. When looking at the range and movements of both instruments, one might wonder: why was it so subdued? It was reasonable to expect stronger movements and market reactions. To briefly recap, key reports from the United States turned out weaker than market expectations. Even the stronger ones left a peculiar impression. GDP grew by 2.1% in the second quarter, not the expected 2.4%. The ADP report showed fewer new jobs than expected. Nonfarm Payrolls reported more jobs, but the previous month's figure was revised downward. The ISM Manufacturing Index increased but remained below the 50.0 mark. The unemployment rate rose to 3.8%, which few had anticipated.     Based on all these reports, one might have assumed that it was time to build a corrective upward wave, but on Thursday and Friday, the market raised demand for the US dollar, so both instruments ended the week near their recent lows. So what can we expect this week?   On Monday, the most interesting event will be European Central Bank President Christine Lagarde's speech. On Tuesday, another speech by Lagarde, as well as Services PMIs of the European Union, Germany, and the United Kingdom. We can also expect speeches by other members of the ECB Governing Council. I advise you to monitor the information related to Lagarde's speeches. If she softens her stance, it can have a negative impact on the euro's positions. Wednesday will begin with a report on retail trade in the EU and end with the US ISM Services PMI. We can consider the ISM report as the main item of the week, although the ISM Manufacturing PMI that was released on Friday did not stir much market reaction. It is likely that the index will remain above the 52.7 mark, which is unlikely to trigger a market reaction. On Thursday, you should pay attention to the final estimate of GDP in the second quarter for the European Union. If it comes in below 0.3% quarter-on-quarter, the market may reduce demand for the euro. The US will release its weekly report on initial jobless claims. On Friday, Germany will publish its inflation report for August, and that's about it. There are hardly any important events and reports this week. Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are feasible, and I recommend selling the instrument with these targets in mind. I will continue to sell the instrument with targets located near the levels of 1.0637 and 1.0483. A successful attempt to break through the 1.0788 level will indicate the market's readiness to sell further, and then we can expect the aforementioned targets, which I have been talking about for several weeks and months.     The wave pattern of the GBP/USD pair suggests a decline within the downtrend. There is a risk of completing the current downward wave if it is d, and not wave 1. In this case, the construction of wave 5 might begin from the current marks. But in my opinion, we are currently witnessing the construction of the first wave of a new segment. Therefore, the most that we can expect from this is the construction of wave "2" or "b". I still recommend selling with targets located near the level of 1.2442, which corresponds to 100.0% according to Fibonacci  

In a pivotal decision, the Bank of Canada has chosen to maintain its benchmark interest rate at 5%, opting for stability amidst a backdrop of increasing uncertainty in the global economy. This move underscores the delicate balancing act that central banks worldwide are currently navigating as they seek to foster economic growth while mitigating the persistent threat of inflationary pressures.   At the Heart of the Matter The Bank of Canada's steadfast commitment to keeping interest rates at their current level is emblematic of the institution's concerns regarding the fragility of the global economic recovery. While inflation remains a prevalent worry, policymakers are treading cautiously to avoid the potential adverse consequences of premature rate hikes.   A Global Ripple Effect The Bank of Canada's stance on interest rates carries significant implications that extend well beyond its borders. As one of the world's leading economies, Canada's monetary policy decisions hold the power to influence the strategies adopted by central banks in other nations. Additionally, these decisions reverberate through global financial markets, shaping investor sentiment and influencing asset prices. In a rapidly evolving economic landscape, the Bank of Canada's decision to maintain interest rates provides a snapshot of the nuanced considerations faced by central banks worldwide. As they grapple with uncertainty and attempt to strike a delicate balance between economic growth and inflation control, the world watches with keen interest, cognizant of the potential ripple effects that each policy move may bring.   This article aims to provide readers with a succinct yet comprehensive overview of the Bank of Canada's recent interest rate decision and its broader implications within the global financial landscape. Optimized for SEO, it offers valuable insights into the current challenges facing central banks and the evolving dynamics of the global economy.   The decision by the Bank of Canada to maintain interest rates at 5% highlights the central bank's cautious approach to addressing economic challenges. In the face of uncertainties such as the ongoing global supply chain disruptions and the potential impact of new variants of the COVID-19 virus, central banks worldwide are opting for prudence. By holding the benchmark rate steady, the Bank of Canada aims to support domestic economic recovery while closely monitoring inflationary pressures. This stance reflects a broader trend among central banks, as they grapple with the complexities of an ever-evolving economic landscape.   The Bank of Canada's decision will undoubtedly be scrutinized by economists, policymakers, and financial markets, as it provides valuable insights into the delicate balancing act of managing economic growth and inflation in a post-pandemic world. In this interconnected global economy, the implications of such decisions ripple across borders, affecting businesses, investors, and individuals alike.   As economic conditions continue to evolve, central banks remain at the forefront of efforts to navigate the path forward, seeking to foster stability and sustainable growth in an uncertain world. In a rapidly shifting economic landscape, the Bank of Canada's choice to maintain interest rates provides a snapshot of the multifaceted considerations confronting central banks worldwide. As they grapple with an atmosphere of uncertainty and endeavor to strike an intricate balance between stimulating economic growth and effectively managing inflation, the world watches with acute interest. It is well aware of the potential far-reaching consequences that each policy decision can bring.  

Logistics market ​According to JLL 1Q23 data, total net demand for logistics space decreased in 1Q23 by 35% y/y to 1.0m sqm, concurrently with an increase of lettable area of 21% y/y to 30.5m sqm (we note that the developers delivered 1.5m sqm in 1Q23). The most active group of tenants were industrial and e-commerce companies. The vacancy rate amounted to 6.3% (+1.2pp. q/q; ca. 1.9m sqm).      As major risk factors we point to: • Risk related to the demand for dwellings. The company’s results are dependent on pre-sales, which took place in previous quarters. Thus, in most cases a drop in demand will negatively affect the financial data and profitability. We note that in 2021- 22, Marvipol Development pre-sold 376 and 207 apartments, respectively, due to a limited offer and the above-mentioned deterioration in demand. Hence, we predict that the developer will deliver 442 flats in 2023E, in comparison with 910 units in 2022.     • Risk related to interest rate volatility. In 2022, demand surged, which was driven mainly by interest rate hikes implemented by the MPC. The clients lost their creditability, which decreased by 60-70% (according to market data). Moreover, the share of credit-buyers fell from 70-80% to ca. 20% as of end-2022. Nevertheless, starting from 1Q23, creditworthiness started to slowly recover, which has underpinned pre-sale volumes. Given recent BIK data, the number of granted mortgages in June present an increase in y/y terms for the first time since Dec21.     • Risk related to the mortgage bank’s policy. The demand change may also be affected by the bank’s attitude to mortgage policy. According to the latest NBP survey, the majority of sector representatives are planning to tighten credit policy in coming months, despite an improving market environment.     • Risk related to costs. The profitability of residential projects depends on two key factors on the cost side: 1) material prices, and 2) landplot prices.   We observed increased volatility of core material prices in 2022, due to the negative impact of the war in Ukraine, which could leave a footprint on future projects. Nevertheless, the developers decided to increase selling prices and we suppose that the companies will be able to mitigate the above-mentioned factor. Furthermore, the developers reported that in 2023E the key material prices, have at least stabilized, which sounds quite supportive to us. Regarding landbanks, prices continue their long-term trend of hikes and the share of the landbank in the selling price grew from 20% to 22-24% as of now. In our model, we assume that gross profitability will gradually fall to nearly 23% (vs. a long-term average of 23.7%).   • Risks related to the logistics market. The logistics division is a supplementary activity within the company’s business model. As of end-2Q23, the group has invested > PLN 200m in logistics projects and will regain this, if the projects are sold. As of now, we observe a slowdown in the investment market, which is caused by a deterioration in the macro environment and increase in exit yields, which has left a footprint on valuations.

Tesla fuels market rally By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    Tesla jumped 10% yesterday and reversed morose mood due to the Apple-led selloff. Tesla shares flirted with the $275 per share on Monday, thanks to Morgan Stanley analysts who said that its Dojo supercomputer may add as much as $500bn to its market value, as it would mean a faster adoption of robotaxis and network services. As a result, MS raised its price target from $250 to $400 a share.   Tesla rally helped the S&P500 make a return above its 50-DMA, as Nasdaq 100 jumped more than 1%. Apple recorded a second day of steady trading after shedding almost $200bn in market value last week because of Chinese bans on its devices in government offices, and Qualcomm, which was impacted by the waves of the same quake, recovered nearly 4%, after Apple announced an extension to its chip deal with the company for 3 more years. Making chips in house to power Apple devices would take longer than thought.   Speaking of chips and their makers, ARM which prepares to announce its IPO price tomorrow, has been oversubscribed by 10 times already and bankers will stop taking orders by today. The promising demand could also encourage an upward revision to the IPO price, and we could eventually see the kind of market debut that we like!    Today, at 10am local time, Apple will show off its new products to reverse the Chinese-muddied headlines to its favour before the crucial holiday selling season. The Chinese ban of Apple devices in government offices sounds more terrible than it really is, as the real impact on sales will likely remain limited at around 1%.   In the bonds market, the US 2-year yield is steady around the 5% mark before tomorrow's much-expected US inflation data. The major fear is a stronger-than-expected uptick in headline inflation, or lower-than-expected easing in core inflation. The Federal Reserve (Fed) is torn between further tightening or wait-and-see as focus shifts to melting US savings, which fell significantly faster than the rest of the DM, and which could explain the resilience in US spending and growth, but which also warns that the US consumers are now running out of money, and they will have to stop spending. So, are we finally going to have that Wile E Coyote moment? Janet Yellen doesn't think so, she is on the contrary confident that the US will manage a soft landing, that the Fed will break inflation's back without pushing economy into recession. Wishful thinking?   But everyone comes to agree on the fact that the Eurozone is not looking good. The EU Commission itself cut the outlook for the euro-area economy. It now expects GDP to rise only 0.8% this year, and not 1.1% as it forecasted earlier, as Germany will probably contract 0.4% this year. The slowing euro-area economy has already softened the European Central Bank (ECB) doves' hands over the past weeks. Consequently, the EURUSD gained marginally yesterday despite the fresh EU commission outlook cut and should continue gently drifting higher into Thursday's ECB meeting. There is no clarity regarding what the ECB will decide this week. The economy is slowing but inflation will unlikely to continue its journey south, giving the ECB a reason to opt for a 'hawkish' pause, or a 'normal' 25bp hike. 

EC downgrades eurozone growth for this year and next Will the ECB be deterred if their forecasts have similar downgrades? EURUSD slips below key support ahead of US inflation data and ECB   The European Commission downgraded its forecasts for the EU this year and next, weighed down by much weaker growth in Germany. The new forecasts won’t come as a major surprise and may even prove overly optimistic over time but they do come days ahead of the next ECB meeting and could tempt some policymakers into voting to pause the tightening cycle. ECB policymakers will obviously be armed with their own forecasts when it comes to the vote but it’s likely their growth expectations will be revised lower on the basis of recent releases. While markets are currently pricing in a pause this week, around 60/40 at the time of writing, I’m probably leaning more toward a final hike before pausing in October. It’s probably easier to justify a hike this week than it may be at the end of next month and I’m not sure there’s enough desire at the ECB to stop at the current rates. Weaker economic readings will probably drive a lively debate and they obviously won’t suggest, if they do hike, that it’s job done, rather more finely balanced. But they can’t ignore the progress in recent months, other economic indicators, and the lag effect of past moves.   A cautious breakout but perhaps still a significant one Recent strength in the US dollar has prompted a breakout against the euro in the last week which may prove to be very significant.   EURUSD Daily Source – OANDA on Trading View   While it continues to trade in a descending channel, the pair has broken below the 200/233-day simple moving average band for the first time since November. It then ran into support around 1.07 which has been a notable level of support in the past and the May low isn’t far below here. The interesting thing is that while the breakout hasn’t been the catalyst for a sharper move lower, yet, the decline isn’t lacking momentum. The MACD and stochastic are continuing to make new lows alongside price. Perhaps the MACD histogram is an exception but even this isn’t particularly clear. A break of the May low could confirm the move and see the sell-off accelerate. But with the US CPI to come on Wednesday and the ECB meeting on Thursday, there may be some apprehension among traders. That may even explain why it’s been more of a cautious breakout until this point.    

 In our new series "from zero to hero" we explain option techniques and strategies and make them accessible for everybody. This article specifically provides an introduction to selling options, often called premium selling and how to make money with them, as well as the associated risks involved. From zero to hero: selling options Introduction In our previous from-zero-to-hero guide, we unraveled the intricacies of buying options, laying a foundation in the vibrant world of options trading. Yet, as the saying goes, it takes two to tango. While buying options is one side of the story, there is another pivotal character in this narrative — the seller.   So, who are these sellers? Could you potentially step into their shoes? How does selling options work, and what does it entail in terms of risks and rewards?   In this guide, we will delve into the other half of the options trading dance — selling options. It's about time we answer these pressing questions, helping you explore the avenues of generating potential profits as an option seller, while understanding the ropes to manage the associated risks adeptly.   Basics of selling options What does it mean to sell options? Ever wondered who is on the other side of the transaction when you buy an option? It's the options sellers, individuals or entities selling you the rights that come with the option contract. When you sell an option, instead of acquiring the right to buy or sell an asset at a predetermined price, you are granting that right to someone else. Essentially, you are creating an options contract and selling it to a buyer in exchange for a premium - a fee that the buyer pays upfront.   Why sell options? Selling options can be a strategic move to generate income. Each time you sell an option, you receive a premium from the buyer, which is yours to keep, regardless of whether the option gets exercised. Here are some reasons why investors choose to sell options:   Income through premiums: Regularly selling options can create a consistent stream of income from the premiums collected. Potential ownership at a lower price: If there's a particular stock you have your eye on and would consider buying at a reduced price, selling put options might be a strategy to explore.   Types of options you can sell: call and put  You've learned about buying call and put options in the previous guide; now let's flip the perspective and explore the inverse strategy:   Selling a Call Option: When you sell a call option, you're essentially taking the opposite viewpoint of a call buyer, who is bullish on the stock. Let's take an imaginary company, BigCompany, as an example, which is currently trading at $50 per share. You believe that in the short term, the stock will not appreciate significantly, and therefore you decide to sell a call option with a strike price of $55 for a premium of $1.50 per share (or $150 in total, as one contract typically controls 100 shares).In this case, your break-even point at expiration is $56.50, which is obtained by adding the premium received to the strike price ($55 + $1.50). You would retain the entire premium if the stock price remains below $55. However, if the stock price surges above $56.50, you'd start experiencing losses, since you would be obligated to sell the shares at $55, even though they are trading at a higher market price.Below is a screenshot that visualizes this concept (it uses other prices, but the principles remain the same). In bullets 1, 2 and 3 the outcome of selling the call is profitable, only bullet 4, a steep rise contradictory to the assumption, is negative.   2. Selling a Put Option: Conversely, selling a put option means you're taking a stance contrary to a put buyer, who is bearish on the stock. Going back to our imaginary BigCompany scenario, if you speculate that the stock will not decrease much from its current $50 price point, you might choose to sell a put option with a strike price of $45, earning a premium of $1.50 per share or $150 in total. Here, your break-even point is $43.50, which is the strike price minus the premium received ($45 - $1.50). You are essentially betting that the stock won't fall below $45 before the option expires. If the stock remains above $45, you get to keep the entire premium, which turns into your profit. Conversely, if the stock falls below $43.50, you will incur losses as you have a commitment to buy the shares at $45 each, even if the current market price is lower.       Below is an screenshot, showing the concept of selling a put (using different prices, same principles). In bullets 1, 2 and 3 the outcome of selling the put is profitable, only bullet 4, a steep decline against your assumption, is negative for your P&L.       In both scenarios, selling options allows you to earn a premium, which can either cushion potential losses or enhance your profits if the market moves sideways or slightly in your anticipated direction. It introduces a strategy where you can benefit from the market's stability or slight movements, contrasting with buying options, which generally necessitates substantial price swings to turn a profit.       How to profit and manage risk while selling options   Making money through premium collection The primary way to profit from selling options is by collecting premiums. When you sell an option, the buyer pays you a premium, which is credited to your account. This premium is yours to keep, irrespective of whether the option is exercised. Let’s delve into how this works:   Premiums as a Safety Net: When you sell options, the premiums you collect can serve as a safety net, adding some cushion to your financial endeavors. Here's how:  Selling a Call Option: If you are selling a call option, you are agreeing to sell the underlying asset at a specified price within a set period. If you own the underlying asset and are willing to sell it at the strike price, the premium you collect can help cushion any potential decrease in the asset's market value. Essentially, it provides a buffer, securing you some earnings irrespective of the asset's market movements. Selling a Put Option: Conversely, when you sell a put option, you are agreeing to potentially buy the underlying asset at a predetermined price. If you intend to buy the asset at the strike price, the premium you collect can offset a potential rise in the market price, acting as a safety cushion that mitigates the higher purchase price. 2. Utilizing Time Decay: Options lose value over time, a phenomenon known as "time decay." As an options seller, time decay works in your favor. The closer the option gets to its expiration date without being in the money, the more its value decreases, potentially allowing you to buy it back at a lower price than what you sold it for, pocketing the difference. Understanding and managing the risks   While selling options can be profitable, it is not without risks. Here, we outline some of the risks involved and how you might manage them:   Potential for Large Losses: Selling options can potentially lead to substantial losses, especially if the market moves sharply against your position. It is essential to be aware of the potential losses and to manage your risk appropriately. Margin Requirements: When you sell options, you are required to maintain a margin account. This means that you need to have a certain amount of capital in your account as a security. Being aware of the margin requirements is vital to manage your risk effectively. Early Assignment Risk: There is always a risk of early assignment when selling options. Early assignment happens when the buyer of the option chooses to exercise their right to buy or sell the underlying asset before expiration. This risk can be managed by keeping an eye on the intrinsic value of the option and being prepared to take action if necessary.   Strategies to mitigate risks   While the risks are present, there are strategies that you can employ to mitigate them:   Setting Stop Losses: One strategy is to set stop losses to limit potential losses. A stop loss is an order placed to buy or sell once the stock reaches a certain price. Spreading: Another strategy is to use spreads to limit potential losses. In a spread, you sell one option while simultaneously buying another, helping to cap both the potential profits and losses. Spreads is what is called a "options strategy", which we will cover in future "From zero to hero"-articles. Hedging: Though we are keeping it simple in this guide, know that there are advanced strategies like hedging that can further help in managing risks, which you might explore as you become more comfortable with options trading.   Crafting a strategy and identifying opportunities   Analyzing Market Conditions To identify lucrative opportunities for selling options, it's crucial to have an understanding of the broader market landscape and the specific conditions surrounding the assets you're interested in. Here are some aspects to consider:   Volatility: Understanding the volatility of a stock can help in determining the potential premium you might receive from selling an option. Typically, higher volatility leads to higher premiums. Economic Indicators: Keeping an eye on economic indicators and news can provide insights into the potential movements of the stock market, helping you to make informed decisions. Company Performance: Before selling options on a company’s stock, consider the company’s performance, financial stability, and future prospects.   Developing a Strategy Once you have a grasp of the market conditions, the next step is to develop a strategy that suits your financial goals and risk tolerance. Here are some strategies commonly employed by options sellers:   Covered Calls: If you own shares of a stock, you might consider selling call options on that stock to generate additional income. This strategy is known as writing covered calls. Cash-Secured Puts: Another strategy is selling put options while having the necessary cash to purchase the underlying stock if it gets assigned. This strategy, known as cash-secured puts, allows you to potentially buy the stock at a lower price while earning a premium. Naked Options: For the more adventurous investor, there's the strategy of selling naked options. This involves selling options without owning the underlying asset, a strategy that comes with higher risk but also higher potential rewards.   Tools and Resources As you embark on your journey into the world of selling options, having the right tools and resources at your disposal can be a game-changer. Here are a couple of suggestions:   Trading Platform: SaxoInvestor and SaxoTraderGo are excellent platforms to start your options-journey. SaxoTrader Pro is our top of the line platform for advanced trading and research. Educational Resources: Continuously educating yourself through reliable resources aids in making informed decisions. Plenty of high quality content can easily be found via search engines, Youtube and others.       Venturing into the world of selling options can feel like discovering a secret garden in the financial landscape. It's a space where you can find new ways to grow your savings and secure a little extra for the future.   Imagine having a toolkit where you not only benefit when stock prices go up but have strategies to pocket gains even when the markets are not on your side. Selling options offers this toolkit, allowing you to play a different game where the moves are more in your control.   With selling options, there's a whole new world of possibilities, from earning through premiums to exploring strategies that can be beneficial in various market scenarios. It's all about understanding and making choices that align with your financial goals.   Dipping your toes into the realm of selling options can provide a unique perspective on managing and diversifying your investments.  

