economic policies

Benefiting from an unusual context of political stability (which we expect to continue) and positive investor sentiment, the economy continues to perform decently, with help from increasing public investment spending. Yet, having not used the high GDP growth from 2021-22 to accelerate deficit reduction, the government finds itself in an uncomfortable budgetary position. Sticking to the 4.4% of GDP budget deficit target this year is proving more than just challenging, as public wage requirements are catching up after two years of high inflation, while budget revenues are not increasing as planned. Historically, cutting investments was the general solution to stick within the deficit, hence we do not exclude this option. And this is just for 2023 budget. Moving lower to a 3.0% of GDP deficit in 2024 as per current strategy looks very ambitious to say the least.   Forecast summary   GDP (YoY%) and components (ppt)   Investments offsetting the slowdown in consumption With a bit of help from the external context as well, which in the end hasn’t performed as badly as expected, the economy remained on track and continued to post solid quarterly advances throughout 2022. The environment is clearly weaker in 2023, with a quasistagnant first quarter growth, despite hard frequency data looking rather solid.   A welcome rebalancing in growth drivers from consumption to investments looks in the making, though we are not in a hurry to celebrate that, as the latest social demands might be partially satisfied by cutting into investment spending. This spending shift might in fact be growth supportive in the short term, though clearly not ideal from a medium- and long-term perspective.   On the brighter side, real wage growth turned positive in March as the average net wage advanced by an eye-catching 15.7%, with above-average growth visible in sectors such as agriculture, IT services, transportation and construction, while the public sector has generally seen below-average wage growth.   As real wage growth is set to accelerate further this year, a reacceleration of consumer spending could be envisaged in the second part of 2023.   Supply side GDP (YoY%) and components (ppt)   With a significant electoral year ahead, discussions about future economic policies and tax revamps are all over the place. This is blurring to some extent the policy visibility post-elections, though we tend not to put a too heavy emphasis on the headlines these days. Should it want to continue to tap into the RRF money, any future government will need to deliver the already agreed reforms as per the National Recovery and Resilience Plan, with very little room for manoeuvre. While some delays are already accumulating and losing some parts of future tranches cannot be excluded, the vast majority of political parties seem to strongly support sticking with the agreed plan.   Construction sector holding on (YoY% growth)   On the monetary policy front, we expect the National Bank of Romania (NBR) to cut rates when the first opportunity arises. Our central scenario assumes a rate cut once inflation inches below the key rate, which should happen in 1Q24. Nevertheless, if other regional central banks were to move ahead with cutting rates before the end of this year, we cannot rule out the NBR doing the same. For 2024, we expect a total of 150bp of rate cuts to 5.50%. 2024 inflation is likely to allow for even larger cuts, but we believe that the NBR will want to consolidate the lower inflation prints and will maintain a relevant positive differential between the key rate and inflation. The relative stability of the exchange rate should help as usual, with the EUR/RON rate expected to move upwards in small 1.0-2.0% increments each year.

The Stand-By-Arrangement (SBA) with the IMF concluded in late 2022 seems to have been an inspired policy choice, as it fostered better-than-expected twin deficits, while foreign direct investments remained strong. In this context and underpinned by stable ratings, Serbia successfully retuned to capital markets, issuing two Eurobonds in early 2023. It is not all rosy though, as relatively sound economic policies overlap major other challenges. In May 2023, the European Parliament voted with a large majority to validate a report which clearly states, among others, that Serbia’s EU integration should be dependent on aligning with the EU on sanctions against Russia and on normalising the relations with Kosovo. At the limit, this could mean a limbo-time for Serbia until policymakers are ready to take decisive actions on most sensitive issues.   Forecast summary   Real GDP (%YoY) and contributions (ppt)   From hero to almost zero   The economy has been losing speed for a while as the growth pace gradually decelerated from double digits in mid-2021 to marginal advances in 4Q22 and 1Q23. The growth structure has been changing as well, as private consumption has begun to fade lately, after more than one year of real negative wage growth. With investments and net exports only partially offsetting the slower growth in consumption, we maintain a below consensus 1.6% GDP growth estimate for 2023.   Geopolitics aside, we tend to see risks skewed to the upside, as Serbia’s main trading partners should recover in 2H23 boosting exports. On the domestic front, doubledigit wage growth will provide a backstop to slowing consumption while public investments are set to remain close to historical highs.   FX stability remains the main policy tool   No deviation from the tight managed floating policy After raising the policy rate by 525bp to 6.25% in a bit more than one year, the NBS might be taking its time now and contemplate the effects of past monetary tightening. We believe that the next policy decision will be a rate cut in 1Q24 when we will finally have positive real rates. However, despite the inflation peak being clearly behind, our central scenario does not envisage the headline inflation back within NBS’s 1.5-4.5% target range over the next two years, but rather a stabilisation in the 5.00-6.00% interval. We maintain our expectations for an essentially flat EUR/RSD profile for the rest of 2023 and even through 2024, with FX interventions likely to occur in a rather narrow range around the 117.30 level.   SERBIA EUR credit vs ROMANI (z-spread, bp)   SERBIA credit: Geopolitics drives headline risk The recent flare up in Kosovo tensions (violent protests and calls for new regional elections) has opened up value for Serbia’s Eurobonds - headline noise is likely to continue but should be contained by US and EU mediation. At the same time, credit fundamentals are recovering well from last year’s energy shock, with a steady accumulation of FX reserves, narrowing current account deficit and government debt-to-GDP back on a downward trend. IMF support should also act as a policy anchor even if progress towards EU integration is slow

