europe

Red Sea avoidance signals a disruptive start to 2024 for trade and supply chains

We didn't expect a quiet year for trade and supply chains, but before it's even started, the vital shipping sector has been once again been pushed into the centre of geopolitical conflicts. Companies have started avoiding the Red Sea and this already leads to significant delays in supply chains and prices hikes on the spot market – and it could still get worse.

 

What's going on?

Following several drone attacks from Houthi militants on merchant vessels, most of the world's largest container liners – including MSC, Maersk, CMA-CGM, Hapag Lloyd, Evergreen and HMM – began avoiding the 30km wide Bab al Mandeb sea strait to the Red Sea and the Suez Canal, which handles some 12% of global trade. They detoured their ultra large container vessels around Cape of Good Hope from mid-December.

Roughly half of the shipped freight through the canal comprises containerised goods, making it the most impo

European Indices: Dax (GER 40), FTSE 100 (UK 100) And EuroStoxx 500 Analysed

European Indices: Dax (GER 40), FTSE 100 (UK 100) And EuroStoxx 500 Analysed

Jason Sen Jason Sen 04.03.2022 10:24
Dax 40 shorts at resistance at 14000/100 were the perfectly trade with a high for the day exactly here & a 700 point collapse over night. EuroStoxx 50 MARCH breaks 500 day & 100 week moving average support at 3710/3690. FTSE 100 MARCH looks like it is building a head & shoulders top - with a volatile right shoulder! - UODATE!! the neckline at 7135/25 has been broken for a sell signal - a weekly close below here tonight will confirm the sell signal. Update daily at 07:00 GMT Today's Analysis. Dax shorts at 14100/000 work on the expected break below 13780/750 as we hit my target of 13350/300 before an excellent buying opportunity at 13130/100. Longs need stops below 13000. A weekly close below 13000 is a very important sell signal for the start of next week. Gains are likely to be limited with resistance at 13750/800 & obviously strong resistance at 14000/100. EuroStoxx this time breaks support at the 500 day & 100 week moving average at 3710/3690 for an important sell signal targeting strong support at 3590/70. Longs need stops below 3530. Longs at strong support at 3590/70 can target 3690/3710. FTSE breaks the neck line at 7140/30 for an important longer term sell signal. If prices recover & hold above 7160 we can consider a false break this morning. Bulls need a break above 7190/7200 for a buy signal today. Holding below 7120 targets strong support at 6960/30. To subscribe to this report please visit daytradeideas.co.uk or email jason@daytradeideas.co.uk No representation or warranty is made as to the accuracy or completeness of this information and opinions expressed may be subject to change without notice. Estimates and projections set forth herein are based on assumptions that may not be correct or otherwise realised. All reports and information are designed for information purposes only and neither the information contained herein nor any opinion expressed is deemed to constitute an offer or invitation to make an offer, to buy or sell any security or any option, futures or other related derivatives.
UK Budget: Short-term positives to be met with medium-term caution

COT Currency Speculators raised British Pound Sterling bearish bets for 10th week