Asia week ahead: Key regional central banks to decide on policy Central banks in Indonesia, Japan, the Philippines, and Taiwan will hold their respective policy meetings next week. China will also be announcing its 1-year and 5-year LPR rates.   China's 1-year and 5-year LPR rates likely to remain unchanged China will decide on one and five-year loan prime (LPR) rates next week. Given the current challenges, with the People's Bank of China helping to support the Chinese yuan, it is unlikely the central bank will announce any further rate cuts. We are expecting rates to remain unchanged.   Regional central banks to stand pat The Central Bank of the Republic of China (CBC), Bank Indonesia (BI) and Bangko Sentral ng Pilipinas (BSP) are all expected to retain current policy settings in line with the US Federal Reserve. For Taiwan, as inflation turned up recently and with the New Taiwan dollar being quite soft, we are expecting it to hold the rate steady. Similarly, BI will likely hold rates steady to support the Indonesian rupiah, which is down 0.78% for the month.  Lastly, the BSP will also likely stand pat as inflation pressures flare up, with the latest inflation reading surging to 5.3% year-on-year.   Inflation and trade figures for Japan next week We expect headline consumer inflation to slow to 3.1% YoY in August (vs 3.3% in July) with the ongoing energy subsidy programme, however, core inflation excluding fresh food and energy will likely edge up slightly to 4.4% (vs 4.3% in July), which will be a major concern for the Bank of Japan (BoJ). For the trade report, we expect exports in August to rebound from the recent dip, with strong auto shipments while imports could decline more sharply to -18% YoY compared to the previous month as base effects dominate the rise in commodity prices and weak Japanese yen. Meanwhile, the BoJ is likely to stay pat next week. The central bank could however probably send a subtle hawkish message to the market after higher-than-expected inflation and a weak JPY, combined with rising global oil prices, pushed inflation up further.   Key events in Asia next week

In order to understand how the Bank of England is going to act at the remaining two meetings in 2023, we need to consider its potential for raising interest rates. The first and most crucial indicator that the central bank (and the markets) has been relying on for some time is inflation. However, as of September, inflation remains extremely high, well above the target level. One might assume that the BoE will continue to hike rates, but in September, it took a pause. A pause can only mean two things: either the BoE is preparing to end the tightening process, or it has already completed it     BoE Governor Andrew Bailey and some other members of the BoE's Monetary Policy Committee have mentioned that they expect inflation to drop to 5% by the end of the year. A 5% inflation rate is still very high, 2.5 times above the target. If the BoE is already prepared to conclude its tightening, it may not achieve the target. Furthermore, there's no guarantee that inflation won't start accelerating again.   For instance, US inflation has been rising for the past two months. All I want to convey with these arguments is that it's still too early to assume that inflation can return to 2% at the current interest rate level. Based on that, I believe that the BoE has exhausted its potential for rate hikes, and this is the main reason for the pause in September. Now, the central bank will only raise rates if inflation starts to accelerate significantly. And in that case, the 2% target may be forgotten for several years even with a peak rate, but we could still see 1-2 more emergency rate hikes. I also want to note that the BoE (like the European Central Bank) is counting on holding rates at the peak level for an extended period to bring inflation back to 2%. This was mentioned after last week's meeting.   The Monetary Policy Committee expects inflation to slow down further, but Bailey says cutting rates would be "very premature". Four out of nine committee members voted for a rate hike at the previous meeting. In addition, the Monetary Policy Committee said its balance sheet of government debt will shrink by £100 billion. Based on the analysis conducted, I came to the conclusion that a downward wave pattern is being formed.   I still believe that targets in the 1.0500-1.0600 range for the downtrend are quite feasible, especially since they are quite near. Therefore, I will continue to sell the instrument. Since the downward wave did not end near the 1.0637 level, we can expect the pair to fall to the 1.05 level and slightly below. However, the second corrective wave will start sooner or later.     The wave pattern of the GBP/USD instrument suggests a decline within the downtrend. At most, the British pound can expect the formation of wave 2 or b in the near future. However, even with a corrective wave, there are still significant challenges. At this time, I would remain cautious about selling, as there may be a corrective upward wave forming in the near future, but for now we have not seen any signals for this wave yet.  

In this market pulse, we delve into the complex terrain of China's property debt overhang, examining the challenges faced by giants like Evergrande. We also assess the current economic momentum, highlighted by positive indicators and upcoming Purchasing Managers' Index (PMI) data releases. Moreover, we emphasize the pivotal role of impending crucial meetings, including the Third Plenary Session and the 6th National Financial Work Conference, in shaping China's economic policies.   Key Points: Examining the enormity of China's property debt crisis, including Evergrande's challenges. Highlighting recent signs of recovery and the significance of the upcoming PMI data. Previewing the upcoming Third Plenary Session and 6th National Financial Work Conference. Introduction China Evergrande's ongoing financial troubles and defaults have once again taken center stage, casting a dark cloud over the equity market. Meanwhile, China's economic recovery is showing signs of life, with attention turning to key economic indicators like the Purchasing Managers' Index (PMI). In addition to these economic developments, several crucial meetings on China's economic and financial policies are on the horizon. This article will delve into these topics, providing an analysis of the current situation and what lies ahead. China Property Developer Debt Overhang China Evergrande, one of the nation's largest property developers, has recently made headlines due to its inability to meet regulatory qualifications for issuing new debt. This situation escalated when its mainland unit, Hengda Real Estate Group, failed to make a scheduled payment of RMB4 billion in principal and interest. The broader issue here is the massive debt overhang in the Chinese property sector, totaling RMB60 trillion. A significant portion of this debt, RMB40 trillion, consists of mortgage debts that are relatively less risky for banks as long as the pre-sold units are completed and delivered to buyers. The focus for Chinese authorities is to resolve these pre-sold units to ensure contractors get paid and homebuyers receive their properties. The completion of unfinished housing projects requires substantially additional funds, estimated to be over RMB2 trillion, which may be shared by state-owned enterprises that take over the projects, local governments, and the central government. However, the more problematic area is the RMB20 trillion in property developer debts. It's highly unlikely that China will bail out insolvent property developers. Instead, these developers and their banks will likely sell encumbered projects, along with their loans, to stronger entities, often state-owned enterprises with government backing. The recent regulatory easing on housing demand may stabilize the housing market to some extent. Still, the overhang of housing inventories in lower-tier cities facing population decline will persist for several years. This will lead to more headlines about defaults, restructuring, and liquidation of insolvent developers, causing losses for shareholders, bondholders, banks, and investors in trust and wealth management products tied to property projects. Some trust companies and private equity funds in the shadow banking sector may be subject to losses detrimental to their financial viability. While the banking sector, which holds around 75% of the RMB20 trillion developer debts, has sufficient capital buffers to absorb losses, the extent of the impact will depend on the successful liquidation of housing inventories by insolvent developers to stronger entities, likely brokered by local governments. This process is expected to negatively affect the profitability of banks in China. Economic Momentum and PMI Data Recent economic indicators have shown signs of improvement in the Chinese economy. The Citi China Economic Surprise Index (Figure 1) has rebounded, indicating fewer instances of economic data falling below expectations. As discussed in last week's Market Pulse note, retail sales, industrial production, trade, and inflation data improved in August.    The release today of a bounce in August industrial profit growth to 17.2% YoY (Figure 2), the first monthly year-on-year growth since June of last year, provides additional support for the pick-up in growth found in the industrial production released last week.    

August industrial data fuels new recession risk in Germany The fourth consecutive monthly drop in industrial production is adding to fears that the entire economy has fallen back into recession in the third quarter.   Whether you call it de-industrialisation, industrial shrinking, or just a big disappointment, one thing is clear: German industrial production dropped once again in August for the fourth consecutive month. On the month, it was down by 0.2%, from -0.6% month-on-month in July. For the year, industrial production was down by 2%. Industrial production is now more than 7% below its pre-pandemic level, more than three years since the start of Covid-19. On a more positive note, production in energy-intensive sectors increased by almost 1% MoM in August and is now ‘only’ 8% down over the year. Activity in the construction sector fell by 2.4% MoM.   Recession risk uncomfortably high Looking ahead, stabilising but still weak production expectations, thin order books despite last week’s increase, and high inventories all indicate that German industrial production will continue moving sideways rather than gaining momentum anytime soon. Today’s industrial production data will do little to change the current hangover mood in the German economy. A stagnating economy in the second quarter after two quarters of contraction gave hope to some that the economy was improving. However, hard data for July and August had nothing to be cheerful about. In fact, retail sales, exports and industrial production all disappointed in the first two months of the third quarter, suggesting that for the entire economy, the risk of falling back into contraction is uncomfortably high.

GBP/USD Amidst a general increase in risk appetite and a weak US dollar, the British pound gained 73 pips, surpassing the resistance of the nearest embedded price channel line. On the daily chart, the Marlin oscillator has entered the uptrend territory.     The price currently has the potential to rise toward a strong level around 1.2444, where linear resistances converge with the MACD indicator line. Levels 1.2307 and 1.2367 serve as intermediate ones.   On the 4-hour chart, the price has stayed above the MACD line, and the Marlin oscillator is approaching the border of the bullish territory. However, until it overcomes this mark, the price may start a sideways trend in the short-term, appearing as a form of consolidation before the pair grows further. The price channel line at 1.2170 (daily) acts as support for this consolidation. If the price settles below this level, it may create problems for the bulls, and there is a possibility of the price falling even further to 1.2070.    

Investing is an essential part of securing your financial future, and the first step to creating a sound investment portfolio is educating yourself on the different types of investments available. Commodities can be an excellent option for those who want to diversify their investment strategies beyond stocks and bonds. Commodities are often seen as risky investments due to their high volatility. Yet, if you're willing to take the time to understand how they work and develop some strategies for trading them long-term, they can be advantageous additions to any portfolio. Here, we will discuss how beginners can start investing in commodities and help create a successful portfolio with minimal risk involved.   Understand the different types of commodities available for investment  Investing in commodities can be an attractive financial opportunity for those looking to diversify their investment portfolio or hedge against inflation. Many commodities include precious metals, energy sources like crude oil and natural gas, and agricultural products such as wheat, corn and soybeans. Each commodity has its unique market dynamics, which supply and demand, geopolitical tensions, and weather conditions can affect it.     Understanding the different types of commodities available for investment can help investors make informed decisions about where to allocate their money, depending on their goals and risk tolerance. With the proper knowledge and approach, commodity investing can be valuable to an individual's investment strategy. Learn more here about the different commodities available for investment.     Research current market trends and the supply/demand dynamics of commodities  Before investing in commodities, it is essential to research and analyse the current market trends and supply/demand dynamics of the specific commodities you are interested in. It can involve keeping up-to-date with global news, geopolitical events, and economic indicators that could impact commodity prices.    It is also essential to understand how supply and demand affect commodity prices. For example, if there is an increase in demand for a particular commodity but a decrease in supply, the cost of that commodity will likely go up. Conducting thorough research and staying informed can help investors make well-informed decisions when investing in commodities.    Learn about the risks associated with investing in commodities and how to manage them  Investing in commodities comes with its fair share of risks, and beginners must understand them before diving into the market. One common risk associated with commodity investing is volatility. Commodities are known for their volatile nature, and prices can fluctuate significantly in a short amount of time.    Another risk is the influence of external factors such as weather conditions, geopolitical tensions, and economic policies. These factors can impact the supply and demand dynamics of commodities and, in turn, affect their prices.    To manage these risks, beginners should consider diversifying their investments across different types of commodities to minimise their exposure to a single commodity's price fluctuations. Additionally, conducting thorough research and staying informed about market trends can help mitigate risks associated with commodity investing.    Determine an investment strategy that fits your budget and risk tolerance  Once you understand the different types of commodities, market trends, and risks associated with investing in commodities, the next step is to determine an investment strategy that fits your budget and risk tolerance. It is important to remember that commodity investing should only be considered part of a well-diversified portfolio and not the sole focus of an investment strategy. Consider the amount of capital you are willing to invest and your risk tolerance before deciding on a method.     Some common strategies for commodity investing include buying physical commodities such as gold or silver, trading futures contracts, or investing in commodity ETFs (exchange-traded funds). It is also essential to regularly review and adjust your investment strategy as needed.    Choose a reliable broker to execute trades on your behalf  To invest in commodities, you must use a broker to execute trades on your behalf. Choosing a reliable and reputable broker with experience in commodity trading is crucial. Look for brokers that offer competitive fees, have a user-friendly trading platform, and provide access to various types of commodities.    It is also essential to do your due diligence and research the broker before deciding. Reading reviews and seeking recommendations from experienced commodity investors can also help you choose the right broker for your investment needs.    Open an account and begin trading commodities  Once you have chosen a reliable broker, the next step is opening an account and trading commodities. Most brokers will require you to fill out an application and provide identification documents before opening an account. Some brokers may also need a minimum deposit amount to start trading.    Before making any trades, it is essential to thoroughly understand the trading platform and any associated fees or charges. Start with small investments and gradually increase your exposure to commodities as you gain experience and confidence in the market.  //

Polish manufacturing bottoming out and producer prices starting to stabilise Industrial production fell 3.1% YoY in September, but there are early positive signs as seasonally adjusted data points to a turnaround. Producer prices (PPI) also started stabilising, but deflation in YoY terms is there to stay for some time   Industrial production fell by 3.1% YoY in September (ING: -3.8%; consensus: -3.0%) with a further deepening of the decline in manufacturing (-3.7% YoY vs. -2.0% in August), though it is worth remembering that September this year had one working day less than in September 2022, what deducted ca 3pp from production in YoY terms. There are, however, some encouraging signs as seasonally adjusted data points to a 0.9%MoM increase in output. It was the second consecutive month of rising activity growth in seasonally adjusted terms.   Industrial ouput bottoming out Industrial production, 2015=100, SA Large annual declines in production were recorded in export-oriented industries: metals (-15.7% YoY), electrical equipment (-15.0% YoY), and electronic and optical products (-10.4% YoY). At the same time, increases were recorded in areas related to investment and energy. Production in the “repair and installation of machinery and equipment” increased by 7.3% YoY. Growth was also observed in the “electricity, gas, steam and air conditioning supply” (+3.7% YoY). This suggests that we should see continued expansion of investment and further deepening of the decline in exports in the composition of 3Q23 GDP.     Economy reached a bottom and should slowly recover Although the headline production indicator on an annual base still looks dismal, the seasonally adjusted data suggests that industry has most likely found the bottom and has started to rebound. Business surveys suggest that the decline in orders is slowing down, which should support a gradual stabilisation and then a bounce back in activity in the coming months.   Producer prices stabilise but the recent decline is yet to pass to consumer prices Producer prices (PPI) fell by 2.8% YoY in September (ING: -3.4%; consensus: -2.7%), following a 2.9% YoY decline in August (data revised). On an annual basis, we still have deflation, but the price level is beginning to stabilise. The MoM decline in prices over the past two months has stalled. Despite strong reductions in wholesale fuel prices, the magnitude of the price decline in the 'coke and refined petroleum products production' category turned out shallower than expected   PPI deflation continues, but price level ceased to decline PPI inflation, %YoY  