Any steel output cut would add to bearish risks for the iron ore market, while the seaborne supply side is showing signs of strength with major producers reporting robust production numbers and exports from Australia and Brazil remaining elevated. We believe the outlook for iron ore remains bearish in the short term amid sluggish demand from China’s steel-intensive property sector. The pledges from Beijing to support the economy are underwhelming for now and support for the real estate sector is not likely to translate into large-scale property development that would revitalise steel demand in the country and lift iron ore prices. We believe prices will remain volatile as the market continues to be responsive to any policy change from Beijing.   Copper warehouse stocks remain historically low   Like iron ore, copper prices are driven by economic policies from China and other major economies. LME copper prices had a strong start to the year as China's reopening boosted the outlook for demand. Copper was one the biggest winners following China’s reopening amid expectations that China’s support for the property market would kickstart demand for industrial metals. But prices quickly turned as that optimism faded, remaining mostly rangebound since February. Copper prices ended the first half of the year flat from where they started the year. Since May, prices have mostly been on an upward trend. Copper was lifted in the first half of July by the US dollar dropping to a one-year low on the release of a positive June inflation number and prices remained elevated throughout the month trading mostly above $8,400/t. However, in recent weeks, copper has been struggling for direction amid an uncertain path of US rate hikes and China’s lacklustre economic recovery. LME prices dropped to a one-month low following worse-than-expected July trade data from China. However, the supply side remains supportive of copper prices – total warehouse stocks at the LME, COMEX and SHFE remain historically low. Refined copper exchange inventories are now at the equivalent of just two-and-a-half days of global consumption. This sets up the market for squeezes and spikes in prices if we see demand improving sooner than expected. For example, weekly copper stockpiles reported by the SHFE dropped by 15% last week and remain below the seasonal average. These critically low levels of Chinese inventories could be partially explained by weaker supply out of Chile, the biggest producing nation. The country saw its July copper exports come in at the lowest level since January, suggesting that Chilean operations continue to suffer project delays and mine setbacks. Chilean state copper producer Codelco has reduced production guidance to between 1.31 Mt and 1.35 Mt for 2023, from a previous 1.35 Mt and 1.45 Mt. Codelco's production drop has been systematic for the last three years. We remain cautious about the short term for copper, with sluggish demand from China pointing to lower prices. We believe in the near term, copper prices are likely to continue to be dictated by the pace of China’s economic recovery as well as the Fed’s interest rate hiking path. However, we believe low levels of global visible stocks are likely to prevent prices from significant decreases until copper consumption improves again.   Aluminium supply side woes ease as Yunnan restarts July was the first month this year that saw LME aluminium prices closing the month higher than where they started. Prices closed at a similar level to their peak within the month. However, the fundamental picture for aluminium has not changed. Instead, the July price increase came amid a softer US dollar and hopes of more stimulus from China. The start of August saw LME prices moving lower again. On the supply side, we expect output to grow fast in China. The power supply in Yunnan improved significantly from May with the arrival of the rainy season. By late July, around 1.1Mt of capacity restarted in Yunnan, and we believe the resumption of Yunnan capacity remains the key headwind for aluminium in the near term. However, if the upcoming dry season has insufficient rain, output could be cut again with a lack of hydropower leading to rising Chinese imports.   China's primary aluminium production (1000 metric tonnes)   In Europe, however, we don’t expect major restarts before 2025, while demand for aluminium remains weak. Europe suspended around 2% of the global total capacity by the end of 2022 as power prices surged. And although power costs have now eased, only one smelter has restarted so far this year. Meanwhile, Norsk Hydro recently said it does not plan to restart the aluminium output it curtailed during the European energy crisis while market conditions remain weak.   Chinese aluminium exports drop on weak global demand   On the demand side, Chinese exports of aluminium products did not improve in July, signalling weak demand for aluminium products globally. China exported 489,700 tonnes of unwrought aluminium and aluminium products, a drop of 24.9% year-on-year and down 0.6% month-on-month. The cumulative export from January to July 2023 is now at 3.29 Mt, which represents a decrease of 20.7% from the same period last year. In the near term, we believe aluminium prices will remain volatile as the market’s focus will stay on the bigger macro-economic picture with flagging global growth weighing on aluminium demand. We expect prices to start recovering in the fourth quarter on the improving global economy, which will lead to stronger aluminium demand growth. However, the recovery will be slow as demand will only start improving substantially before next year.   ING Forecasts