Invest Macro Invest Macro 15.05.2022 14:26
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for this week’s Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday May 10th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar. Highlighting the COT currency data this week was the rise in bearish bets for the British pound sterling currency futures contracts. Pound speculators have raised their bearish bets for a tenth consecutive week this week and for the eleventh time out of the past twelve weeks. Over the past ten-week time-frame, pound bets have dropped by a total of -79,261 contracts, going from -337 net positions on March 1st to a total of -79,598 net positions this week. The deterioration in speculator sentiment has now pushed the pound net position to the most bearish standing of the past one hundred and thirty-seven weeks, dating back to September 24th of 2019. Pound sterling sentiment has been hit by a recent slowing economy as the UK GDP declined by 0.1 percent in March after flat growth in February. Also, weighing on the UK economy is the war in Ukraine that has sharply raised inflation in the country (and elsewhere) and which could see the UK economy with the lowest growth rate among G7 countries in 2023, according to the IMF. Overall, the currencies with higher speculator bets this week were the Euro (22,907 contracts), US Dollar Index (1,705 contracts), Bitcoin (315 contracts) and the Mexican peso (2,102 contracts). The currencies with declining bets were the Japanese yen (-9,660 contracts), Australian dollar (-13,198 contracts), Brazil real (-1,010 contracts), Swiss franc (-1,856 contracts), British pound sterling (-5,785 contracts), New Zealand dollar (-6,386 contracts), Canadian dollar (-14,436 contracts), Russian ruble (-263 contracts) and the Mexican peso (2,102 contracts). Speculator strength standings for each Commodity where strength index is current net position compared to past three years, above 80 is bullish extreme, below 20 is bearish extreme OI Strength = Current Open Interest level compared to last 3 years range Spec Strength = Current Net Speculator level compared to last 3 years range Strength Move = Six week change of Spec Strength Data Snapshot of Forex Market Traders | Columns Legend May-10-2022OIOI-IndexSpec-NetSpec-IndexCom-NetCOM-IndexSmalls-NetSmalls-Index USD Index 57,556 84 34,776 86 -37,174 13 2,398 43 EUR 705,046 84 16,529 40 -43,026 64 26,497 18 GBP 264,594 80 -79,598 17 95,245 86 -15,647 23 JPY 247,278 87 -110,454 1 124,927 97 -14,473 24 CHF 51,282 37 -15,763 40 29,819 69 -14,056 16 CAD 151,009 31 -5,407 38 2,939 67 2,468 35 AUD 153,209 47 -41,714 46 47,126 54 -5,412 39 NZD 56,235 56 -12,996 49 16,874 56 -3,878 7 MXN 153,858 28 16,725 34 -20,866 64 4,141 61 RUB 20,930 4 7,543 31 -7,150 69 -393 24 BRL 61,450 55 40,778 90 -42,031 10 1,253 79 Bitcoin 10,841 57 703 100 -789 0 86 15 Open Interest is the amount of contracts that were live in the marketplace at time of data. US Dollar Index Futures: The US Dollar Index large speculator standing this week came in at a net position of 34,776 contracts in the data reported through Tuesday. This was a weekly lift of 1,705 contracts from the previous week which had a total of 33,071 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 85.8 percent. The commercials are Bearish-Extreme with a score of 12.8 percent and the small traders (not shown in chart) are Bearish with a score of 42.8 percent. US DOLLAR INDEX Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 86.6 3.2 8.6 – Percent of Open Interest Shorts: 26.2 67.8 4.5 – Net Position: 34,776 -37,174 2,398 – Gross Longs: 49,864 1,837 4,970 – Gross Shorts: 15,088 39,011 2,572 – Long to Short Ratio: 3.3 to 1 0.0 to 1 1.9 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 85.8 12.8 42.8 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 6.6 -3.4 -19.3   Euro Currency Futures: The Euro Currency large speculator standing this week came in at a net position of 16,529 contracts in the data reported through Tuesday. This was a weekly increase of 22,907 contracts from the previous week which had a total of -6,378 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 40.1 percent. The commercials are Bullish with a score of 63.8 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.3 percent. EURO Currency Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 32.4 53.3 12.0 – Percent of Open Interest Shorts: 30.0 59.4 8.3 – Net Position: 16,529 -43,026 26,497 – Gross Longs: 228,230 376,043 84,921 – Gross Shorts: 211,701 419,069 58,424 – Long to Short Ratio: 1.1 to 1 0.9 to 1 1.5 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 40.1 63.8 18.