Monitoring Hungary: The moment of truth approaches In our latest update, we reassess our Hungarian economic and market forecasts. We think that over the coming weeks, it will become clear whether the risks to our base case scenario have materialised. We remain positive but cautious as we await the new data.   Hungary: at a glance The Hungarian government responded to the nine questions from the European Commission, and our sources indicate that the net 90-day review period has recommenced. There are just under 10 days remaining until the final decision. The technical recession probably ended in the third quarter of this year, and the next GDP figure will therefore bring a moment of truth. Nevertheless, a full-year recession cannot be avoided. Recent retail sales and industrial production data have disappointed, and the question remains whether we can expect a turnaround in the short term. Real wages will flip back to positive by September, but we doubt that the impact on consumption will be significant and we expect the labour market to remain tight. Energy price-related consequences of geopolitical risks will be a crucial factor in determining whether the current account will have a slight surplus by the year-end. Recent inflation dynamics have shown more promise than we or the market expected, giving the National Bank of Hungary (NBH) ammunition to argue for larger rate cuts. On the other hand, the biggest question remains whether the risk environment will allow the central bank to continue the rate-cutting cycle at the same pace. While the government revised the 2023 ESA-based deficit target to 5.2% of GDP, we need more evidence to assess whether the updated target can be met or not. The forint survived the first rate cut in the base rate without major damage. After some short-lived weakness and volatility, the forint should continue to strengthen. In the rates space, we can expect further steepening of the IRS curve again, while in bonds we need to see progress in the EU money story and a clearer fiscal policy picture for a significant rally.   Quarterly forecasts   Will the longest technical recession end in the third quarter? Hungary has been in a technical recession for a year now, with economic activity contracting in all sectors except agriculture in the first half of 2023. The positive contribution from agriculture in the second quarter was not enough to pull the economy out of a technical recession, as the collapse in domestic demand weighed on all sectors. This time around, we expect the technical recession to end in the third quarter on the back of the agricultural outperformance. Favourable weather conditions combined with a good harvest season support our view. 14 November will be the moment of truth – when the third quarter GDP data is due. Nonetheless, agriculture alone will prove insufficient in generating a positive balance in the entire economy this year. In our view, a 0.5% recession awaits us in 2023.   Real GDP (% YoY) and contributions (ppt)   Is the deterioration in export sales a turning point for industry? Industrial production surprised on the downside in August, as production volumes declined by 2.4% month-on-month, contributing to a sharp fall in output of 6.1% year-on-year. At a sectoral level, the picture remains unchanged from recent months, with volumes expanding only in the electrical and transport equipment sub-sectors. However, in contrast to the dynamics of recent months, this time export sales deteriorated in line with domestic sales – which may explain the large drawdown in overall output. We suspect that export sales may pick up as the dismal August figure was more the result of factory shutdowns, but subdued global demand limits the export outlook. Nevertheless, barring an ugly surprise in September, the expected industrial performance in the third quarter should be better than in the second quarter. This should help the economy to emerge from its technical recession.   Industrial production (IP) and Purchasing Manager Index (PMI)   Will the turnaround in real wages boost retail sales? The retail sector is suffering from the cost of living crisis. The volume of sales in August fell by 7.1% YoY, while on a monthly basis, the overall volume declined by 0.5%. At the component level, food and fuel sales both contracted, while non-food retailing stagnated compared to last month. These dynamics are broadly in line with those seen in previous months, but the main question now is whether the turnaround in real wages will lead to a pick-up in consumption. We suspect that the answer is no, as we believe that households will mainly deleverage and/or rebuild their savings before consumption picks up. In this regard, the 10-year low in households’ consumer confidence index supports our view. We therefore believe that the impact of the turnaround in real wages will not markedly boost consumption until 2024, leaving the rest of this year’s retail sales figures in the red.   Retail sales (RS) and consumer confidence    

FX Daily: Immobile Fed to give a nod to higher yields We expect the Fed to pause today, in line with expectations. There is a mild risk of a dollar correction, but that should be short-lived. Japanese authorities are stepping up efforts to contain unwanted volatility in rates and FX, but we suspect markets will keep pushing USD/JPY higher and into the new intervention level.   USD: A quiet Fed meeting The Federal Reserve is in a desirable position as it prepares to announce policy this evening thanks to the combined effect of rate hikes and higher Treasury yields keeping pressure on prices. The economy has proven resilient so far. In the art of central banking, inaction is action, and inaction is broadly what we expect from the Fed today as we discuss in our preview. A pause is widely expected by markets and economists, as numerous FOMC members signalled higher Treasury yields were adding enough extra tightening of financial conditions to stay put. One question for today is to what extent the statement and Fed Chair Jerome Powell will acknowledge this non-monetary tightening of financial conditions. It’s unlikely the Fed wants to drop any dovish hints at this stage, but a market that is well positioned for a broadly unchanged policy message could be rather sensitive to the wording on this topic and may interpret an “official” recognition of tighter financial conditions as an implicit signal more tightening is off the table. The typically cautious Powell may anyway try to mitigate any dovish interpretation of the statement during the press conference. After all, the Fed dot plot still says one more hike by year-end and has a strong commitment to higher rates for longer. The first of these two statements was never taken at face value, but the latter is what is contributing to higher yields. Expect no divergence from it. The Fed isn’t the only event in the US calendar today, and markets will likely move on the ADP payrolls release (although these are unreliable), JOLTS jobs openings and the ISM manufacturing figures for October. There is room for a short-lived dollar correction today as markets will be on the hunt for implicit admissions that another hike is actually off the table with higher yields. Positioning adjustments have favoured some dollar slips recently but they have not lasted, as the overall message by the Fed has been one of higher for longer with a hawkish bias. That message won’t change today (barring any great surprises) and we think that buying the dips in any dollar correction will remain a popular trade, especially given the more and more unstable ground on which other major currencies (JPY, EUR) are standing.

EUR: Unsustainable gains Yesterday was a volatile session for EUR/USD. Eurozone headline inflation dropped more than expected to 2.9%, but markets might have focused on core staying relatively high at 4.2% by looking at the positive EUR/USD reaction. Anyway, the rally was very short-lived. Above-consensus US employment costs and consumer confidence, Canada entering a technical recession, and sustained USD/JPY demand all prompted a dollar comeback and EUR/USD is now trading closer to its 1.0550 anchor. Today, the direction of travel for EUR/USD will be set by US data releases first and the FOMC then. As discussed in the USD section above, we might see a dollar correction, but our base case is that it would follow the pattern of the one we saw yesterday, with gains above 1.0650 in EUR/USD proving hardly sustainable. Most of Europe is on holiday today, so European calendars are quite empty.

Czech National Bank review: Staying on the safe side The CNB decided to wait for the start of the cutting cycle due to concerns about the anchoring of inflation expectations, high core inflation in its forecast and possible spillover into wage negotiations. The December meeting is live, but we slightly prefer the first quarter of next year. Economic data will be key in coming months.   Rates remain unchanged for a little longer The CNB Board decided today to leave rates unchanged despite expectations of a first rate cut. Five board members voted for unchanged rates at 7.00% and two voted for a 25bp rate cut. During the press conference, Governor Michl justified today's decision on the continued risk of unanchored inflation expectations, which may be threatened by the rise in October inflation due to the comparative base from last year. This could seep into wage negotiations and threaten the January revaluation, according to the CNB. At the same time, the board still doesn't like to see core inflation near 3% next year. So overall, it wants to wait for more numbers from the economy and evaluate at the December meeting, which the governor said could be another decision on whether to leave rates unchanged or start a cutting cycle   New forecast shows weaker economy and more rate cuts The new forecast brought most of the changes in line with our expectations. The CNB revised the outlook for GDP down significantly and the recovery was postponed until next year. Headline inflation was revised down slightly for this year but raised a bit for next year. The outlook for core inflation will be released later, but the governor has repeatedly mentioned that the outlook still assumes around 3% on average next year. The EUR/CZK path has been moved up, but slightly less than we had expected. 3M PRIBOR has been revised up by a spot level from the August forecast, implying now the start of rate cuts in the fourth quarter of this year and a larger size of cuts next year. For all of next year the profile is 30-65bp lower in the rate path, indicating more than 100bp in cuts in the first and second quarter next year.   New CNB forecasts   First cut depends on data but a delay until next year is likely Today's CNB meeting did not reveal much about what conditions the board wants to see for the start of the cutting cycle and given the governor's emphasis on higher inflation in the next three prints, we slightly prefer February to December. The new inflation forecast indicates 8.3% for October and levels around 7% in November and December. The last two months seem too low to us, but given the announced energy price cuts, this is not out of the question. So this is likely to be a key indicator looking ahead as to whether or not it will give enough confidence to the board that inflation is under control. Another key question is whether the CNB will move up the date of its February meeting so that it has January inflation in hand for decision-making.   What to expect in FX and rates markets EUR/CZK jumped after the CNB decision into the 24.400-500 band we mentioned earlier for the unchanged rate scenario after the decision. For now, the interest rate differential does not seem to have changed much after today's meeting, which should not bring further CZK appreciation. On the other hand, the new CNB forecast showed EUR/CZK lower than we expected and the board seems more hawkish. Therefore, we could see EUR/CZK around these levels for the next few days if rates repricing remains roughly at today's levels. However, we expect pressure on a weaker CZK to return soon as weaker economic data will again increase market bets on a CNB rate cut, which should lead EUR/CZK to the 24.700-24.800 range later. In the rates space, despite the high volatility, the market did not change much at the end of the day. The very short end of the curve (FRAs) obviously repriced the undelivered rate cut, however the IRS curve over the 3Y horizon ended lower, resulting in a significant flattening of the curve. The market is currently pricing in more than a 150bp in cuts in a six-month horizon, which in the end is not so much given the possible acceleration of the cutting pace after the January inflation release. Even though the CNB didn't deliver today's rate cut, we think the central bank is more likely to catch up with the rate cuts next year rather than the entire trajectory shifting. Therefore, we see room for the curve to go down, especially in the belly and long end.

Rates Spark: US jobs data can be key It has been a big move lower in long-end rates over the past days, and today's US jobs data will be key in determining whether it has further to run. Notably, however, the front end has started to turn higher again. The Fed, having tied itself to long-end rates to a degree, may start pushing back against easing financial conditions.   The rally in long-end rates extended with curve flattening accelerating Overall, we have now seen a drop of close to 30bp in 10Y and longer yields over just two sessions – the 10Y is now at 4.66% and 30Y at 4.80%. As seen in the move higher before, it was also in large part a move in the real interest rate component in this leg lower. The 2s10s curve has reflattened by a substantial 18bp with the larger part of that dynamic actually coming yesterday. The lower-than-feared long-end supply fuelled by the US Treasury has helped, as has weaker macro data. And certainly, there was evidence of value hunters out there getting in at 'high' yield levels. Markets will now be taking a close look at today’s US jobs data to determine whether yields have further room to fall. Yesterday’s US labour market indicators have already helped provide 10Y yields the final nudge below 4.7%. The initial jobless claims ticked a little higher to 217k from 212k and more importantly continuing claims rose to 1815k. That latter figure has been rising over the past month and a half. While the rate of layoffs might still be considered low, it suggests that if you do lose your job it is becoming more difficult to find a new one.   The Fed may push back agains financial conditions easing again The rally on long-end rates over the past sessions also highlights another conundrum for the Fed. By essentially referencing the higher longer rates as reason to withhold further tightening it has created an awkward interdependency with the market. The Fed said it needed to see persistence in the changes to broader financial conditions for it to have implications for the policy path. While there are good reasons to assume that further tightening is off the table, the prospect of a larger rally in rates bringing them back again potentially limits the downside at the onset. The caveat is that this may only work to the degree that long-end rates are actually driven by policy expectations. Front-end rates certainly are and pushed actually higher yesterday with the 2Y yield close to 5% again. That in mind, the Fed’s interdependency with the market is adding to the re-flattening dynamic of the curve.   As the-long end rally extended, front-end resistence accelerated the flattening   Today's events and market view We have doubts that this is the end of rises in long-dated market rates. For that to happen we would need to see material labour market weakness, putting today's job market report squarely in the spotlight. The consensus is looking for a 180k rise in non-farm payrolls, with forecasts ranging from 125k to 235k. It will be a slowdown from September’s bumper figure of 336k, but even the consensus figure would still be relatively robust – cooling, but making it hard to argue that the labour market is really troubled yet. As for supply as a driver, the market is effectively still facing higher issuance at upcoming Treasury auctions, and we are not even speaking of unresolved long-term debt trajectory concerns. As for the weaker ISM manufacturing that had helped drive the rally, it had been in contractionary territory since last October. The more relevant indicator should be today’s non-manufacturing ISM. And with regards to the Fed, the speaker schedule is looking busier again after the meeting and the drop in longer rates may get some pushback.

RBA hikes rates - market reaction is curious Although the RBA hike was expected by the majority of the forecast community, markets were not completely sold on the idea, which is why it is curious that the AUD weakened on the decision and that bond yields fell.   RBA hikes but AUD softens It was no surprise that the RBA hiked the cash rate by 25bp today. Only three of the Bloomberg consensus expected the RBA to hold rates steady today. We were not among them. However, the market pricing was more circumspect, with only about a 59% probability of a hike priced in to today's meeting.  All of which makes the subsequent market reaction quite strange.  The AUD made a very brief run stronger on the announcement, but almost immediately fell back, dropping to about 0.643 from about 0.652 prior to the announcement.  Australian government bond yields also declined. 10Y government bond yields fell from about 4.76% to 4.70% and yields on 2Y government bonds fell from 4.37% to 4.31%. There was a slight decline in US Treasury yields at the same time, which may have influenced things, but it isn't a particularly satisfactory explanation.      RBA statement was reasonably hawkish This market reaction cannot either be put down to the accompanying statement by the RBA, which in our view leant in a hawkish direction.  The justification the RBA gave for today's hike was the slow progress being made towards their target inflation range, the arrival at which was put back to late 2025. The RBA also judged that the weight of information received since the previous meeting raised the chances that inflation would remain higher for longer.  The RBA's statement also kept the door open to the possibility of further hikes, saying that "Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks". Thanks to base effects, next month's inflation data will probably show another increase (see chart above). However, we don't think the RBA will respond again so soon if inflation does indeed rise. After that, when the November and December figures are released, absent the floods and energy shortages of last year, we should see inflation resume its downward trend, which may be enough to cement the view that this was the last hike this cycle after all.  The risk to this view comes from the current run rate for inflation. For the last 2 months, the CPI index has risen by 0.6% MoM. This isn't consistent with an inflation rate between 2-3% but rather one closer to 7%. So this also needs to slow down considerably over the coming months. If it doesn't, then instead of the rate cuts that we expect could be on the radar by mid-2024, we might still be looking at some further tightening before we can call this rate cycle truly over. As the RBA notes in their statement, "There are still significant uncertainties around the outlook".  

German industrial production disappoints once again Another disappointing data release not only suggests that third-quarter GDP growth could be revised downwards, but also that the country is likely to end the year in a technical recession. Germany’s macro horror show continues, and we are almost getting to the point where kids ask their parents where they were the last time Germany produced a series of positive macro data. Today’s industrial production data is unfortunately no exception to the longer-lasting trend. German industrial production dropped once again in September for the fifth consecutive month. On the month, it was down by 1.4% from -0.1% month-on-month in August. For the year, industrial production was down by 3.7%. The drop in industrial activity was spread across all main sectors. Industrial production is now more than 7% below its pre-pandemic level, more than three years since the start of Covid-19. Production in energy-intensive sectors was more than 8% down compared with September last year.   Risk of ending the year in technical recession remains high Looking ahead, leading indicators in October don't bode well for future production. After a first stabilisation in September, production expectations and survey-based order book assessments weakened again in October. Inventories have started to come down somewhat but remain too high. Yesterday’s industrial orders data for September confirmed the weak outlook. It all looks as if German industrial production will continue moving sideways rather than gaining momentum anytime soon. With today’s data, industrial production would have to increase by at least 2% MoM in the coming months to bring production back into positive territory in the fourth quarter. Even though there isn’t any hard data for the fourth quarter yet, recent developments have clearly increased the risk that the German economy will end the year in recession.