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.    

Has anything changed over the past two decades? The current economic situation and the public debate in Germany feel eerily familiar to that of 20 years ago. Back then, the country was going through the five stages of grief, or, in an economic context, the five stages of change: denial, anger, bargaining, depression and acceptance. From being called ‘The sick man of the euro’ by The Economist in 1999 and early 2000s (which created an outcry of denial and anger) to endless discussions and TV debates (which revelled in melancholy and self-pity) to an eventual plan for structural reform in 2003 known as the 'Agenda 2010', introduced by then-Chancellor Gerhard Schröder. It took several years before international media outlets were actually applauding the new German Wirtschaftswunder in the 2010s. In the early 2000s, the trigger for Germany to move into the final stage of change management – 'acceptance' (and solutions) – was record-high unemployment. The structural reforms implemented back then were, therefore, mainly aimed at the labour market. At the current juncture, it is hard to see this single trigger point. Generally speaking, the current situation is worse and better than the one in the early 2000s. It is better because 20 years ago Germany breached European fiscal rules, while it currently has one of the most solid public finances of all eurozone countries, leaving sufficient fiscal space to react. What is worse is that there is currently a long list of other problems. Finally, low unemployment is a bit of a blessing in disguise. While positive for the economy and very different from 20 years ago, low unemployment also seems to have reduced the sense of urgency for policymakers. Given the multifaceted challenges, it will be harder than it was in the early Noughties to find and then politically agree on a policy answer. Another important difference between the current situation and two decades ago is the external environment. Back then, Germany had some good luck, or put differently, the economic reforms coincided with a favourable macro environment. Think of EU enlargement, which enabled many German corporates to outsource production to much cheaper-wage countries in Eastern Europe. The rise of China on the global stage also brought an almost symbiotic trade partner. China had a strong appetite for German investment goods and at the same time flooded world markets with deflationary policies. Finally, Germany actually benefitted from the euro crisis and the ECB’s "whatever it takes" approach as interest rates were artificially low and the euro artificially weak. None of these factors will sugarcoat any reform efforts at the current juncture. If anything, China has become a rival and competitor and the ECB needs to fight inflation. This lack of any sugarcoating makes the need for reform even more pressing, but will probably also make these reforms initially more painful.  

Waiting for 'Agenda 2030' Structural reforms implemented in the early 2000s were mainly aimed at the labour market. This was known as ‘Agenda 2010’. Today, the German economy needs an ‘Agenda 2030’. Short-term fiscal stimulus can ease the pain but will do very little to regain international competitiveness and restructure the entire economy. What Germany needs is a full menu card with policy measures. These measures could be categorised into those boosting confidence and giving companies security and clarity, as well as supply-side improving measures. In the first category, think of an energy price cap for industry. Not for one winter but for several years. Such a measure should be accompanied by a clear schedule for the energy transition. This would prevent more companies from exiting Germany and producing elsewhere. Combined with fast depreciation rules of investments in digitalisation and renewable energies, this could safeguard the economy’s industrial backbone. With subsidies for sectors like artificial intelligence, batteries or hydropower, the government could support innovation. Finally, less bureaucracy, more investment into e-government and consequently faster public tenders and implementation of federal investments at the regional level would strengthen the supply side of the economy. It is a long list that can easily be extended and broadened. One thing, however, is clear: any overhaul of the economy will be almost impossible as long as fiscal austerity remains the dominant tune. The German economy is in for a longer period of stagnation. The new debate about the ‘sick of man Europe’ could finally increase the sense of urgency among decision-makers; more than a protracted period of de facto stagnation could.  