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -1.5 1.2 0.9   British Pound Sterling Futures: The British Pound Sterling large speculator standing this week came in at a net position of -79,598 contracts in the data reported through Tuesday. This was a weekly fall of -5,785 contracts from the previous week which had a total of -73,813 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 16.6 percent. The commercials are Bullish-Extreme with a score of 86.0 percent and the small traders (not shown in chart) are Bearish with a score of 23.2 percent. BRITISH POUND Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 11.1 79.6 7.6 – Percent of Open Interest Shorts: 41.2 43.6 13.5 – Net Position: -79,598 95,245 -15,647 – Gross Longs: 29,469 210,627 20,157 – Gross Shorts: 109,067 115,382 35,804 – Long to Short Ratio: 0.3 to 1 1.8 to 1 0.6 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 16.6 86.0 23.2 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -28.5 25.6 -7.7   Japanese Yen Futures: The Japanese Yen large speculator standing this week came in at a net position of -110,454 contracts in the data reported through Tuesday. This was a weekly decline of -9,660 contracts from the previous week which had a total of -100,794 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.8 percent. The commercials are Bullish-Extreme with a score of 96.6 percent and the small traders (not shown in chart) are Bearish with a score of 24.0 percent. JAPANESE YEN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 4.5 86.2 8.0 – Percent of Open Interest Shorts: 49.2 35.7 13.9 – Net Position: -110,454 124,927 -14,473 – Gross Longs: 11,196 213,084 19,811 – Gross Shorts: 121,650 88,157 34,284 – Long to Short Ratio: 0.1 to 1 2.4 to 1 0.6 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 0.8 96.6 24.0 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -5.1 0.0 16.7   Swiss Franc Futures: The Swiss Franc large speculator standing this week came in at a net position of -15,763 contracts in the data reported through Tuesday. This was a weekly fall of -1,856 contracts from the previous week which had a total of -13,907 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 39.8 percent. The commercials are Bullish with a score of 69.2 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 15.5 percent. SWISS FRANC Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 9.2 74.6 16.1 – Percent of Open Interest Shorts: 40.0 16.5 43.5 – Net Position: -15,763 29,819 -14,056 – Gross Longs: 4,727 38,258 8,271 – Gross Shorts: 20,490 8,439 22,327 – Long to Short Ratio: 0.2 to 1 4.5 to 1 0.4 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 39.8 69.2 15.5 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -7.7 8.0 -7.6   Canadian Dollar Futures: The Canadian Dollar large speculator standing this week came in at a net position of -5,407 contracts in the data reported through Tuesday. This was a weekly fall of -14,436 contracts from the previous week which had a total of 9,029 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 38.3 percent. The commercials are Bullish with a score of 66.9 percent and the small traders (not shown in chart) are Bearish with a score of 34.7 percent. CANADIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 25.6 49.8 21.8 – Percent of Open Interest Shorts: 29.2 47.9 20.1 – Net Position: -5,407 2,939 2,468 – Gross Longs: 38,679 75,215 32,880 – Gross Shorts: 44,086 72,276 30,412 – Long to Short Ratio: 0.9 to 1 1.0 to 1 1.1 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 38.3 66.9 34.7 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -4.0 14.5 -29.0   Australian Dollar Futures: The Australian Dollar large speculator standing this week came in at a net position of -41,714 contracts in the data reported through Tuesday. This was a weekly decrease of -13,198 contracts from the previous week which had a total of -28,516 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 46.2 percent. The commercials are Bullish with a score of 54.0 percent and the small traders (not shown in chart) are Bearish with a score of 39.2 percent. AUSTRALIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 24.1 59.9 13.1 – Percent of Open Interest Shorts: 51.3 29.1 16.7 – Net Position: -41,714 47,126 -5,412 – Gross Longs: 36,869 91,731 20,131 – Gross Shorts: 78,583 44,605 25,543 – Long to Short Ratio: 0.5 to 1 2.1 to 1 0.8 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 46.2 54.0 39.2 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 