China’s trade surplus shrinks in October A continuation of weak exports could weigh on the contribution of trade to GDP growth in the fourth quarter, though there could be a more positive story emerging about domestic demand buried in the import data. At this stage, it is too difficult to draw firm conclusions and more data is needed.   Trade figures raise more questions than they answer China's October trade surplus shrank to CNY405.47bn from CNY558.74bn in September. The cause was a combination of weaker exports (-3.1% year-on-year in Chinese yuan terms, down from -6.2% in September) and stronger imports (+6.4%, swinging up from -0.8% in September).  Ordinarily, the weaker export figure would not bode too well for the contribution to GDP from net exports, and it certainly indicates that overseas demand for China's exports remains weak.  Conversely, the import figure suggests that domestic demand may not be as weak as indicated by, for example, the recent run of PMI numbers. Though this raises the question, which data do you put more weight on?    China commodity imports (YoY YTD %)   Data distortions make interpretation difficult It is tempting to try to dissect these trade figures to try to figure out what is actually going on. But even using year-on-year cumulative figures runs the risk of distortions caused by lockdowns at the end of last year in China, and our best advice at this stage is to reserve judgment on what is happening and wait to see what next month's data bring before conjuring up some fanciful explanation for what happened this month. Even looking at the figures in terms of volume levels runs risks as these numbers are also highly seasonal.  For those who are prepared to stomach these problems, the chart below of imports of crude materials suggests that in fact, this month, nothing particularly exciting took place.   In year-on-year year-to-date terms, the chart shows that imports of iron and copper ores and concentrates, together with crude oil and natural gas are all growing, though not trending particularly strongly.  Earlier inventory building for crude may account for some of the current strength in oil, and the same is also probably true for natural gas as we head into the colder winter months.   Imports of copper and iron ore and concentrates have held fairly steady in these terms at about 8.5% YoY YTD in recent months, which is probably a bit more than the state of manufacturing or construction would indicate, so there may be a more positive story brewing here. However, we think it is too soon to draw any firm conclusions in the face of such conflicting numbers, and this month's figures aren't really out of the ordinary compared to recent months either.  Not shown here are imports of refined petroleum, which are running at a 95% rate of growth, though mainly due to increases in export quotas for similar products, and coal imports are also running strongly, though the rate of increase looks to be slowing.    No change to our GDP forecasts for now Until we get a better idea of what is happening here, we are not going to be revising our GDP figures for the year, which we recently revised higher to 5.4% for full year 2023. Whether there are the beginnings of a trade-off building between a weaker external environment and a firming domestic economy is an appealing hypothesis, but one that does not have enough support for now to run as a central forecast. Further data is needed.

FX Daily: Bond bears give new energy to the dollar A very soft 30-year Treasury auction and hawkish comments by Powell triggered a rebound in US yields and the dollar yesterday. Dynamics in the rates market will remain key while awaiting market-moving US data. In the UK, growth numbers in line with expectations, while in Norway, inflation surprised to the upside. USD: Auction and Powell trigger dollar rebound The dollar chased the spike in US yields yesterday following a big tailing in the 30-year Treasury auction and hawkish comments by Fed Chair Jerome Powell. Speaking at the IMF conference, Powell warned against reading too much into the softer inflation figures and cautioned that the inflation battle remains long, with another hike still possible. If we look at the Fed Funds future curve, it is clear that markets remain highly doubtful another hike will be delivered at all, but Powell’s remarks probably represent the culmination of a pushback against the recent dovish repricing. Remember that in last week’s FOMC announcement, the admission that financial conditions had tightened came with the caveat that the impact on the economy and inflation would have depended on how long rates would have been kept elevated. The hawkish rhetoric pushed by Powell suggests that the Fed still prefers higher Treasury yields doing the tightening rather than hiking again, and that is exactly what markets are interpreting. The soft auction for long-dated Treasuries also signals the post-NFP correction in rates may well have been overdone and could set a new floor for yields unless data point to a worsening US outlook. Today’s highlights in the US calendar are the University of Michigan surveys. Particular focus will be on the 1-year inflation gauge, which is expected to fall from 4.2% to 4.0%. On the Fed side, we’ll hear from Lorie Logan, Raphael Bostic and Mary Daly. Dynamics across the US yield curve will have a big say in whether the dollar can hold on to its new gains. Anyway, we had called for a recovery in DXY to 106.00 as the Fed would have likely pushed back against the dovish repricing. The rebound in yields should put a floor under the dollar, but we suspect some reassurances from the data side will be needed for another big jump in the greenback.

Indonesia’s exports fall less than expected Exports and imports fell less than expected leading to a bettter-than-expected trade surplus.   Trade surplus beats expectations Indonesia's exports and imports fell as expected in October although both slipped at a less pronounced pace. Exports fell 10.4% year-on-year compared to the drop of 16.2% YoY in September. Lower global prices for mainstay exports of coal, nickel and palm oil contributed to the lower export performance. Meanwhile, imports were down a modest 2.4% YoY compared to -12.5% YoY reported in the previous month.  This resulted in the trade balance staying largely unchanged from the previous month at roughly $3.5bn, much lower than the record high in 2022 but better than the lows of less than a billion recorded earlier in this year.      Another decent trade surplus to help support the IDR   Better than expected trade surplus supports a BI pause next week November's better-than-expected trade surplus indicates that there will be less pressure on Bank Indonesia (BI) to hike rates next week. BI increased policy rates at its most recent meeting in a bid to steady the rupiah, which was under significant pressure prior to the hike last 19 October. With the trade surplus beating market expectations of a $3.0bn level, we believe the improved external balance should be enough to stabilise the IDR with BI likely keeping rates untouched at the 23 November meeting.

Poland’s uncertain inflation prospects as commodity prices drop sharply October CPI inflation was revised to 6.6% YoY, against a preliminary estimate of 6.5%. The inflation outlook is exceptionally uncertain due to administrative decisions. Our baseline scenario assumes 2024 CPI as high as 6%, leaving no room for additional NBP rate cuts. Food and non-alcoholic beverage price growth in Poland was revised from 0.4% MoM to 0.5%. Commodity prices rose 5.7% YoY, while service prices increased 9.3% YoY, compared to 7.6% and 9.7%, respectively, in September. The deceleration of services price inflation is noticeably slower than that of goods prices. The biggest contributors to last month's decline in the annual inflation rate, relative to September, were a further slowdown in food price growth (7.6% in October vs. 10.1% YoY in September), a deeper decline in fuel prices than a month ago (-14.4% vs. -7.0% YoY) and slower growth in energy prices (8.3% vs. 9.9% YoY). We estimate that core inflation, excluding food and energy prices, declined to around 8.0% from 8.4% in September. On a monthly basis, however, we saw a high increase in core prices (about 0.6% MoM). The inflation outlook is exceptionally uncertain due to the lack of any final decision on the zero VAT rate on food and support measures in the energy market, as well as a decision on electricity and gas prices for households in 2024. Based on past declarations by representatives of the future government coalition, we assume that the VAT rate on food will be raised from January 1, 2024, and electricity prices will be frozen until the middle of next year. In such a scenario, average annual CPI inflation in 2024 could be as high as 6%, leaving no room for interest rate cuts. We forecast that they will remain unchanged until the end of next year (the main NBP rate at 5.75%).

French business climate deteriorates again, inflationary pressures remain high The business climate in France has deteriorated again in November, a further sign of the worsening outlook for activity over the coming months. Growth is expected to slow. At the same time, the PMI indices indicate that inflationary pressures remain high and that disinflation will take time.   Further deterioration in the business climate In detail, according to the data published by INSEE, the business climate indicator reached 97 in November, down by one point over one month, and reaching its lowest level since April 2021. The deterioration in the French business climate is mainly the result of a more unfavourable conjunctural situation in both wholesale and retail trade, where order intentions and the volume of past sales are down. The business climate is also less favourable in the construction sector, due to a marked fall in the balance of opinion on planned staffing levels. By contrast, business sentiment remained stable in both industry and services.   Labour market continues to cool Furthermore, the employment climate confirms the cooling in the labour market, with the indicator dropping two points over the month to its lowest level since spring 2021. This suggests that the rise in the unemployment rate seen in the third quarter is likely to continue in the coming quarters, due to the weaker economic outlook, but also due to the expected increase in the labour force as a result of the rise in the retirement age. We are forecasting an unemployment rate of 7.6% at the end of 2023 and 7.9% at the end of 2024, compared with 7.4% at present. Interestingly, the deterioration in the employment climate is coming mainly from the services sector, where companies are much less optimistic about future headcount. This seems to indicate that the economic slowdown is no longer confined solely to the industrial and construction sectors, but has reached the services sector, which is likely to perform much less favourably over the coming quarters.    

German, Eurozone PMIs accelerate The euro is trading slightly higher on Thursday. In the European session, EUR/USD is trading at 1.0917, up 0.27%. German PMIs accelerate but still in decline German PMIs were released earlier today, presenting a cup-half-full-half-empty picture. Let’s start with the good news. German Manufacturing PMI hit a six-month high and the Services PMI a two-month high and both beat the forecasts. However, both manufacturing and services remain in contraction, as the eurozone’s largest economy continues to sputter. The Manufacturing PMI rose to 42.3 in November (Oct: 40.8) and beat the consensus estimate of 41.2. Services PMI climbed to 48.7 in November (Oct: 41.2) and edged above the market consensus of 48.5. Manufacturing has been in decline since June 2022 and services has posted four declines. The downturn in the struggling German economy has eased a bit and that bit of positive news has given the euro a slight boost today.  The eurozone PMIs also showed a slight improvement but remain in contraction territory. The soft PMIs suggest that growth in Germany and the eurozone will likely continue to slow, and that could mean disappointing GDP prints for the fourth quarter. Germany’s economy is expected to contract by 0.3% in 2023, while the eurozone is expected to grow by 0.6%. Germany, which not too long ago was a global economic powerhouse, is looking more like the sick man of Europe. US markets are closed for Thanksgiving, which means we’re unlikely to see much movement with the US dollar. That could change on Friday, with the release of US manufacturing and services PMIs. The consensus estimates for November stand at 49.8 for manufacturing (Oct: 50.0) and 50.4 for services (Oct. 49.8). An unexpected reading from either PMI could shake up the US dollar.   EUR/USD Technical EUR/USD is testing resistance at 1.0888. Above, there is resistance at 1.0943 1.0831 and 1.0784 are providing support    

Recent price actions of the Nikkei 225 are still trading above its 20-day moving average despite the latest official downbeat assessment of Japan’s economy. Significant correlation flip between USD/JPY and Nikkei 225 may persist as a weaker JPY may not be a main driver to drive up the price actions of Nikkei 225. A strengthening JPY may see the outperformance of consumer-oriented TOPIX equities sectors such as Retail Sales and IT & Services. A new medium-term uptrend may have kickstarted in Nikkei 225, watch the 32,090 key medium-term support. Japan’s government on this Wednesday, 22 November downgraded its assessment for the first time in ten months, citing economic growth in Japan has recovered moderately but appeared to be pausing due to weak domestic demand. The benchmark Nikkei 225 has continued to trade above its upward-sloping 20-day moving average since the start of this month, November, and rallied by +11% from its key swing low area of 30,530 printed on 4 and 24 October 2024. The latest official downbeat economic assessment has not derailed the current bullish tone of the Nikkei 225 as it has managed to remain above the “gapped up” support of 32,820 formed on last Wednesday, 15 November; the effect in a global risk-on herding behaviour reinforced by the softer than expected US CPI print for October that was released on last Tuesday, 14 November (current level of Nikkei 225 is at 33,452 as of 22 November).   Significant correlation flip between Nikkei 225 & USD/JPY   Fig 1: Correlation trends between Nikkei 225, USD/JPY & S&P 500 as of 22 Nov 2023 (Source: TradingView, click to enlarge chart) Interestingly, the previous long-term traditional high direct correlation between the movements of the Nikkei and USD/JPY has broken down based on its latest 20-day rolling correlation coefficient reading of -0.15. From a fundamental standpoint, a persistently weaker JPY (where the JPY has depreciated by as much as 15.9% against the US dollar since the start of 2023) is likely to have a more detrimental effect now on Japan’s economy due to the risk of higher imported inflation which in turn drives up imported energy costs for resources-scare Japan. Moreover, oil prices are likely to remain sticky on the upside in the medium term as OPEC+ leading member, Saudi Arabia seems to be still in favour of extending current oil supply cuts into 2024. Therefore, a stronger JPY is much needed for Japan at this juncture to negate the risk of elevated imported inflation that can dent business and consumer confidence which in turn dampens internal domestic spending. Hence, this latest narrative explains the current “correlation flip” between USD/JPY and Nikkei 225.   Consumer-oriented TOPIX equities sectors may benefit from a stronger JPY   Fig 2: 1-month rolling performance of the 17 TOPIX sectors as of 22 Nov 2023 (Source: TradingView, click to enlarge chart)   In the past week, the JPY has started to strengthen against the US dollar driven by more of an increasing expectation of a dovish tilt from the US Federal Reserve rather than a hawkish Bank of Japan’s modus operandi. The JPY has been appreciated by as much as around +3% against the US dollar since last Monday, 13 November and it has started to translate to an uptick in bullish sentiment seen in the Japanese equities sectors that are tied to business and consumer confidence and domestic spending. Based on the one-month rolling performance of the 17 TOPIX sectors as of 22 November 2023, Retail Trade (+7.59%) and IT & Services (+7.13%) have started to show outperformance against the broader TOPIX index (+5.98%).   Potential start of new medium-term uptrend for Nikkei 225   Fig 3: Nikkei 225 medium-term trend as of 22 Nov 2023 (Source: TradingView, click to enlarge chart) In the lens of technical analysis, the recent bullish momentum seen in the Japanese stock market is likely to trigger the potential start of a medium-term (multi-week to multi-month) uptrend phase in the Nikkei 225 after the -9.5% corrective decline seen from 16 June to 24 October 2023. The current price action of the Nikkei 225 as of 22 November is retesting a 33-year swing high of 33,770 after an initial pull-back seen on Monday to Tuesday. Meanwhile, the daily RSI momentum indicator has continued to exhibit positive momentum readings after its earlier bullish momentum breakout and retest on 7 November 2023. If the 32,090 key medium-term pivotal support holds, a clearance above 33,770 is likely to see the next medium-term resistance coming in at 36,600. However, a break below 32,090 sees another round of corrective decline to retest the 200-day moving average that also confluences closely with swing low areas of 4/24 October 2023, acting as a support at 30,530.    

Fed policymakers encouraged by recent data but won’t get complacent BoE interest rate expectations barely changed after UK Autumn Statement GBPUSD reverses near key resistance The two big events of the last 24 hours haven’t really packed the punch they occasionally can which perhaps explains why we aren’t seeing big moves today.   Fed determined to “proceed carefully” The FOMC minutes were arguably slightly on the dovish side, with the committee now seemingly of the view that no further hikes will be needed, with the language instead focusing on the need to proceed carefully. While we probably will still hear more of the higher for longer mantra from policymakers in public ahead of the December meeting, it’s clear now that the FOMC is pleased with the recent progress it’s seen and as long as it doesn’t go into reverse, rate hikes are a thing of the past. The question now is how long before the rate-cutting conversations begin. Markets are pricing in the first reduction around June but I can’t imagine policymakers will acknowledge that possibility for some time. The late pivot still looks highly likely as the Fed seeks to avoid underestimating inflation again. Markets still pricing in a possible UK rate cut in June The UK Autumn Statement wasn’t a big market-moving event today and perhaps in the current environment, that’s a good thing. Given the speculation in recent days around what measures Chancellor Jeremy Hunt would announce due to the additional fiscal headroom and proximity to the election, there have been some concerns that measures could run counter to the Bank of England’s goal of getting inflation back to 2%. The fact that the pound was fairly steady during today’s event and markets are still pricing in a 50% chance of a rate cut by June suggests investors are not concerned about any inflationary implications on the back of today’s announcements.   GBPUSD pulls back near key resistance The pair had rallied in recent weeks towards 1.26 which only recently had been a major technical level. GBPUSD Daily Source – OANDA on Trading View   Not only does it represent the 50% retracement of the move from the July highs to the October lows, but it coincides with the neckline from the head and shoulders it broke below in early September. Yesterday it was looking a little short of momentum which could be a red flag near such a potentially important technical level. It’s now rotated lower which doesn’t necessarily mean it’s failed and heading lower, but it may suggest the market views it as an important level.  