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. 

Looking ahead, investors are closely watching the upcoming PMI data releases. The National Bureau of Statistics (NBS) is set to release Manufacturing and Non-manufacturing PMI data on September 30. The Emerging Industries PMI's rise to 54.0 in September, up from 48.1 in August, has boosted expectations for a Manufacturing PMI above 50 for the first time since March. Non-manufacturing PMI is also anticipated to show growth, driven by infrastructure construction and local government bond issuance. The Caixin Manufacturing PMI and Services PMI are scheduled to release on Sunday, October 1. Bloomberg's survey is projecting the Caixin Manufacturing PMI to increase to 51.2, up from 51.0 in August. Having a higher weight in exporters in the eastern coastal regions of China, the Caixin survey tends to be influenced by the export trend in China. The first 20-day trade data in Korea showed a rebound in trading activities with China and pointed to the potential of a positive surprise in this data. But the fact that the Korean data this September had 2.5 more working days might caution such a conjecture. The Caixin Services PMI is expected to tick up to 52 from 51.8. These PMI indicators serve as timely barometers of economic activity and provide insights into the pace of recovery of the Chinese economy. If they come in higher, it will tend to confirm our base case for a gradual recovery in progress and a tactical rally in the making for Chinese equities. Nonetheless, if the majority of them come in lower than expected or even fall, the equity market will be at risk of making new lows. The upcoming PMI data will be pivotal for the near-term direction of the Hong Kong and mainland Chinese markets. It's worth noting that during this period, the Stock Exchange of Hong Kong will be closed for the National Day holiday on Monday, October 2, while mainland bourses will be closed for six sessions to observe the Mid-autumn festival and the National Day holidays from Friday, September 29 to Friday, October 6, 2023.   Crucial Meetings on the Horizon Looking beyond the immediate economic data, several crucial meetings are on the horizon that will significantly impact China's economic and financial policies. The Third Plenary Session of the 20th Central Committee of the Communist Party of China is expected to convene in late October. This session will address critical economic policies and set the strategic framework for economic development over the next 5 to 10 years. Another important meeting is the 6th National Financial Work Conference, which guides major financial system reforms and addresses critical issues in the financial system. It is held every five years, and the last one was held in 2017. While it was initially slated for 2022, it was postponed and is widely expected to be held in Q4 this year. This conference is likely to cover topics such as deleveraging in the property sector, shadow banking, and local government debts. Additionally, it will likely shape the financial system in ways that focus on serving the real economy, the government’s industrial policies, and comprehensive national security. Additionally, the Central Economic Work Conference in December will review the economic performance of 2023 and begin formulating policies for 2024. These meetings come at a crucial juncture for China's economic trajectory and provide an opportunity for policymakers to address pressing issues and shape the country's economic future.   Closing Thoughts In conclusion, the situation surrounding China Evergrande and the broader property developer debt overhang remains a significant concern. There is no expectation of a policy bailout for property developers, and the focus is on clearing housing inventory and completing pre-sold units. Deleveraging efforts will continue in the property sector, shadow banking, and local government financing vehicles. Recent economic data show tentative signs of a recovery in the Chinese economy. The upcoming PMI data releases will provide further insights into the sustainability of this recovery. Beyond that, the forthcoming critical meetings, such as the Third Plenary Session and the 6th National Financial Work Conference, will play a vital role in shaping China's economic and financial policies. In light of these developments, the base case remains a gradual economic recovery. However, it's important to monitor the evolving situation and be prepared for potential market volatility based on the outcomes of these meetings and economic data. For now, a tactical trade to go long on China and Hong Kong equities for Q4 is intact, but investors should remain vigilant and adaptable in the face of uncertainty.

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.  //