7.3 4.7 -34.4   New Zealand Dollar Futures: The New Zealand Dollar large speculator standing this week came in at a net position of -12,996 contracts in the data reported through Tuesday. This was a weekly fall of -6,386 contracts from the previous week which had a total of -6,610 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 49.5 percent. The commercials are Bullish with a score of 56.4 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 7.4 percent. NEW ZEALAND DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 27.0 68.5 3.9 – Percent of Open Interest Shorts: 50.1 38.5 10.8 – Net Position: -12,996 16,874 -3,878 – Gross Longs: 15,203 38,541 2,216 – Gross Shorts: 28,199 21,667 6,094 – Long to Short Ratio: 0.5 to 1 1.8 to 1 0.4 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 49.5 56.4 7.4 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -20.4 26.0 -54.4   Mexican Peso Futures: The Mexican Peso large speculator standing this week came in at a net position of 16,725 contracts in the data reported through Tuesday. This was a weekly advance of 2,102 contracts from the previous week which had a total of 14,623 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 34.5 percent. The commercials are Bullish with a score of 64.1 percent and the small traders (not shown in chart) are Bullish with a score of 60.6 percent. MEXICAN PESO Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 41.5 53.1 4.2 – Percent of Open Interest Shorts: 30.7 66.7 1.5 – Net Position: 16,725 -20,866 4,141 – Gross Longs: 63,921 81,735 6,467 – Gross Shorts: 47,196 102,601 2,326 – Long to Short Ratio: 1.4 to 1 0.8 to 1 2.8 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 34.5 64.1 60.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 10.6 -10.1 -3.5   Brazilian Real Futures: The Brazilian Real large speculator standing this week came in at a net position of 40,778 contracts in the data reported through Tuesday. This was a weekly lowering of -1,010 contracts from the previous week which had a total of 41,788 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 90.5 percent. The commercials are Bearish-Extreme with a score of 10.3 percent and the small traders (not shown in chart) are Bullish with a score of 79.4 percent. BRAZIL REAL Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 79.5 15.4 5.0 – Percent of Open Interest Shorts: 13.1 83.8 3.0 – Net Position: 40,778 -42,031 1,253 – Gross Longs: 48,835 9,454 3,070 – Gross Shorts: 8,057 51,485 1,817 – Long to Short Ratio: 6.1 to 1 0.2 to 1 1.7 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 90.5 10.3 79.4 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -1.8 3.5 -20.6   Russian Ruble Futures: The Russian Ruble large speculator standing this week came in at a net position of 7,543 contracts in the data reported through Tuesday. This was a weekly fall of -263 contracts from the previous week which had a total of 7,806 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 31.2 percent. The commercials are Bullish with a score of 69.1 percent and the small traders (not shown in chart) are Bearish with a score of 23.9 percent. RUSSIAN RUBLE Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 36.6 60.6 2.8 – Percent of Open Interest Shorts: 0.5 94.7 4.7 – Net Position: 7,543 -7,150 -393 – Gross Longs: 7,658 12,679 593 – Gross Shorts: 115 19,829 986 – Long to Short Ratio: 66.6 to 1 0.6 to 1 0.6 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 31.2 69.1 23.9 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: -15.6 16.7 -18.8   Bitcoin Futures: The Bitcoin large speculator standing this week came in at a net position of 703 contracts in the data reported through Tuesday. This was a weekly gain of 315 contracts from the previous week which had a total of 388 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 100.0 percent. The commercials are Bearish-Extreme with a score of 0.0 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 14.9 percent. BITCOIN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 81.1 2.1 9.1 – Percent of Open Interest Shorts: 74.6 9.4 8.3 – Net Position: 703 -789 86 – Gross Longs: 8,789 227 989 – Gross Shorts: 8,086 1,016 903 – Long to Short Ratio: 1.1 to 1 0.2 to 1 1.1 to 1 NET POSITION TREND:       – Strength Index Score (3 Year Range Pct): 100.0 0.0 14.9 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX:       – 6-Week Change in Strength Index: 19.0 -24.9 -13.6   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
China’s Caixin Manufacturing PMI Data Might Support The New Zealand Dollar (NZD)