Canada’s inflation rate falls to 3.1% Fed minutes indicate rates to remain restrictive The Canadian dollar continues to have a quiet week. In the North American session, USD/CAD is trading at 1.3723, up 0.14%. Canada’s inflation declines to 3.1% Canada’s inflation rate fell to 3.1% y/y in October, down sharply from 3.8% in September and below the consensus estimate of 3.2%. Monthly, inflation edged up to 0.1%, up from -0.1% in September and matching the consensus estimate. Two key core rate gauges dropped to an average of 3.55%, down from 3.8% in September. The drop in inflation is an encouraging sign for Bank of Canada policy makers that its rate policy is working, as inflation continues to head lower. For the markets, the decline will support expectations that the current tightening cycle is done and that the central bank will trim rates in mid-2024. The inflation print has likely closed the door on further hikes, but don’t expect to hear that from anyone at the BoC, which doesn’t want to give a false impression that inflation has been beaten, as there is still more work to do to reach the 2% target. Fed preaches caution At the November meeting, Fed Chair Powell said in his post-meeting remarks that the Fed would have to exercise caution. Tuesday’s FOMC minutes echoed Powell’s comments and also mentioned the need to “proceed carefully”. The minutes gave no indication that members had discussed rate cuts, noting that members felt that the current policy was restrictive and pushing inflation lower. The markets have a different take and have priced in a rate cut sometime in mid-2024, with inflation falling and the US economy continuing to lose steam. The Fed will likely continue to sound hawkish and warn that rate hikes are still on the table, but is anyone listening?   USD/CAD Technical USD/CAD is testing resistance at 1.3741. Above, there is resistance at 1.3776 There is support at 1.3660 and 1.3628  

Asia Morning Bites Japan's inflation quickens to 3.3% but misses forecasts. Singapore reports industrial production later on, which is expected to contract. Global macro and markets Global markets:  With the US out on holiday yesterday, global markets aren’t very exciting today. European government bond yields pushed higher by about 6-7bp at the 10Y part of the curve. 2Y European government bond yields rose about 2-4bp. The USD was a little softer yesterday, and EURUSD drifted up to 1.0906. Other G-10 FX was also slightly stronger vs the USD, except for the JPY which remained flattish at about 149.53. USDCNY also moved lower and is now 7.1476. European stocks made small gains yesterday in the region of 0.2%. Chinese stocks also gained. The Hang Seng was up nearly a per cent and the CSI gained 0.48%.   G-7 macro:  The main releases yesterday were a swathe of European PMI numbers, which broadly speaking edged higher, but remained in contraction settings. Our European Economist, Bert Colijn, writes that he believes the Eurozone is in a shallow recession. Germany will also release its Ifo business survey later today. The consensus of forecasts looks for a small gain, which would be in line with yesterday’s PMI data. There is very little out for the US, only the S&P PMIs.   Japan:  Consumer price inflation reaccelerated to 3.3% YoY in October (vs 3.0% in September, 3.4% market consensus), for the first increase in four months. On a monthly comparison, inflation rose 0.7% MoM (sa), the fastest growth ever (except during periods when indirect taxes are raised), with increases in both goods (1.3% MoM sa) and service prices (0.2% MoM sa). The price gains were across almost all items. The reduced government subsidy for utility bills was a major reason for the sharp rise. Accommodation and entertainment also rose meaningfully thanks to strong demand from inbound tourists while tight room supply continued. Lastly, the rise in import prices due to the weak JPY is probably also leading to the overall domestic price increases. Today’s outcome fell short of the market consensus but was clearly against the BoJ’s projection that inflation would slow by the year-end. Also, although most of the upward pressures came from supply-side factors, service prices also increased meaningfully. Both the government and the BoJ will be concerned about higher-than-expected inflation. The government’s efforts to curb price increases will continue with an extension of energy subsidies until next April and they are also suggesting tax benefits for low-income households. Meanwhile, we believe the BoJ will move away from its super-accommodative stance next year. We believe that the BoJ may scrap the Yield Curve Program as early as 1Q24, as JGBs appear to have stabilized, following the UST trend, then begin its first rate hike in 2Q24 if wage growth continues to accelerate next year.   Singapore: October data on industrial production is set for release today.  Industrial production is expected to remain in annual contraction by about 2.3% YoY and lower by 0.4% from the previous month.  Production has largely tracked the struggles of the export sector and we will only likely see a meaningful rebound once global demand recovers.  What to look out for: Singapore industrial production Japan Jibun PMI 24 (November) Malaysia CPI inflation (24 November) Singapore industrial production (24 November)

Singapore: Industrial production rebounds for its first gain in more than a year Singapore industrial production jumped 7.4%YoY, much better than expectations for a contraction.   October industrial production up 7.4% Singapore’s string of positive data continues, this time with industrial production beating market consensus to rise 7.4% YoY.  Market expectations tipped production to slow for a 13th straight month.  Compared to the previous month, industrial production jumped 9.8%, much better than expectations for a 0.4% contraction. Electronics picked up to 14.8% YoY, from 12.7% in the previous month. Biomedical and general manufacturing rose 5.1% YoY and 4.3% YoY, respectively.  Chemicals remained in contraction (1.0% YoY) but at a less pronounced pace compared than the 13.0% YoY drop of the previous month.   Industrial production bounces back sharply, tracking NODX   Better IP data today a sign of things to come? Industrial production had been mired in an extended slump (13 months), tracking the struggles of the export sector.  With global demand relatively subdued of late, soft non-oil domestic oil (NODX )orders filtered through to the industrial output numbers.  The improvement in the October NODX report signaled a potential recovery for the industrial sector and we could see this sector string together a decent streak of expansion now that global demand appears to be showing signs of a potential recovery.  Today's industrial production report should contribute well to 4Q GDP numbers which will continue to get a boost from leisure related services. 2023 full year GDP growth of 1% YoY is well within reach.     

CEE: Possible improvement in the rating outlook for the Czech Republic Today, the calendar in the region is again basically empty. This morning we will see consumer confidence in the Czech Republic, which rebounded in October, but so far, we don't see an improving trend. Moody's will publish a rating review of the Czech Republic after the close of trading. The agency has held a negative outlook for the Aa3 rating since last August. We see some chance here for an improvement in the outlook to move towards greater stability. The main reason for the downgrade was the country's dependence on energy from Russia and the deteriorating fiscal outlook. Both issues have been resolved this year, and we thus think that an improvement in the outlook is a matter of time. In the FX market, yesterday's news of possible EU money for Hungary was greeted by a strengthening HUF. While yesterday's news involves a different part of the EU money than was mostly mentioned in the context of the conflict over the rule of law, it is good news for Hungary. As we mentioned after the National Bank of Hungary (NBH) meeting this week, for new FX gains, we need to see some new triggers, such as the EU money progress. We therefore think yesterday may unlock the next wave of HUF appreciation. Market rates have stabilised, and we might even see some upside after a long string of declines. EUR/HUF has thus probably consolidated slightly above 380 and fell below that level yesterday. Looking ahead, 378 EUR/HUF should not be too ambitious a target if EUR/USD stays at high levels today.

  Manufacturing PMIs (Nov) – 01/12 –these key indicators have continued to look weak, with economic activity in this sector in Germany and France stuck firmly in contraction territory for the last 16 months. Economic activity in Spain and Italy has been slightly better but even here we've started to see significant weakness. Last week's flash manufacturing numbers saw Germany and France economic activity see divergent fortunes, with Germany edging up from 40.8 to 42.3, while France got worse slipping back from 42.8 to 42.6. As for Italy and Spain, October saw a slowdown to 44.9 and 45.1 respectively, in a sign that while manufacturing had been more resilient initially during the summer months, even here we are starting to see the effects that higher rates are having on economic activity.    

By Michael Hewson (Chief Market Analyst at CMC Markets UK) US non-farm payrolls (Nov) – 08/12 – last month's October jobs report was the first one this year when the headline number came in below market expectations, though not by enough to raise concerns over the resilience of the US economy. Unlike September, when US jobs surged by 297k, jobs growth slowed in October to 150k, while the unemployment rate ticked higher to 3.9%, in a sign that the US economy is now starting to slow in a manner that will please the US central bank. Combined with a similarly weak ADP report the same week, where jobs growth slowed to 113k, and a softer ISM services survey yields have slipped back significantly from their October peaks, as well as being below the levels they were a month ago in a sign that the market thinks that rate hikes are done and has now moved on to when to expect rate cuts. This is the next challenge for the US central bank who will be keen to continue to push the higher for longer rates mantra. It's also worth noting that JOLTS job openings are still at elevated levels of 9.55m, and weekly jobless claims continue to trend at around 210k which means the Fed still has plenty of leeway to push back on current market pricing on rate cuts. Expectations are for 200k jobs to be added in November; however, it should also be remembered that a lot of additional hiring takes place in the weeks leading up to Thanksgiving and the Christmas period so we're unlikely to see any evidence of cracking in the US labour market this side of 2024.          Services PMIs (Nov) – 05/12 –while manufacturing activity in Europe appears to be bottoming out, the same can't be said for the services sector which on the basis of recent inflation data is experiencing sticky levels of inflation, which is prompting a continued hawkish narrative from the ECB despite rising evidence that the bloc is already in contraction and possible recession as well. Recent data from the French economy showed economic activity contracted in Q3 and there has been little evidence of an improvement in Q4. The recent flash PMIs showed that services activity remained stuck in the low 45's, although economic activity does appear to be improving, edging higher to 48.7. The UK economy appears to be more resilient where was saw a recovery into expansion territory in the recent flash numbers to 50.5. The main concern is that the resilience shown by the likes of Spain and Italy as their tourism season winds down appears to have gone after Italy fell sharply in October to 47.7, while Spain was steady at 51.1.  

RBA rate decision – 05/12 – back in November the RBA took the decision diverge from its peers and hike rates again, by 25bps to 4.35%, after 5 months of keeping it at 4.10%. In a sign that this could well be the last hike the guidance was tweaked from "further monetary tightening may be required" to "whether monetary tightening may be required" which at the time sent the Australian dollar sharply lower, although the recent weakness in the US dollar has seen the Aussie recover since then. Despite increasing evidence that inflation is slowing in the global economy the RBA clearly felt it necessary to close the gap on its peers when it comes to rate policy, in a sign that perhaps they are concerned about domestic price pressures. That said we are already seeing the economic numbers in China starting to respond to the piecemeal measures by authorities there to stimulate the economy, although the improvements have been fairly modest. We also saw another upside surprise in headline CPI, while Q2 GDP came in at 0.4%, above forecasts of 0.2% to the economy continues to remain resilient. No changes to policy are expected this week, however some ex-RBA staffers have suggested that we could see another rate hike if wages growth continues to remain strong.   China Trade (Nov) – 07/12 – the recent set of Chinese Q3 GDP numbers pointed to a modest pickup in economic activity over the quarter in a sign that we are starting to see an improvement in the underlying numbers underpinning the Chinese economy. The recent October trade numbers helped to support the idea of a modest improvement however they don't change the fact that the economy still has some way to go when it comes to domestic demand which has remained subdued over the last 6 months. In October Chinese import data broke a run of 10 consecutive negative months by rising 3% in a sign that perhaps domestic demand is returning, beating forecasts of a 5% decline. Slightly more worrying was a bigger than expected decline in exports which fell -6.4%, the 6th month in a row they've been lower, and a worrying portend that global demand remains weak, and unlikely to pick up soon.       

AUD/USD lower on Monday RBA likely to maintain rates on Tuesday The Australian dollar has started the week in negative territory. In the European session, AUD/USD is trading at 0.6648, down 0.40%. The Australian dollar is coming off a strong week, with gains of 1.38%. RBA expected to hold rates The Reserve Bank of Australia is expected to hold rates at 4.35% at its Tuesday rate meeting. The central bank has paused for four straight months and the markets don’t expect any further hikes. Still, the RBA could send a hawkish message along with the pause to dampen speculation about a rate hike in 2024, with inflation still high at 4.9%, which is well above the 2% target. Powell sends mixed message, dollar slumps Federal Reserve chair Jerome Powell spoke on Friday, and his split message sent the US dollar sharply lower against most of the majors, including the Australian dollar which jumped 1.06%. Powell noted that monetary policy is “well into restrictive territory” and that inflation is “moving in the right direction”. The markets interpreted these remarks as signals that the Fed is done with rate tightening. Although Powell warned that it was premature to assume that the Fed had achieved a “sufficiently restrictive stance”, investors viewed the remarks as dovish and the US dollar fell sharply.   The futures markets have priced in a rate cut in March at 59% and in May at 87%, according to the CME FedWatch tool. The Fed clearly doesn’t share this stance, as most Fed members who spoke last week supported the case for holding rates at current levels for some time. This disconnect between the Fed and the markets is likely to continue as the Fed is unlikely to discuss rate cuts while inflation remains above the 2% target. The markets are looking at a rate cut in late 2024, but a lot could happen until then. If the economy cools more quickly than expected, the RBA would have to give thought to cutting rates in order to boost growth.   AUD/USD Technical AUD/USD tested support at 0.6639 earlier. Below, there is support at 0.6603 0.6712 and 0.6748 are the next resistance lines

Asia Morning Bites Australian 3Q23 GDP comes in soft; Moody's negative China outlook will likely dominate risk sentiment today. Taiwan CPI out later.   Global macro and markets Global markets:  US Treasury markets continued to rally on Tuesday, helped by declines in Eurozone bond yields as one of the ECB’s more hawkish board members (Isabel Schnabel) noted that further hikes were “unlikely”. US yields were then given an additional downward push by some soft JOLTS job opening figures. 2Y Treasury yields fell 5.9bp to 4.577%, while 10Y yields fell 8.8bp to 4.165%. The slightly bigger falls in Eurozone bond yields helped EURUSD to decline to 1.0793 and that has also led AUD to decline to 0.6553, Cable to drop to 1.2593, while the JPY stayed fairly steady at 147.18. As the EURUSD move has more to do with EUR weakness than USD strength, these G-10 moves look unnecessary, and a case could probably be made for these other currencies to appreciate against both the EUR and USD, especially those where rate cuts are not on the agenda (JPY) or will be later and probably less than in the US (AUD). The KRW also weakened on Tuesday, rising back to 1311.20. The IDR was also softer at 15505, as were most of the other Asian FX pairs. There may be a bit of further weakness today, though for the same arguments as for the G-10, the rationale for this is quite weak, and we wouldn’t be totally surprised to see this go the other way. Equities didn’t know which way to turn yesterday, given the weak labour demand figures but the lower bond yields, and the S&P 500 ended the day virtually unchanged. The NASDAQ made a small gain of 0.31%. Chinese stocks were battered by the outlook shift to negative from Moody’s, which pointed to the rising debt levels and higher deficits China is adopting to try to underpin the property sector. Though the decision on Evergrande’s winding up was postponed until January, which could have provided some relief. The Hang Seng fell 1.91% and the CSI 300 fell 1.90%.   G-7 macro:  As mentioned, the JOLTS job openings data showed a large decrease in vacancies, to 8733K in October (for which we already have non-farm payroll data) from 9553K in September. The service sector ISM index was actually a little stronger than in October, rising to 52.7 from 51.8, and the employment subindex rose to 50.7 from 50.2, though this has little correlation with month-on-month directional payrolls trends. After a rare “hit” with its weak reading last month, attention may revert back to the ADP employment data later today.  A 130K  increase is the latest consensus estimate. The consensus for Friday’s non-farm payrolls is higher at 187K, with an unchanged unemployment rate of 3.9%. Outside the US, German factory orders and Eurozone retail sales are the main releases, along with a Bank of Canada rate decision (no change expected to the 5% policy rate).   Australia: 2Q23 GDP slowed from a 0.4%QoQ pace in 2Q23 to only 0.2% in 3Q23, weaker than the 0.5% consensus estimate (ING f 0.3%). A more negative contribution to GDP from net exports in data revealed yesterday was the main clue that the figure was going to undershoot. Yesterday’s RBA no change statement showed no additional sign that the RBA is done hiking rates and merely repeated the previous language. Today’s GDP data slightly increases the probability that rates have peaked – however.   Taiwan:  November CPI inflation should show a further moderation, dropping to 2.80% from 3.05% in October. We don’t see this having any impact on the central bank’s policy rates for the time being though.   What to look out for: Australia GDP and US jobs numbers Australia GDP (6 December) Taiwan CPI inflation (6 December) US ADP employment and trade balance (6 December) Australia trade (7 December) China trade (7 December) Thailand CPI inflation (7 December) US initial jobless claims (7 December) Japan GDP (8 December) India RBI meeting (8 December) Taiwan trade (8 December) US NFP (8 December)

Bank of England to push back against rising tide of rate cut expectations Markets are pricing three rate cuts in 2024 and we doubt the Bank will be too happy about that. Expect policymakers to reiterate that rates need to stay restrictive for some time. But with services inflation coming down and wage growth set to follow suit, we think investors are right to be thinking about a summer rate cut. We expect 100bp of cuts next year.   Markets are ramping up rate cut bets, and Governor Bailey isn't happy about it Financial markets are rapidly throwing in the towel on the “higher for longer” narrative that central banks have been pushing hard upon for months. Even more remarkably, a small but growing number of policymakers from the Federal Reserve to the European Central Bank seem to be getting second thoughts too. So far, that market repricing has been less aggressive for the Bank of England. Investors are expecting three rate cuts next year compared to more than five over at the ECB. The first move is seen in June, as opposed to March over in Frankfurt. Despite that more modest adjustment, the Bank of England is starting to sound the alarm. Governor Andrew Bailey said in recent days that he is pushing back “against assumptions that we're talking about cutting interest rates". Those comments followed a firming up of the Bank’s forward guidance back in early November, where it said it expected rates to stay restrictive for “an extended period”. Its November forecasts, premised on rate cut expectations at the time, indicated that inflation may still be a touch above 2% in two years’ time. That was a hint, if only a mild one, that markets were prematurely pricing easing - and rate cut bets have only been ramped up since.   Rate cut expectations are building, though less rapidly than in the US/eurozone   Expect rate cut pushback on Thursday, but investors are right to be thinking about easing That gives us a flavour of what we should expect next week. While the chances of a surprise rate hike have long since faded away, there’s a good chance that the three hawks on the committee once again vote for another 25bp rate increase, leaving us with a repeat 6-3 vote in favour of no change. We only get a statement and minutes on Thursday, and no press conference or forecasts, so the opportunity to shift the messaging is fairly limited. But we expect the same hawkish forward guidance as last time, including the line on keeping rates restrictive for a prolonged period of time. Could the Bank be tempted to go further still and formally say that markets have got it wrong? The BoE has shown itself less willing than some other central banks to either comment directly on market pricing in its post-meeting statements, or make predictions about how it'll vote at future meetings. The last time it did this was in November 2022, where disfunction in UK markets meant rate hike pricing had reached an extreme level. We doubt they’ll do something similar this month. Policymakers may be uneasy about the recent repricing of UK rate expectations, but central banks globally have learned the hard way over the last couple of years that trying to predict and commit to future policy, with relative certainty, is a fool's game. The Bank will also be gratified that the data is at least starting to go in the right direction. Services inflation came in below the Bank’s most recent forecast, and while one month doesn’t make a trend, we think there are good reasons to expect further declines over 2024. Admittedly, we think services CPI will stay sticky in the 6% area through the early stages of next year, but by the summer, we expect to have slipped to 4% or below. Likewise, the jobs market is clearly cooling and that suggests the days of private-sector wage growth at 8% are behind us. We expect this to get back to the 4-4.5% area by next summer too. Markets may be right to assume that the BoE will be a little later to fire the starting gun on rate cuts than its European neighbours. But when the rate cuts start, we think the BoE’s easing cycle will ultimately prove more aggressive. We expect 100bp of rate cuts from August next year, and another 100bp in 2025.   Sterling benefits from the BoE position Sterling has enjoyed November. The Bank of England's trade-weighted exchange rate is about 2% higher. The rally probably has less to do with the UK government's stimulus and more to do with the fact that investors have been falling over themselves to price lower interest both in the US and particularly in the eurozone.  In terms of the risk to sterling market interest rates and the currency from the December BoE meeting, we tend to think it is too early for the Bank of England to condone easing expectations - even though those expectations are substantially more modest than those on the eurozone. This could mean that EUR/GBP continues to trade on the weak side into year-end - probably in the 0.8500-0.8600 range. Into 2024, however, we expect market pricing to correct - less to be priced for the ECB, more for the UK and EUR/GBP should head back up to the 0.88 area. But that's a story for next year.    Sterling trade-weighted index edges higher