Discussing Monetary Policy Of Reserve Bank Of New Zealand, Bank Of Korea And Bank Of Indonesia, COVID In China And Equities | Market Insights Podcast (Episode 332) | Oanda

Jeffrey Halley Jeffrey Halley 23.05.2022 12:52
Jonny Hart speaks to APAC Senior Market Analyst Jeffrey Halley about news impacting the market and the week ahead. European PMIs are the week’s highlight tomorrow Welcome to a new week with policy decisions from the Reserve Bank of New Zealand, Bank of Korea, and Bank Indonesia. We start today’s podcast with a quick overview of Asian markets. A quiet news weekend has left Asian markets focusing once again on China and the covid zero slowdowns. We look at price action around Asia and discuss the future of China and covid zero. Next, it’s over to equity and currency markets. We discuss whether the worst is over for equities and if the US Dollar rally has run its course. We then look ahead to the data calendar which is fairly quiet this week. European PMIs are the week’s highlight tomorrow. We discuss them and their potential impact on the single currency. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Learn more on Oanda
Eurozone Bank Lending Under Strain as Higher Rates Bite

USD Stucked! Russia Blocks The Oil For Europe Over The Payment Issues. Market Newsfeed

Saxo Strategy Team Saxo Strategy Team 10.08.2022 13:00
Summary:  Market sentiment weakened again yesterday, with the US Nasdaq 100 index interacting with the pivotal 13,000 area that was so pivotal on the way up ahead of today’s US July CPI release, which could prove important in either confirming or rejecting the complacent market’s expectations that a slowing economy and peaking inflation will allow the Fed to moderate its rate hike path after the September meeting. A surprisingly strong core CPI reading would likely unsettle the market today.   Our trading focus   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US interest rates are moving higher again and US equities lower with the S&P 500 at 4,124 yesterday with today’s price action testing the 100-day moving average around the 4,110 level. The past week has delivered more negative earnings surprises and weak outlooks impacting sentiment and the geopolitical risk picture is not helping either. In the event of a worse than expected US CPI release today we could take out the recent trading range in S&P 500 futures to the downside and begin the journey back to 4,000. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Tech Index (HSTECH.I) fell 3%. China internet stocks declined across the aboard, losing 2-4%. Shares of EV manufacturers plunged 4-8% despite the China Passenger Car Association raised its 2022 EV sales estimate yesterday to 6mn, 9% higher from its previous estimate. Hang Seng Index plunged 2.4% and CSI300 fell 1.1%. USD decision time The USD remains largely stuck in neutral and may remain so unless or until some incoming input jolts the US treasury market and the complacent view that the US is set to peak its policy rate in December, with the potential to ease by perhaps mid-next year. Technical signs of a broad USD recovery, whether on yields pulling higher or due to a sudden cratering in market sentiment on concerns for the economic outlook or worsening liquidity as the Fed QT schedule is set to continue for now regardless of incoming data, would include USDJPY pulling above 136.00, EURUSD dropping down through 1.0100 and AUDUSD back down below 0.6900. Today’s July US CPI could prove a catalyst for a directional move in the greenback in either direction. Gold (XAUUSD) briefly tested a key area of resistance above $1800 on Tuesday ... before retracing lower as the recent support from rising silver and copper prices faded. With the dollar and yields seeing small gains ahead of today’s US CPI print, and with key resistance levels in all three metals looming, traders decided to book some profit. The market is looking for US inflation to ease from 9.1% to 8.8% and the outcome will have an impact on rate hike expectations from the Fed with a a higher-than-expected number potentially adding some downward pressure on metal prices. Silver (XAGUSD), as highlighted in recent updates, has been outshining Gold and in the process managing to mount a challenge above its 50-day moving average, now support at $20.33 with focus on resistance at $20.85.  Crude oil Crude oil prices rose on Tuesday on news pipeline flows of crude oil from Russia via Ukraine to Europe had been halted over a payment dispute of transit fees. The line, however, is expected to reopen within days but it nevertheless highlights and supports the current price divergence between WTI futures stuck around $90, amid rising US stockpiles and slowing gasoline demand, and Brent which trades above $96. The API reported a 2.2-million-barrel increase in US stockpiles last week with stocks at Cushing, the key storage hub, also rising. The official government inventory report is due today, with surveys pointing to a much smaller build at just 250k barrels. In addition, the market will be paying close attention to implied gasoline demand with recent data showing a slowdown. Also focus on China as lockdowns return, US CPI and Thursday’s Oil Market Reports from OPEC and the IEA. Grains eye Friday’s WASDE report US grain futures led by soybeans and corn trade higher on the week in response to worsening crop conditions. Just like central Europe, soaring heat and drought have raised concerns about lower production and yields. USDA will publish its monthly supply and demand estimates on Friday and given the current conditions a smaller yield could tighten the ending stock situation. The crop condition report, published every Monday by the USDA throughout the growing season, shows the proportion of the US crop being rated in a good to excellent condition. Last week the rating for corn dropped by 3% to 58% versus 64% a year ago. US Treasuries (IEF, TLT) US 10-year yields are poised in an important area ahead of the pivotal 3.00% level that would suggest a more determined attempt for yields to try toward the cycle top at 3.50%. Of late, the yield curve inversion has been the primary focus as long yields remain subdued relative to the front end of the curve, a development that could deepen if inflation remains higher than expected while economic activity slows. The three-year T-note auction yesterday saw solid demand, while today sees an auction of 10-year Treasuries.   Newsfeed   Taiwan officials want Foxconn to withdraw investment in Chinese chip company Foxconn announced a $800 million investment in mainland China’s Tsinghua Unigroup last month, but national security officials want the company to drop the investment, likely in connection with recent US-China confrontation in the wake of the visit to Taiwan from US House Speaker Pelosi and the ensuing Chinese military exercises around Taiwan. US Q2 Unit Labor costs remain high at 10.8%, while productivity weak at –4.6% These number suggest a very tight labor market as companies are beset with rising costs for work and less output per unit of worker effort. This number was down from the Q1 levels, but in many past cycles, rising labor costs and falling productivity often precede a powerful deceleration in the labor market as companies slow hiring (and once the recession hits begin firing employees which registers as lower unit costs and rising productivity). Japan PPI shows continued input price pressures Japan’s July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. The government is also set to announce a cabinet reshuffle today, and households may see increased measures to help relieve the price pressures. That will continue to ease the pressure on the Bank of Japan to tighten policy. Chipmaker warnings continue, with Micron warning of ‘challenging’ conditions After Nvidia, now Micron has issued warning of a possible revenue miss in the current quarter and ‘challenging’ memory conditions. The company officials said that they expect the revenue for the fiscal fourth quarter, which ends in August, “may come in at or below the low end of the revenue guidance range provided in our June 30 earnings call.” The company had called for $6.8-7.6bn in revenue in its June earnings report. Moreover, they also guided for a tough next quarter as well as shipments could fall on a sequential basis, given the inventory build-up with their customers. Vestas Q2 result miss estimates The world’s largest wind turbine maker has posted Q2 revenue of €3.3bn vs est. €3.5bn and EBIT of €-182mn vs est. €-119mn. The company is issuing a fiscal year revenue outlook of €14.5-16bn vs est. €15.2bn. Coinbase misses in revenue issues weak guidance Q2 revenue missed by 5% against estimates and the user metric MTU was lowered to 7-9mn from previously 5-15mn against estimates of 8.7mn. The crypto exchange is saying that retail investors are getting more inactive on cryptocurrencies due to the recent violent selloff. China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% y/y in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% y/y in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% y/y while the rise in prices of non-food items moderated to 1.9%, core CPI, which excludes food and energy, rose 0.8% y/y in July, down from June’s 1.0%. China issues white paper on its stance on Taiwan Despite extending the military drills near Taiwan beyond the originally schedule, in a less confrontational white paper released today, the Taiwan Affairs office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.    What are we watching next?   US CPI due today: the core in focus The highly watched US inflation data is due to be released today, and the debate on inflation peaking vs. higher-for-longer will be revived. Meanwhile, the Fed has recently stayed away from providing forward guidance, which has now made all the data points ahead of the September 21 FOMC meeting a lot more important to predict the path of Fed rates from here. Bloomberg consensus expects inflation to slow down from 9.1% YoY in June to 8.8% YoY last month. The core print will gather greater attention to assess stickiness and breadth of price pressures. Will any surprise just be noise given that we have another print for August due ahead of the next FOMC meeting, os is this market looking for an excuse to be surprised as it has maintained a rather persistent view that US inflation data will soon roll over and see a Fed set to stop tightening after the December FOMC meeting? Fed’s Evans will take the hot seat today Chicago President Charles Evans discusses the economy and monetary policy today. Evans is not a voter this year, but he votes in 2023. He said last week a 50bps rate hike is a reasonable assessment for the September meeting, but 75bps is a possibility too if inflation does not improve. He expects 25bps from there on until Q2 2023 and sees a policy rate between 3.75-4% in 2023, which is in line with Fed’s median view of 3.8% for 2023, but above the 3.1% that the market is currently pricing in. Earnings to watch Today’s US earnings in focus are marked in bold with the most important earnings release being Walt Disney and Coupang. Disney is expected to deliver revenue growth of 23% y/y with operating margins lower q/q as the company is still facing input cost headwinds. Coupang, which is the largest e-commerce platform in South Korea, is expected to deliver revenue growth of 13% y/y and another operating loss as e-commerce platforms are facing slowing demand and still significant input cost pressures. Today: Commonwealth Bank of Australia, Vestas Wind Systems, Genmab, E.ON, Honda Motor, Prudential, Aviva, Walt Disney, Coupang, Illumina Thursday: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0700 – Czech Jul. CPI 1230 – US Jul. CPI 1430 – US Weekly DoE Crude Oil and Product Inventories 1500 – US Fed’s Evans (non-voter) to speak 1600 – UK Bank of England economist Pill to peak 1700 – US Treasury to auction 10-year notes 1800 – US Fed’s Kashkari (non-voter) to speak 2301 – UK Jul. RICS House Price Balance 0100 – Australia Aug. Consumer Inflation Expectations Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: https://www.home.saxo/content/articles/macro/market-quick-take-aug-10-2022-10082022
Tepid BoJ Stance Despite Inflation Surge: Future Policy Outlook