December’s ECB cheat sheet: A reality check for ultra-dovish expectations The ECB will almost surely keep rates on hold at the December meeting. The question is to what extent it will align with the market's aggressive pricing for rate cuts in 2024. We suspect it will fall short of endorsing ultra-dovish expectations. There is some upside room for EUR rates and the battered euro.       Heading into the European Central Bank's December meeting, there is growing evidence that the Governing Council is split about the messaging being presented to markets. The generally arch-hawk Isabel Schnabel dropped strong dovish hints by ruling out rate hikes this week, and markets are now pricing in 135bp of cuts in the next 12 months. We see a good chance that the overall message at this meeting will fall short of endorsing aggressive rate cut expectations. Above are the market implications in various scenarios. Our full ECB preview can be found here. A still-cautious ECB may not validate aggressive front end pricing A reassessment of inflation expectations has been in the lead in driving rates lower and raising the expectations of first rate cuts at the end of the first quarter next year. From next summer onwards, market indications point to anticipated headline inflation fixes below 2%. Indeed, the 2Y inflation swap has dropped to 1.8%. It is easy to overlook that at the same time, core inflation is currently still running at an elevated 3.6% year-on-year, giving the ECB enough reason to remain cautious. However, the pushback against aggressive market pricing has been half-hearted at best, with officials’ remarks having put cuts in the first half of next year clearly into the realm of possibility. But whether they're likely is a different question. The ECB may well decide to let the data be the judge – but at the same time, it remains more reluctant to extrapolate to the extent that the market does. Its own inflation forecast may come down next week, but potentially not to the degree that markets are discounting. We see a good chance that the rally in front end rates – which currently discounts a 75% probability of a cut next March – stalls, if not unwinds to some extent. The longer end may see less upward pressure, though. In the extreme, the Governing Council coming across as overly hawkish and brushing off the faster disinflationary momentum could push markets into the belief that a policy mistake is in the making.   ECB rate expectations   Lagarde can throw a lifeline to the unloved euroThe idiosyncratic decline of the euro has been one of the key themes in FX lately, with the common currency being the worst-performing currency so far in G10. The aggressive dovish repricing of ECB rate expectations has been the main driver, and the comments by Isabel Schnabel right before the pre-meeting quiet period have fuelled the bearish narrative further. With 125bp of cuts priced in by October and markets actively considering a start to the easing cycle already in March, it's difficult to see a bigger dovish repricing happening at this stage. That would suggest the euro does not have to fall much further from the current levels. Still, if only short-term rate differentials are taken into account, a decline to the 1.06 area in EUR/USD would not be an aberration. What is already halting the euro slump is the upbeat risk sentiment, which favours pro-cyclical currencies like the euro and caps the upside for the safe-haven dollar. We expect the ECB to continue its transition to a dovish narrative, but that will – in our view – happen at a slower pace than what markets are implying. We see tangible risks that the the central bank will push back against aggressive dovish speculations at this meeting, and the market may be forced to unwind some of those rate cuts bets, offering room for a EUR/USD rebound. That said, a EUR/USD recovery would struggle to extend much longer after the meeting due to the short-term EUR-USD swap spreads still pointing to a lower exchange rate.

Big week for central banks as China falls into deflation By Michael Hewson (Chief Market Analyst at CMC Markets UK)   Markets in Europe finished higher again last week with the DAX up for the 6th week in a row, while the FTSE100 returned to levels last seen on the 19th October, after the latest US jobs report came in better than expected, and unemployment unexpectedly fell to 3.7%.   US markets also finished the week strongly with the S&P500 pushing above its summer highs to close at its highest level this year, with the Nasdaq 100 not too far behind, with the tech sector, once again instrumental in achieving the bulk of this year's outperformance.   The catalyst for the strong finish was a solid US jobs report which showed 199k jobs were added in November, while the unemployment rate slipped to 3.7%. With the participation rate returning to 62.8% and wages remaining at 4%, the idea that the Federal Reserve will be compelled to cut rates aggressively underwent a bit of a setback with yields moving sharply higher, as 2024 rate cut expectations got pared back.   The apparent resilience of the US economy against a backdrop of a sharp fall in inflation expectations from the latest University of Michigan confidence survey has helped craft a narrative that despite the sharp rise in interest rates delivered over the past 18 months, the US economy will be able to avoid a severe recession.   This scenario does present some problems for the Federal Reserve when it comes to managing market expectations of when rate cuts are likely to come, with the recent sharp fall in yields globally speaking to a widespread expectation that rates may well be cut sharply as we head into 2024.   As far as the US economy is concerned aggressive rate cuts at this stage look a little less likely than they do elsewhere where we've seen sharp CPI slowdowns in the pace of inflationary pressure. Earlier this month the latest EU inflation numbers showed headline CPI slow to 2.4% in November, while German CPI was confirmed at 2.3% as month-on-month prices declined by 0.7%, the second month in a row, CPI went negative.   Germany isn't unique in this either given that PPI inflation had already given plenty of indication of the direction of travel when it came to price deflation.   In China over the weekend headline CPI also went negative in November, only in this case it was on the annualised number to the tune of -0.5%, for the second month in a row and for the 3rd month in the last 5. PPI inflation also remained in negative territory to the tune of -3%, the 14th month in succession as the world's 2nd biggest economy grapples with deflation, and slowing domestic demand.   This deflationary impulse appears to be already making itself felt in Europe, and truth be told has been doing so for some time, the only surprise being how blind to it certain parts of the European Central Bank have been to it.   These concerns over deflation while slowly starting to be acknowledged don't appear to be being taken seriously at the moment, although in a welcome shift we did hear Germany ECB governing council member Isabel Schabel admit that they had been surprised at how quickly prices had slowed over the past few months, even as economic activity stumbled sharply.     Consequently, this week's central bank meetings of the Federal Reserve, European Central Bank and the Bank of England are likely to be crucial in managing expectations when it comes to the timing and pace of when markets can expect to see rate cuts begin now, we know the peak is in.   Of all the central banks the Fed probably has the easiest job in that they have more time to assess how the US economy is reacting to the tightening seen over the past few months.   The ECB has no such luxury given that the two biggest economies of Germany and France could well be in recession already, and where prices could slide further as we head into 2024.   The fear for central banks is that a lot of the slowdown in inflation has been driven by the recent slumps in crude oil and natural gas prices and could well be transitory in nature, and with wage inflation still elevated will be reluctant to signal the "all clear" too soon.   The Bank of England has a similar problem although the UK economy isn't showing the same levels of weakness as those of France and Germany, and furthermore inflation in the UK is almost double that of Europe, with wage costs and services inflation even higher.   As we look towards a new trading week, and probably the most consequential one this month, European markets look set to open slightly higher as investors look back at the inflation numbers from the weekend and extrapolate that 2024 may well be the year that rates start to come down, with the main risk being in overestimating by how far they fall.      EUR/USD – slid down towards the 200-day SMA on Friday, stopping just short at 1.0724, with a break below 1.0700 targeting the prospect of further losses toward the November lows at 1.0520. We need to see a move back through 1.0830 to stabilise.   GBP/USD – slid to the 1.2500 area but remains above the 200-day SMA for now, with only a break below 1.2460 signalling a broader test of the 1.2350 area. Resistance currently at 1.2620 area.    EUR/GBP – still range trading between the 0.8590 area and the lows last week at 0.8550. While below the 0.8615/20 area the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490. USD/JPY – finding a level of support at the 200-day SMA at 142.50 after last week's steep fall. We need to see a daily close below the 200-day SMA to open a test of 140.00 and then on towards 135.00. Resistance back at 146.20.   FTSE100 is expected to open 7 points higher at 7,561   DAX is expected to open 25 points higher at 16,784   CAC40 is expected to open 11 points higher at 7,537

UK wage growth and US CPI set to slow   By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European equity markets got off to a slow start to the week yesterday, closing modestly higher with the FTSE100 underperforming due to concerns over weak demand out of China.   US markets were also resilient with the S&P500 and Dow both eking out new highs for 2023, as investors looked cautiously towards this week's central bank meetings of the Federal Reserve, European Central Bank, and the Bank of England, and their respective outlooks for rate policy heading into 2024.     Asia markets have continued in the positive vein of yesterday with that momentum set to continue into today's European open.   With the Federal Reserve due to start its 2-day meeting later today, and the Bank of England set to decide on rates on Thursday, today's UK wages data and US CPI numbers could go some way to shaping how policymakers react when they deliver their guidance on monetary policy later this week.     We start with the latest UK wages numbers for the 3-months to October and where wages have been trending higher by more than 8% for the last 3-months if bonuses are included.   Some at the Bank of England have been fretting about this high level of wages growth but they really shouldn't be given how badly inflation has impacted the pay packets of consumers these past 2 hours.   All that is happening now is that some of the purchasing power that has been lost over the last few months is slowly being clawed back and for the most part will take years to recover back to pre-pandemic levels. The central bank needs to be careful about overreacting to a phenomenon that they were too slow in reacting to on the way in.     With food prices only just recently dropping below 10% for the first time in over a year it can hardly be a wage price spiral if consumers are finally seeing the price/wage ratio finally starting to turn positive in their favour. Expectations are for wages ex-bonuses to slow from 7.7% to 7.4%, which might not be enough to reverse the calls for further rate hikes from the 3 hawks on the MPC, of Mann, Haskel and Greene. Later this afternoon we'll get to see whether the slowdown we saw in US CPI during October has continued into November.   US inflation fell to 3.2% in October, down from 3.7% reversing a trend that had seen inflation fall to 3% in June, before gaining ground in subsequent months.   Core CPI on the other hand has been steadier, slowing at a more modest pace and coming in at 4%. More importantly, super core inflation which the Fed monitors closely also slowed, and with the risk of a US government shutdown postponed until January next year, the economic risks to the US economy appear to have diminished further.   There has been some concern that the resilience of the US economy may delay the return to the 2% target, however judging by the latest PPI data there is little sign of inflationary pressure in respect of company's costs. These also slowed sharply in October declining -0.5%, dragging final demand down from 2.2% to 1.3%, in a sign that we could see further downside in US CPI, with the potential to slip below 3% before the end of the year.     Headline CPI for November is forecast to slow to 3.1%, with core prices remaining steady at 4%.       EUR/USD – holding above the 200-day SMA for now, stopping short last week at 1.0724, with a break below 1.0700 targeting the prospect of further losses toward the November lows at 1.0520. We need to see a move back through 1.0830 to stabilise. GBP/USD – tight range but holding above the 200-day SMA for now, with only a break below 1.2460 signalling a broader test of the 1.2350 area. Resistance currently at 1.2620 area.  EUR/GBP – still range trading between the 0.8590 area and the lows at 0.8545/50. While below the 0.8615/20 area the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490. USD/JPY – after last week's test of the 200-day SMA at 142.50 we've seen a solid rebound with the move above 146.20 arguing for a move back towards 148.20. FTSE100 is expected to open 13 points higher at 7,558 DAX is expected to open 51 points higher at 16,845 CAC40 is expected to open 18 points higher at 7,569

UK economy shrinks 0.3% in October Markets price in three rate cuts from the BoE next year EURGBP spikes ahead of BoE and ECB announcements tomorrow The UK economy got the fourth quarter off to a bad start, contracting by 0.3% in October from the month before. The UK economy is struggling under the pressure of higher interest rates and it seems wet weather compounded those challenges for retailers, encouraging consumers to stay indoors. There’s every chance spending bounces back in November and December, with the weather being less of a deterrent and households spending more ahead of the festive period. That said, they may well be looking at a more slimmed-down Christmas this year after two years of high inflation which could leave the economy at risk of recession. Which may explain why interest rate expectations have fallen next year.      EURGBP pares losses ahead of ECB and BoE The euro has recently clawed back some losses against the pound after slipping back toward the summer lows, which it fell just short of.     The question now is whether the pair has simply respected an established support zone or is going to take another run at it. The Fibonacci retracement levels could offer some insight on this front after such a sharp sell-off towards the end of November. There’s a potential confluence of resistance around these as well from recent areas of support – which could become resistance – to simple moving averages. A rotation around these points could be a bearish signal either in the run-up to, or after the BoE and ECB interest rate decisions on Thursday.  

GBP: Eyes on inflation this week This week, the focus in the UK will be on CPI data for November out on Wednesday. As usual, we'll be paying attention to services inflation, which we estimate to come in at 6.6%, showing little near-term progress. That may help markets ease some of the rate cut bets in the UK and help the pound. Markets are still pricing in four rate cuts by the Bank of England this week despite the Bank’s attempt to discourage dovish bets via in-meeting communication. We still think services inflation in the UK will ease to around 4% by next summer, allowing the BoE to start cutting, but the pound has decent room to benefit from some hawkish repricing in the short run. Last week’s 0.8550 lows in EUR/GBP may well be retested by the end of December.

German business confidence weaker than expected The euro has started the week in positive territory on Monday. In the European session, EUR/USD is trading at 1.0914, up 0.18%. It was a week of sharp swings for the euro, which posted strong gains during the week but reversed directions on Friday and declined 0.88%. Still, the euro posted a winning week, rising 1.2% against the US dollar. German business confidence dips Germany’s Ifo Business Climate was softer than expected, dropping to 86.4 in December. This was down from a revised 87.2 in November and missed the market consensus of 87.8. Business conditions and business expectations also eased in December and were shy of the forecast, as companies remain pessimistic about the German economy. The lack of confidence mirrors the prolonged weakness in the German economy. December PMIs indicated contraction in both the services and manufacturing sectors. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. The servicaes industry has contracted for five straight months while manufacturing has been mired in contraction since June 2022. ECB stays hawkish The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring over 1% against the US dollar after the announcement. There is a deep disconnect between the markets and the ECB with regard to rate policy. The ECB remains hawkish and Reuters reported on Friday that ECB governors are unlikely to cut rates before June. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024, with the initial cut expected around March. Lagarde has insisted that the central bank’s decisions will be data-dependent rather than time-dependent and she may have to join the rate-cut bandwagon if inflation continues to fall at a brisk pace. . EUR/USD Technical EUR/USD is putting pressure on resistance at 1.0929. Above, there is resistance at 1.0970 1.0855 and 1.0814 are providing support        

Analysis of transactions and tips for trading EUR/USD The test of 1.0948 took place at a time when the MACD line moved downward from zero, provoking a sell signal. As a result, the pair fell in price by more than 30 pips. Meanwhile, purchases on the rebound from 1.0917 did not bring much profit, as the pressure on the pair persisted. Weak business activity data in the eurozone's service and manufacturing sectors put pressure on euro in the morning, leading to a price decline. This continued in the afternoon, as similar indicators from the US caused a surge in dollar demand, resulting in further sell-offs in EUR/USD. Today, interesting data from Germany will come out, namely the IFO's indices on business climate, present situation, and economic expectations. Disappointing numbers will keep euro under pressure. Statements from ECB Executive Board members Isabel Schnabel and Philip Lane will also affect market sentiment.     For long positions: Buy when euro hits 1.0928 (green line on the chart) and take profit at the price of 1.0966. Growth will occur after strong data from the Eurozone and the firm position of the ECB. When buying, make sure that the MACD line lies above zero or rises from it. Euro can also be bought after two consecutive price tests of 1.0907, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0928 and 1.0966. For short positions: Sell when euro reaches 1.0907 (red line on the chart) and take profit at the price of 1.0876. Pressure will return if indicators from Germany come out weaker than expected. When selling, make sure that the MACD line lies under zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0928, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0907 and 1.0876. What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.

CAD: Macklem turns dovish The Canadian dollar is lagging other pro-cyclical currencies at the start of this week after Bank of Canada Governor Tiff Macklem said in a TV interview yesterday that he expects rates to be cut next year. This is a surprise statement by Macklem, who only two weeks ago reiterated the hawkish bias in the BoC policy statement. Offering a timeline for rate cuts appears inconsistent with the BoC's claim that it “remains prepared to raise the policy rate further if needed” and likely validates the market’s pricing for 100bp of easing next year – despite Macklem’s caveats on the disinflation progress. Despite our view of a dollar decline and outperformance of pro-cyclical currencies next year, we expect the Canadian dollar to underperform other commodity currencies as the BoC cuts rates aggressively (we estimate 150bp in 2024) on a grim economic outlook and as the loonie suffers from its correlation with US economic data.

JPY: Ueda disappoints markets, but April hike on the table The Bank of Japan kept rates unchanged today as widely expected, but disappointed market hawkish expectations. The Bank kept its dovish guidance unchanged (“take additional monetary easing steps without hesitation if needed") which forced markets to abandon speculation of a rate hike in January.   The yen took a hit, falling almost by 1.0% against the dollar after the announcement and press conference by Governor Ueda, but we identified a few changes in the Bank’s assessment of the economic outlook that likely endorse the market’s lingering expectations for a hike in April. In particular, the BoJ noted that private consumption has continued to increase modestly, that inflation is likely to be above 2% throughout the 2024 fiscal year and that underlying inflation is likely to increase. Those statements are aimed at paving the way for policy normalisation in 2024, in our view. We expect the yield curve control to be scrapped in January and a hike to be delivered in April. From an FX perspective, the yen may simply revert to trading primarily on external factors (US rates in particular) after the BoJ ignored market pressure and likely signalled the path to normalisation should be a gradual one. We remain bearish on USD/JPY in 2024, as the oversold yen can still benefit from the end of negative rates in Japan and we see the Fed cutting rates by 150bp, but the pace of depreciation in the pair will be gradual in the near term, and we only see a decisive break below 140 in 2Q24.   ⚠️ Did the #BOJ fall asleep on the $JPY 🖨️ print button or what? 🤭Almost makes you wonder if someone out there is in desperate need of liquidity… 🤔 https://t.co/EdRfXb9vUH pic.twitter.com/z2dN3YVtuH — JustDario 🏊‍♂️ (@DarioCpx) December 19, 2023

Chicago PMI expected to decelerate China releases PMIs on Saturday The New Zealand dollar is in negative territory on Friday. In the European session, NZD/USD is trading at 0.6308, down 0.37%. The US dollar has hit a rough patch lately and retreated against most of the majors. The New Zealand dollar has been full marks, climbing some 400 basis points over the past five weeks. The Federal Reserve meeting earlier this month has boosted risk appetite, as Fed Chair Powell jumped on the rate-cut bandwagon, signalling that the Fed is finally done raising interest rates. Powell pencilled in three rate cuts next year while the markets have priced in double that. Fed members have urged caution, but the markets remain exuberant and have priced in an initial rate cut in March. Inflation is getting closer to the 2% target and with the labour market in good shape, it looks like the Fed could guide the US economy to a soft landing and avoid a recession. Chinese PMIs next New Zealand doesn’t release any tier-1 events until mid-January, but Chinese PMIs, which will be released on Saturday, could have an impact on the direction of the New Zealand dollar. China is New Zealand’s largest export market and the PMIs will provide a report card on the health of China’s service and manufacturing sectors. China’s recovery has been patchy and the slowdown has resulted in deflation in the world’s number two economy. The manufacturing sector has been stuck in contraction for most of this year and non-manufacturing expansion has been steadily falling and has stagnated over the past two months. The Manufacturing PMI is expected at 49.5 and the Services PMI at 50.3.   The US releases Chicago PMI, an important business barometer, later today. The PMI shocked in November with a reading of 55.8, which marked the first expansion after fourteen straight months of contraction. The upward spike may have been a one-time occurrence due to the end of the United Auto Workers strike as activity rose in the auto manufacturing industry. The consensus estimate for December stands at 51.0, which would point to weak expansion. . NZD/USD Technical NZD/USD tested resistance at 0.6345 in the Asian session but has reversed directions. Below, there is support at 0.6031 There is resistance at 0.6150 and 0.6195

The Japanese yen is slightly lower on Friday. In the European session, USD/JPY is trading at 141.75, up 0.27%. The US dollar has taken a tumble in recent weeks against most of the major currencies, including the yen. Since mid-November, the yen has jumped 6.4% against the ailing US dollar. This has relieved pressure on Tokyo to intervene in the currency markets, which was a serious concern just six weeks ago when the exchange rate was above 151. The Bank of Japan didn’t adjust its policy settings at the December meeting, although speculation was high that the BoJ might make a shift after Governor Ueda hinted at a change in policy before the meeting. The BoJ could make a move in January or perhaps in April, after the annual wage negotiations in March. The markets are expecting the Fed to hit the rate cut button early and often next year. The markets have priced in a rate cut by March at 86% and anticipate 150 basis points in cuts next year. The Fed is more cautious, and Fed members have urged the markets to lower these expectations. Chicago PMI expected to decelerate The US releases Chicago PMI, an important business barometer, later today. The PMI was unexpectedly strong in November with a reading of 55.8, which marked the first expansion after fourteen straight months of contraction. The 50 line separates expansion from contraction.   The upward spike may have been a one-time occurrence due to the end of the United Auto Workers strike as activity rose in the auto manufacturing industry. The consensus estimate for December stands at 51.0, which would point to weak expansion. . USD/JPY Technical USD/JPY tested support at 141.16 before reversing directions. The next support level is 140.50 There is resistance at 142.08 and 142.74  

COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in recent months. The red and green lines, representing the net positions of commercial and non-commercial traders, often intersect and, in most cases, are not far from the zero mark. According to the latest report on the British pound, the non-commercial group closed 10,000 buy contracts and 4,200 short ones. As a result, the net position of non-commercial traders decreased by 5,800 contracts in a week. Since bulls currently don't have the advantage, we believe that the pound will not be able to sustain the upward movement for long . The fundamental backdrop still does not provide a basis for long-term purchases on the pound.   The non-commercial group currently has a total of 58,800 buy contracts and 44,700 sell contracts. Since the COT reports cannot make an accurate forecast of the market's behavior right now, and the fundamentals are practically the same for both currencies, we can only assess the technical picture and economic reports. The technical analysis suggests that we can expect a strong decline, and the economic reports have also been significantly stronger in the United States for quite some time now.   On the 1H chart, GBP/USD is making every effort to correct lower, but the uptrend remains intact. We believe that the British pound doesn't have any good reason to strengthen in the long-term. Therefore, at the very least, we expect the pair to return to the level of 1.2513. However, there are currently no sell signals, so the uptrend is still intact. On Tuesday, there are few reasons for the pair to show volatile movements. We may see a flat phase, a downtrend, or an uptrend (intraday), so we need to purely rely on technical analysis. We expect the pound to consolidate below the trendline, and in that case, we can consider selling while aiming for the Senkou Span B line. A n upward movement is theoretically possible today, but we see no reason for it, so you shouldn't consider buying at the moment. As of January 2, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B line (1.2646) and the Kijun-sen (1.2753) lines can also be sources of signals. Don't forget to set a breakeven Stop Loss to breakeven if the price has moved in the intended direction by 20 pips. The Ichimoku indicator lines may move during the day, so this should be taken into account when determining trading signals. Today, the UK and the US will release their second estimates of business activity indices in the manufacturing sector for December. These are not significant reports so it is unlikely for traders to react to them. Description of the chart: Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals; The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals; Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals; Yellow lines are trend lines, trend channels, and any other technical patterns; Indicator 1 on the COT charts is the net position size for each category of traders; Indicator 2 on the COT charts is the net position size for the Non-commercial group.  

Rates Spark: Enough to hold rates down The US 10yr yield remains below 4%. However that's not been validated by the data as of yet. Friday's payrolls report can be pivotal here, but based off consensus expectations the market will remain without validation from the labour market. Also, the Fed's FOMC minutes due on Wednesday are unlikely to be as racy as Chair Powell was at the press conference.   Sub 4% on the US 10yr to hold at least till we see Friday's payrolls outcome The 13 December FOMC meeting outcome remains a dominating impulse for the rates market. The US 10yr yield shot to below 4% on that day, and has broadly remained below 4% since. It was briefly below 3.8% over the holiday period, but now at closer to 4% it is looking for next big levels. The thing is, validation of the move of the 10yr Treasury yield from 5% down to 4% came from the Fed, but not so much from the macro data. We can reverse engineer this and suspect that the Fed has either seen something, or fears that it will see something that will require lower official rates. In consequence, data watching ahead remains key. In that respect, we are days away from a key reading on the labour market as December’s payrolls report is due on Friday. A consensus outcome showing a 170k increase in jobs, unemployment at 3.8% and wage growth at 3.9% would leave us still lacking validation for lower market rates from the labour market data. We have it from survey evidence, and from scare stories on credit card debt and commercial real estate woes. But it's the labour market that is really pivotal. Risk assets struggled a tad yesterday, and that makes a degree of sense given the complicated back story, and the remarkable rally seen into year end. While a one-day move cannot be simply extrapolated, there are reasons to be a tad concerned on the risk front at this early phase of 2024. Geo-political concerns have not abated, and in fact if anything are elevating. Europe is closest to many of these risks, and the economy has been faltering for at least a half year now. Yes the market is expecting rescue rate cuts, but the European Central Bank is yet to endorse those expectations. An elevation of stress without the prospect of near term delivery of rate cuts can be an issue for risk assets. For market rates, this combination maintains downward pressure. The only issue is how far we’ve come so fast. We remain of the view that the US 10yr fair value level is around 4%, but that we will likely overshoot to the downside to 3.5% in the coming months. Our fair value comes of a forward 3% floor for the funds rate plus a 100bp curve. See more on that here.   Today's events and market views It's quiet in Europe for data through Wednesday. The bigger focus for Europe will be on regional inflation readings for December due on Thursday, along with a series of December PMI readings. The likelihood is for some stalling on inflation reduction alongside confirmation of ongoing manufacturing and business weakness. In the US on Wednesday we get ISM readings that will also show a degree of pessimism in US manufacturing. The job openings data will also be gleaned, but the bigger market impulse can come from the FOMC minutes, ones that will refer back to the pivotal 13 December meeting. The odds are they won’t be nearly as dovish as Chair Powell was at the press conference.

Next week features China's usual data deluge plus GDP, India's trade data and Australia's unemployment rate. Meanwhile, Japan reports CPI inflation and Bank Indonesia decides on policy China data deluge plus latest GDP report The monthly deluge is accompanied by GDP data for December and the fourth quarter of 2023 this month. We believe that the seasonally adjusted quarter-on-quarter growth rate was similar in the fourth quarter to the third last year, at about 1.3%. We think that this will result in a slight uptick in GDP growth to 5.2% year-on-year in the fourth quarter, and also 5.2% for the full-year figure – slightly in excess of the government’s 5.0% target. Box ticked. For the rest of the data, we expect no improvement in any of the real estate-related data, though it will be interesting to see whether any of the recent increases in lending volumes of the MLF have any impact at all on infrastructure spending. We may see some very small further improvements in manufacturing and industrial production growth. The key area to look out for remains the retail spending figures, which have been a pocket of relative resilience – although they have been punching a little bit above their longer-run trend growth in recent months and may not be able to sustain this for long. Unemployment figures from Australia While the market seems to have decided that the Reserve Bank of Australia (RBA) has finished hiking and were given an encouraging nod by the recent inflation data, the fact is that monthly inflation increases are not yet low enough for the central bank to hit its inflation target on a 12-month timeframe, and it will need to slow further. For that to look more probable, it would certainly help if indicators such as employment growth slowed. In November, employment surged, and most of the jobs that were created were full-time. Both the strength of the full-time numbers and the weakness of the part-time figures were at odds with their recent trends. We would not be surprised to see a reversal with about 30,000 part-time jobs, but a dip to only 10,000 full-time jobs for a full employment change of +40,000. Unemployment may push up by about 20,000, and though this will remain slower than trend labour force growth, we may see the unemployment rate push up to 4.0%. India's trade report Trade data for December is not likely to diverge substantially from the November figures, which delivered a trade deficit of USD 20.6bn. With the Reserve Bank of India de-facto pegging the INR, this is unlikely to have a material impact on markets. Japan inflation likely to moderate, core machinery orders to rise Japan's CPI inflation is expected to decelerate to 2.7% YoY in December from 2.9% YoY in November, with falling utility prices and other energy prices weighing on the overall number. Service sector prices, however, will likely rise on the back of high demand in travel related items such as accommodations and eating out. Meanwhile, core machinery orders should advance in November, supported by solid vehicle demand and recent recovery of semiconductor sector. Bank Indonesia to extend their pause Bank Indonesia (BI) is likely to extend its pause into 2024, with Governor Perry Warjiyo wary over a potential flare up in food inflation. Inflation has been relatively stable, but a looming El Nino episode and an expected acceleration in domestic activity ahead of the national elections in February could stoke price pressures in the near term. Concern over inflation should keep BI on hold, with the central bank also attempting to support the IDR, which is down 0.58% early in 2024. Singapore NODX to post modest rise again Singapore’s non-oil domestic exports (NODX) could post another modest expansion in December after recently snapping a string of negative growth for 13 months. A favorable base and a recent pickup in select electronics shipments likely supported NODX in December 2023. We can expect this trend to extend into early 2024. Key events in Asia next week

The bearish trend, a significant aspect of Forex trading, plays a crucial role in shaping investment decisions. This article aims to elucidate the characteristics of the bear market and its implications for traders. Understanding the Downtrend As discussed in our previous articles, a trend represents the direction in which the price of a currency pair is moving. A fundamental trading principle is to align investments with the trend rather than against it. Therefore, comprehending the downtrend is essential. The identification of a downtrend can be facilitated by analyzing charts that reflect past price values. Analyzing the Downtrend In the chart, the descending peaks and troughs, marked in red, signify a downtrend. Connecting the peaks forms a clear trend line. The strength of the trend is proportional to the distance between the peaks, with a larger gap indicating a more robust trend. While charts may not always vividly display trend lines, recognizing a general downward price trend can serve as a signal to temporarily exit the market. Bear Market Dynamics A bear market, synonymous with a downtrend, occurs when prices consistently decline. In the long term, it signifies a bearish market. Adhering to the popular adage "the trend is your friend," in such scenarios, traders usually contemplate selling. Bear markets often exhibit greater volatility compared to bullish trends, attributed to the accompanying unease amid declining prices. Support and Resistance Lines Support and resistance lines denote potential reversal points in the price movement of a currency pair. In a downtrend, support comprises the successive troughs, each lower than the previous one. These levels represent the depths of prior downward movements, acting as points where the price resisted further decline. Conversely, resistance surfaces when there is a visible level at which the price resisted further upward movement. Referring to the "change of poles" principle, if a resistance level is breached, it transforms into a support level. This pivotal moment often prompts seasoned traders to enter the market. Understanding the dynamics of a bear market is crucial for Forex traders. By recognizing the signs of a downtrend, interpreting charts, and comprehending the roles of support and resistance lines, traders can navigate the complexities of bearish markets more adeptly.

UK wages/UK CPI (Dec) – 16/01 and 17/01 Since March of last year headline CPI in the UK has more than halved, slowing from 10.1%, with November slowing more than expected to 3.9%, prompting speculation that the Bank of England might be closer to cutting rates in 2024 than had been originally priced. The decline in headline inflation is very much welcome, however most of it has been driven by the falls in petrol prices over the past few weeks. Inflation elsewhere in the UK economy is still much higher although even in these areas it has been slowing. Food price inflation for example is still much higher, slowing to 6.6% in December, while wage growth is still trending above 7% at 7.2%. Services inflation is also higher at 6.3% while core prices rose at 5.1% in the 3-months to November.   This week's wages and inflation numbers are likely to be key bellwethers for the timing of when the Bank of England might look at starting to reduce the base rate, however the key test for markets won't be on how whether we see a further slowdown in inflation at the end of last year, but how much of a rebound we see in the January numbers. Whatever markets might look to price as far as rate cuts are concerned the fact that wages are still trending above 7% is likely to stay the Bank of England's hand when it comes to looking at rate cuts. It's also important to remember that at the last rate meeting 3 members voted for a further 25bps rate hike. That means it will take more than a further slowdown in the headline rate for these 3 MPC members to reverse that call, let alone call for rate cuts. Expectations are for wages to slow to 6.7% and headline CPI to come in at 3.8%.  

China Q4 GDP/Dec retail sales – 17/01 There was some scepticism when China reported Q3 growth of 1.3%, despite evidence over the quarter of weak domestic demand. In the 3-months since then we've seen retail sales show modest improvements in October and November, while industrial production numbers have remained steady. The weak demand in the Chinese economy is already being reflected in headline inflation numbers with both CPI and PPI in deflation, as Chinese authorities wrestle with the problems posed by Evergrande, Country Garden and latterly Zhonghzi. After a slow start to Q4 there was a modest improvement in retail sales while industrial production remained steady at 4.6%. In November we saw a decent uptick in retail sales to 10.1%, however this was still below expectations despite the numbers including Chinese Singles Day sales, and weak comparatives given that a lot of China still hadn't come out of lockdown measures in November 2022. Industrial production was better coming in at 6.6% the best performance since February 2022. For December retail sales are expected to slow again with an increase of 8%, although here again we need to be careful given that Chinese authorities relaxed lockdown measures at that start of December 2022 so the comparatives here could well see a sizeable skew. Industrial production is expected to be unchanged at 6.6%, however Q4 GDP is still expected to slow to 0.9%.       

  US retail Sales (Dec) – 17/01  The US consumer has proved to be a more resilient beast over the last 12 months, with only 3 negative months over the last 12 months, the most recent of which was in October with a decline of -0.2%. In November we saw a rebound of 0.3% confounding expectations of a -0.1% fall. The improvement was mainly driven by a rebound in food services and bars, as well as sales of sporting goods, while sales at gas stations slowed by 2.9%. Despite the resilience in spending, consumers do appear to be slowing down compared to what we saw in Q3 which saw very solid spending patterns. Nonetheless another positive number could go a long way to seeing market repricing the likelihood of a Fed rate cut in March which markets continue to see as a realistic possibility.        

What's really going on with Australian inflation A sharp drop in November inflation is encouraging thoughts of RBA easing by May, with more rate reductions by the end of the year. We think this is unlikely. Indeed, it is easier to make the case for further hikes.   Where we are right now The November inflation release showed a further decline in the headline inflation rate to 4.3% YoY, a sharp drop from the 4.9% rate achieved in October and also a little lower than the consensus estimate of 4.4%. On the day, there was some weakness in the AUD as the market took the numbers as corroboration for their fairly entrenched view that the Reserve Bank of Australia has finished hiking rates and was well on the way to easing.   But we're not totally convinced. And we're going to outline why the inflation data isn't as good as it may look at first glance. In doing so, we will at least raise some doubt about the view that rates have peaked. We think they may have, but a residual upside risk still exists, which could also help support the Aussie dollar. So, what happened in November? We prefer to start any analysis of inflation from the perspective of the CPI index, how it's changing month-on-month, and only then what this means to the annual year-on-year inflation rate. That means that fluctuations in the price level a year ago are given a fair chance to affect the inflation rate but have little or no bearing on what the price level is doing now, and we can focus more on monthly fluctuations and their trend run-rate (in practice, the annualised 3m and 6m rates). That also gives us more of a forward look at what we may expect in the coming months. The month-on-month rate for CPI in November came in at 0.33%. If that were repeated for 12 months, it would deliver just over 4% inflation. Fortunately, the trend is not quite so high. The 3m annualised rate is only 2.3%, but this incorporates the 0.33% MoM decline in October, which will drop out of the trend once January data is available and so will probably push higher again. The 6m annualised figure, which dilutes single-month spikes and dips more than the 3m trend, is still running at 4.2% - way above the Reserve Bank of Australia's 2-3% target. Australian annualised CPI %, 3m and 6m

The pivotal question we aim to answer is who should consider such instruments and who might be better off exploring alternatives. Given the diverse array of tools available for exposure to stock indices, it's worth exploring various options. Let's begin by addressing what a stock index truly is. An index, in itself, isn't a financial instrument, security, or derivative. It's essentially synthetic information about the market or specific segments and slices within it. In simpler terms, a stock index is a collection of components (in our case, listed companies) used to calculate its value. Each index has its portfolio, where each company is responsible for a specific percentage weight. Most indices use weights based on market capitalization – the higher the market value of a component, the greater its percentage value in the index portfolio. Additionally, the liquidity of a given company over a specific period (usually 6 months to a year) is often considered when determining portfolio weights. In essence, an index is like a portfolio comprised of a specific number of listed companies (in our case, not limited to just companies) in specific percentage proportions. Its value and price movements depend on the behavior of the components it holds. Explore more: Mastering Requoting in CFD Trading: Navigating Uncommon Market Scenarios In this segment, we'll focus on prominent stock indices from major exchanges. In the USA, the three key indices are the S&P500, Nasdaq-100, and Dow Jones Industrial Average (US30). In Germany, we have the DAX (DE30), once a favorite among traders; in the UK, it's the FTSE-100; in Japan, the Nikkei-225; and in Poland, the WIG20. Of course, this is just a small glimpse of the market, as each stock exchange has dozens, if not hundreds, of sector-specific, thematic, and smaller company-focused indices. However, leading indices are considered benchmarks for the mood and condition of a given exchange, although not always accurately. Investing in Stock Indices: How to Do It? Since a stock index isn't a financial instrument on its own, is it possible to "buy" it? There are numerous ways to gain exposure to index price movements, with the most popular being the purchase of an Exchange-Traded Fund (ETF) replicating a specific stock index. These ETFs construct their portfolios based on the composition of the underlying index, essentially buying shares of selected companies in the appropriate proportions. By investing in such a fund, we gain exposure to the stocks within the index using a single instrument. ETFs boast several advantages, including relatively low management costs, simplicity, convenience, and often high liquidity. However, standard ETFs are typically medium-term instruments, less suitable for speculation due to the lack of leverage and the ability to only take long positions. Of course, there are also synthetic ETFs in the market with double or even triple leverage, and some with inverse positions (short). On the XTB xStation platform, you'll find ETFs on all major stock indices, including their synthetic, leveraged, and inverse versions. Importantly, these can be purchased without any commission, and if you have a currency account, you won't incur any fees for currency conversion – the only cost is the annual management fee charged by the fund provider. If you prefer not to invest in an entire index through an ETF, you can independently create a portfolio of specific companies in predetermined proportions. On the xStation platform, you won't incur any commission fees for such transactions (up to a monthly turnover of 100,000 EUR). However, this approach is more time-consuming, although it exempts you from management costs charged by ETF providers. For more advanced investors, derivative instruments are available, including futures contracts, structured certificates on the Warsaw Stock Exchange, and, of course, Contracts for Difference (CFD), where stock indices serve as the underlying asset. Derivatives offer financial leverage and the ability to take both long and short positions, but they come with higher risk. CFD Market on Indices: Specification and Trading Conditions CFD contracts on stock indices are now offered by almost every broker, covering primarily popular American indices and leading indices from major global stock exchanges. According to the regulations of the European Securities and Markets Authority (ESMA), CFD contracts on indices provide a maximum leverage of 20:1, meaning a 5% margin requirement. Given the volatility of indices themselves, this is sufficient leverage even for intraday speculation. Depending on the broker, CFDs on some indices may have lower leverage – for instance, with XTB, this is the case for the Italian FTSE ITA40 and Reuters Russia 50 (RUS50), where the leverage is 10:1. Read more: Mastering Forex Markets. A Comprehensive Guide to Navigating Sideways Trends and Consolidation Patterns When holding positions overnight, be prepared for negative swap points, although XTB exempts CFDs on indices (excluding cash versions) from swaps, eliminating additional costs for maintaining positions over time. As for the lot value for CFD contracts on indices, it should ideally be equivalent to the multiplier for futures contracts (which are the underlying instruments for CFDs). However, some brokers may apply a multiple of the multiplier. For the most popular CFD indices, the lot values are: S&P500: multiplier 50 (e-mini) Nasdaq-100: multiplier 20 (e-mini) DAX: multiplier 25 (Mini-DAX) WIG20: multiplier 20 (similar to FW20) In the case of CFDs, you can open a position with a minimal volume of 1 micro lot (1/100 of a lot), allowing you to engage with the market without committing significant capital. Who Should Consider CFD Contracts on Indices? When it comes to CFD contracts on indices, as mentioned earlier, they are certainly not suitable for everyone. Leading stock indices themselves exhibit considerable volatility, and with CFDs, this volatility is further amplified by a maximum leverage of twenty times, introducing significantly higher risk. Therefore, these instruments primarily serve a speculative purpose, typically in the short term. Nevertheless, for those comfortable with the risk and desiring to capitalize on prevailing trends, CFD contracts can serve as a more accessible and considerably lower-capital alternative to index futures. It's crucial, however, to employ risk management measures, such as trailing stop-loss orders, especially given the inherent risks associated with these instruments. CFDs can also present a more accessible and significantly lower-capital alternative to index futures.

05:40GMT Thursday 25th January 2024 ECB and US Q4 GDP in focus By Michael Hewson (Chief Market Analyst at CMC Markets UK) European markets saw a much more positive session yesterday, carrying over the momentum from a buoyant US market, but also getting a lift after China announced a 0.5% cut in the bank reserve requirement rate from 5th February. US markets finished the day mixed with the Dow finishing lower for the 2nd day in succession, while the S&P500 and Nasdaq 100 once again set new record highs, as well as record closes, although closing off the highs of the day as yields edged into positive territory. This divergence between the Dow and Russell 2000, both of which closed lower for the second day in succession, and the Nasdaq 100 and S&P500 might be a cause for concern, given how US market gains appear to be being driven by a small cohort of companies share prices. Today's focus for European markets which are set to open slightly lower, is on the ECB and the press conference soon after with Christine Lagarde, where apart from questions on timelines about possible rate policy, Lagarde could face some questions a little closer to home amidst dissatisfaction over her leadership style from ECB staffers. When looking at the economic performance of the euro area, we've seen little in the way of growth since Q3 of 2022, while inflation has also been slowing sharply. Yet for all this economic weakness, a fact which was borne out by yesterday's flash PMI numbers, especially in the services sector, the ECB has been insistent it is not close to considering a cut in rates, having hiked as recently as last September. Only as recently as last week we heard from a few governing council members of their concerns about cutting too early, yet when looking at the data, and the fact that the German economy is on its knees, the ECB almost comes across as masochistic in its desire to combat the risks of a return of inflation. In a way it's not hard to understand given that after November headline inflation slowed to 2.4%, it picked up again in December to 2.9%, while core prices slowed to 3.4%. This rebound in headline inflation while no doubt driven by base effects will be used as evidence from the hawks on the governing council that rates need to stay high, however there is already evidence that the consensus on rates is splintering, and while no more rate hikes are expected the economic data increasingly supports the idea of a cut sooner rather than later. Markets currently have the ECB cutting rates 4 times this year in increments of 25bps, starting in June, although given the data we could get one in April. This contrasts with the market pricing up to 6 rate cuts from the Federal Reserve despite the US economy being magnitudes stronger than in Europe. No changes are expected today with the main ECB refinancing rate currently at 4.5%, however Q4 GDP due next week, and January CPI due on 1st February calls for a March/April rate cut could start to get louder in the weeks ahead, especially since PPI has been in deflation for the last 6 months. US bond markets appear to be starting to have second thoughts about the prospect of 6 rate cuts from the Federal Reserve this year, although there is still some insistence that a March cut remains a realistic possibility. Today's US Q4 GDP numbers might bury the prospect of that idea once and for all if we get a reading anywhere close to 2%. This seems rather counterintuitive when you think about it, the idea that the Fed would cut before the ECB when Europe is probably in recession and the US economy is growing at a reasonable rate, albeit at a slower pace than in Q3. Expectations for Q4 are for the economy to have slowed to an annualised 1.9% to 2%, which would be either be the weakest quarter of 2023 or match it. Nonetheless the resilience of the US consumer has been at the forefront of the rebound in US growth seen over the past 12 months, with a strong end to the year for consumer spending. This rather jars against the idea that US GDP growth might get revised lower in the coming weeks as some have been insisting. If you look at the December control group retail sales numbers, they finished the year strongly and these numbers get included as a part of overall GDP. Weekly jobless claims are also at multi-month lows of 187k, and while we could see a rise to 200k even here there is no evidence that the US economy is slowing in such a manner to suggest anything other than a modest slowdown as opposed to a sudden stop or hard landing.  The core PCE Q/Q price index is expected to slow from the 3.3% seen in Q3 to around 2%, which may not be enough to prompt a softening in yields unless we drop below 2%. EUR/USD – pushed up to the 1.0930 area before retreating. While above the 200-day SMA at 1.0830, the bias remains for a move higher towards the main resistance up at 1.1000.  GBP/USD – pushed up towards 1.2775 yesterday with support at the 50-day SMA as well as the 1.2590 area needed to hold or risk a move lower towards the 200-day SMA at 1.2540. We need to get above 1.2800 to maintain upside momentum. EUR/GBP – fell to 0.8535 before rebounding modestly. Also have support at the 0.8520 area, with resistance at the 0.8620/25 area and the highs last week. USD/JPY – finding a few offers at the 148.80 area over the last 3days which could see a move back towards the 146.25 area. A fall through 146.00 could delay a move towards 150 and argue for a move towards 144.00. FTSE100 is expected to open 19 points lower at 7,508 DAX is expected to open 36 points lower at 16,854 CAC40 is expected to open 10 points lower at 7,445.  

German Ifo index drops to its lowest level since 2020 Pessimism is now fully back in Germany as new supply chain disruptions and a train drivers' strike increase the risk of yet another quarter with a contracting economy.   Pessimism strikes back in Germany as the country's most prominent leading indicator just dropped to the lowest level since the summer of 2020. In January, the Ifo index came in at 85.2, down from 86.3 in December. The tentative revival of optimism last autumn has turned out to be very short-lived and the index has now dropped for the second month in a row. Both the current assessment and the expectations component weakened in January.   New year and two new problems It sometimes feels as someone in Germany must have smashed a mirror, causing seven years of bad luck. As if the last four years of pandemic, war in Ukraine, supply chain frictions, energy crisis and structural shortcomings weren’t enough, 2024 has not started any better. On the contrary, the new year brought new problems for the German economy: there are the government’s austerity measures but also ongoing strikes by train drivers and supply chain disruptions as a result of the military conflict in the Red Sea. In fact, another contraction of the German economy in the first quarter of the year looks even more likely. Looking beyond the near term, we expect the current state of stagnation and shallow recession to continue. The risk that 2024 will be another year of recession is high. We expect the German economy to shrink by 0.3% YoY this year. It would be the first time since the early 2000s that Germany has gone through a two-year recession, even though it could be a shallow one.

Today's core PCE the next key signpost ahead of next weeks Fed meeting By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets managed to eke out a small gain yesterday after the ECB kept rates unchanged but left the door ajar to the prospect of a rate cut before the summer. ECB President Christine Lagarde did push back strongly on speculation that policymakers had discussed anything like that insisting that such talk was premature, echoing her comments made earlier this month. It was noteworthy however that the possibility of a cut before June wasn't ruled out completely, and it was that markets reacted to yesterday as yields declined sharply, which does keep the prospect of an earlier move on the table given how poor this week's economic data has been.   US markets also managed to finish the day higher with the S&P500 and Nasdaq 100 putting in new record closes, after US Q4 GDP came in well above expectations at 3.3%. The core PCE price index also remained steady at 2% for the second quarter in succession, and in line with the Federal Reserve's inflation target, thus keeping faint hopes of a US rate cut in March alive. It also places much greater importance on today's December core PCE deflator inflation numbers which aren't expected to vary much from what we saw in the November numbers. At the moment markets seem convinced that the Fed might spring a surprise in March and slip in an early rate cut if inflation shows further signs of slowing. That might make sense if the US economy was struggling but this week's economic numbers clearly suggest it isn't, and if anything is still growing at a decent clip. There is a danger that in cutting rates in March they drive market expectations of further cuts into overdrive, something they have been keen to push back on with recent commentary.   In any case with the Federal Reserve due to meet next week markets are continuing to try and finesses the timing of when the first rate cut is likely to occur, after Powell's surprisingly dovish shift when the central bank last met just before Christmas. That means today PCE numbers are likely to be a key waypoint for markets and the central bank, after the PCE core deflator slowed to 3.2% in November, slipping from 3.4% in October, and the lowest level since April 2021. A further slowdown to 3% or even lower, which appears to be the consensus could see markets continue to build on the prospect of a rate cut in March, which took hold back in December. The bigger concern for some Fed officials is that headline CPI appears to be ticking higher again, which may make the last yards to 2% much trickier. This will be the Fed's key concern over an early cut as it could reignite the inflationary pressures that have taken so long to get under control. This caution would suggest that March is too early for a US rate cut, and that the market is getting ahead of itself, with policymakers also likely to pay attention to consumer demand. This means personal spending is also likely to be a key indicator for the FOMC and here we are expecting to see a pickup to 0.5% from 0.2%. With the US consumer still looking resilient the Fed is likely to be extra cautious if inflation starts ticking higher again as it already has with headline CPI.   It was also interesting to note that while yields fell sharply yesterday, the US dollar didn't, it actually finished the day higher and well off the lows of the week.       EUR/USD – slipped back towards the 200-day SMA at 1.0820/30 yesterday, with a break below 1.0800 targeting a potential move towards 1.0720. Resistance at the highs this week at 1.0930 and behind that at 1.1000.  GBP/USD – while the pound has struggled to push higher this week, we've managed to consistently hold above the support at the 50-day SMA as well as the 1.2590 area. We need to get above 1.2800 to maintain upside momentum. EUR/GBP – finally slipped to support at the 0.8520 area, which needs to hold to prevent a move towards the August lows at 0.8490. Resistance at the 0.8620/25 area and the highs last week. USD/JPY – currently finding resistance at the 148.80 area which has held over the last week or so which could see a move back towards the 146.25 area. A fall through 146.00 could delay a move towards 150 and argue for a move towards 144.00. FTSE100 is expected to open 30 points higher at 7,559 DAX is expected to open 50 points lower at 16,857 CAC40 is expected to open 28 points higher at 7,492.

ECB leaves rates on hold Lagarde still eyeing summer rate cut EURUSD consolidating after correction The European Central Bank left interest rates on hold on Thursday and claimed inflation is progressing towards its target while giving no clear guidance on when interest rates will start falling. We came into the new year with markets pricing in a March rate cut and that is now looking increasingly difficult. Even with a late pivot – which was always likely the strategy of the central bank – policymakers would have to signal that a rate cut is a live possibility over the next six weeks in appearances made between meetings. That’s not impossible but it’s arguably not particularly transparent. The data is unlikely to surprise to that degree. President Christine Lagarde and some colleagues have previously indicated a rate cut in summer may be appropriate but investors are not convinced we’ll have to wait that long. Lagarde stuck with that today while suggesting demand was weaker, as is the economy, and inflation is falling. Perhaps this is her way of leaving the door slightly ajar for March or maybe the usual lack of clear guidance has left everyone desperately looking for something that isn’t there. I get the feeling Lagarde and her colleagues wanted to give absolutely nothing away today, instead opting for an array of vague, uninformative statements that buy them six more weeks before they may have to say or do something. A bullish correction or sideways continuation?   The euro has drifted lower after the announcement and press conference but it hasn’t broken out of the range it’s traded in over the last week or so. EURUSD Daily Source – OANDA The correction we’ve seen since the turn of the year appears to be running on fumes but there’s still a question of whether this is just that, and will turn higher and look to break the highs, or just a continuation of the longer term sideways trend. There are some important support levels between 1.07 and 1.0850 which could tell us which is the case.  

CZK: Changing our central bank call to a 50bp rate cut The blackout period for the Czech National Bank (CNB) began yesterday and we will therefore probably not hear anything more. Deputy Governor Jan Frait really moved the market when he said he was open to a larger rate cut, even more than 50bp at the 8 February meeting. We do know that the deputy governor was one of two board members who voted for a rate cut back in November when the CNB left rates unchanged. So the new statements aren't exactly a game changer, but we have confidence that at least two members will push for a 50bp rate cut at next week's meeting. In addition, the board will have a new forecast which we think should show very low inflation of below 3% for the upcoming months. Overall, this leads us to reassess our call from a 25bp to 50bp rate cut next week. The acceleration of the rate cut is bad news for the CZK. However, we believe positioning has been heavily short here for some time and should not be so damaging. Moreover, the market is already pricing in a large portion of the rate cuts. Therefore, we do not expect significant weakness from this, but of course a short trip above 25.0 EUR/CZK is likely next week.