Walt Disney Results Are Beyond All Expectations. Large Chinese Company Fires More Than 9K Employees!!! Market Newsfeed - 11.08.2022

Saxo Strategy Team Saxo Strategy Team 11.08.2022 10:40
Summary:  Risk on mode activated with a softer US CPI print, both on the headline and core measures. Equities rallied but the Treasury market reaction faded amid the hawkish Fedspeak. The market pricing of Fed expectations also tilted more in favor of a 50 basis points rate hike for September immediately after the CPI release, but this will remain volatile with more data and Fed speakers on tap ahead of the next meeting. Commodities, including oil and base metals, surged higher as the dollar weakened and demand outlook brightened but the gains appeared to be fragile. Gold unable to hold gains above the $1800 level. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities surged after the CPI prints that came in at more moderate level than market expectations. Nasdaq 100 jumped 2.9% and S&P500 gained 2.1%. Technology and consumer discretionary stocks led the market higher. Helped by the fall in treasury yields and better-than-feared corporate earnings in the past weeks, the Nasdaq 100 has risen 21% from its intraday low on June 16 this year and may technically be considered in a new bull market. The U.S. IPO market has reportedly become active again this week and more activities in the pipeline. Tesla (TSLA:xnas) climbed nearly 4% on news that Elon Musk sold USD6.9 billion of Tesla shares to avoid fire sale if having to pay for Twitter. Walt Disney (DIS:xnys) jumped 7% in after-hours trading on better-than-expected results. U.S. yields plunged immediately post CPI but recouped most of the decline during the US session The yields of the front-end of the U.S. treasury curve collapsed initially after the weaker-than-expected CPI data, almost immediately after the CPI release, 2-year yields tumbled as much as 20bps to 3.07% and 10-year yield fell as much as 11bps to 2.67%. Treasury yields then spent the day gradually climbing higher. At the close, 2-year yields were only 6bps at 3.21% and the 10-year ended the day at 2.78% unchanged from its previous close. The 2-10 yield curve steepened by 6bps to -44bps. Hawkish Fedspeak contributed to some of the reversal in the front-end from the post-CPI lows. At the close, the market is pricing in 60bps (i.e. 100% chance of at least a 50bps hike and about 40% chance of a 75bps rate hike) for the September FOMC after having come down to pricing in just about 50bps during the initial post-CPI plunge in yields. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Sang Index declined nearly 2% and CSI300 was down 1.1% on Wednesday. Shares of Chinese property developers plunged.  Longfor (00960) collapsed 16.4% as there was a story widely circulated in market speculating that the company had commercial paper being overdue. In addition, UBS downgraded the Longor together with Country Garden, citing negative free cash flows in the first half of 2022.  Country Garden (02007) fell 7.2%.  After market close, the management held a meeting with investors and said that all commercial papers matured had been duly repaid. China High Speed Transmission Equipment (00658) tumbled 19% after releasing negative profit warnings.  The company expects a loss of up to RMB80 million for first half of 2022. Guangzhou Baiyunshan Pharmaceutical (00874) declined 4.1% after the company filed to the Stock Exchange of Hong Kong that the National Healthcare Security Administration was investigating the three subsidiaries of the company for allegedly “obtaining funds by ways of increasing the prices of pharmaceutical products falsely”. Wuxi Biologics (02269) dropped 9.3% as investors worrying its removal from the U.S. unverified list may be delayed in the midst of deterioration of relationship between China and the U.S. Oversized USD reaction on US CPI The US dollar suffered a heavy blow from the softer US CPI print, with the market pricing for September FOMC getting back closer to 50 basis points just after the release. As we noted yesterday, the July CPI print is merely noise with another batch of US job and inflation numbers due ahead of the September meeting. USD took out some key support levels nonetheless, with USDJPY breaking below the 133.50 support to lows of 132.10. Next key support at 131.50 but there possibly needs to be stronger evidence of an economic slowdown to get there. EURUSD broke above 1.0300 to its highest levels since July 5 but remains at risk of reversal given the frothy equity strength. Crude oil prices (CLU2 & LCOV2) Oil prices were relieved amid the risk on tone in the markets as softer US CPI and subsequent weakness in the dollar underpinned. WTI futures rose towards $91.50/barrel while Brent futures were at $97.40. EIA data also suggested improvement in demand. US gasoline inventories fell 4,978kbbl last week, which helped push gasoline supplied (a proxy for demand) up 582kb/d to 9.12mb/d. This was slightly tempered by a strong gain in US crude oil inventories, which rose 5,457kbbl last week. Supply concerns eased after Transneft resumed gas supplies to three central European countries which were earlier cut off due to payment issues. European Dutch TTF natural gas futures (TTFMQ2) European natural gas rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments. Dutch front month futures rose 6.9% to EUR 205.47/MWh as a drought amid extreme temperatures has left the river almost impassable. European countries have been filling up their gas storage, largely by factories cutting back on their usage. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. Gold (XAUUSD) and Copper (HGc1) Gold saw a run higher to $1800+ levels immediately after the US inflation report as Treasury yields plunged. However, the precious metal gave up much of these gains after Fed governors warned that it doesn’t change the US central bank’s path toward higher rates this year and next. With China also ceasing military drills around Taiwan, geopolitical risks remain capped for now easing the upside pressure on Gold. Copper was more buoyant as it extended gains on hopes of a stronger demand amid a fall in price pressures.   What to consider? Softer US CPI alters Fed expectations at the margin The US CPI print came in weaker than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category market -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure – again primarily a result of lower energy prices. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers continued to be hawkish Fed speaker Evans and Kashkari were both on the hawkish side despite being some of the most dovish members on the Fed panel. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. He suggested Fed funds rate will reach 3.9% in 2022 (vs. market pricing of 3.5%) and 4.4% in end 2023 (vs. market pricing of 3.1%). China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% YoY in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% YoY in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% YoY while the rise in prices of non-food items moderated to 1.9%. Core CPI, which excludes food and energy, rose 0.8% YoY in July, down from June’s 1.0%. In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China expects the CPI to be at around 3% for the full year of 2022 and the recent downtrend of the PPI to continue. China issues white paper on its stance on Taiwan China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. In a less confrontational white paper released, the Taiwan Affairs Office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.  Walt Disney results beat estimates Disney reported solid Q2 results with stronger than expected 152.1 million Disney+ subscribers, up 31% YoY and beating market expectations (148.4 million).  Revenues climbed 26% YoY to USD21.5 billion and adjusted EPS came in at USD1.09 versus consensus estimates (USD0.96). Singapore Q2 GDP revised lower The final print of Singapore’s Q2 GDP was revised lower to 4.4% YoY from an advance estimate of 4.8% earlier, suggesting a q/q contraction of 0.2% as against gains of 0.2% q/q earlier. The forecast for annual 2022 growth was also narrowed to 3-4% from 3-5% earlier amid rising global slowdown risks. Another quarter of negative GDP growth print could now bring a technical recession in Singapore, but the officials have, for now, ruled that out and suggest a mild positive growth in Q3 and Q4. Softbank settled presold Alibaba shares early and Alibaba let go of a large number of employees The news that Softbank expects to post a gain of over USD34 billion from early physical settlement of prepaid forward contracts to unload its stake in Alibaba (09988:xhkg/BABA:xnas) and Alibaba laid off more than 9,000 staff between April and June this year added to the pressures over the share price of Alibaba.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 11, 2022  
Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Saxo Strategy Team Saxo Strategy Team 11.08.2022 13:39
Summary:  Equity markets are ebullient in the wake of the softer than expected US July CPI data print yesterday, as a sharp drop in energy prices helped drag the CPI lower than expected for the month. The knee-jerk reaction held well in equities overnight, if to a lesser degree in the weaker US dollar. But US yields are nearly unchanged from the levels prior to the inflation release, creating an interesting tension across markets, also as some Fed members are explicitly pushing back against market anticipation of the Fed easing next year.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) The July CPI report showing core inflation rose only 0.3% m/m compared to 0.5% m/m expected was just what the market was hoping for and had priced into the forward curve for next year’s Fed Funds rate. Long duration assets reacted the most with Nasdaq 100 futures climbing 2.9%. However, investors should be careful not to be too optimistic as we had a similar decline in the CPI core back in March before inflation roared back. As Mester recently stated that the Fed is looking for a sustained reduction in the CPI core m/m, which is likely a 6-month average getting back to around 0.2% m/m. Given the current data points it is not realistic to be comfortable with inflation before late Q1 next year. In Nasdaq 100 future the next natural resistance level is around 13,536 and if the index futures can take out this then the next level be around 14,000 where the 200-day average is coming down to. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities climbed, Hang Seng Index +1.8%, CSI300 Index +1.6%. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +16%, Sunny Optical (02382:xhkg) +7%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. Semiconductors gained, SMIC (00981:xhkg) +3%, Hua Hong (01347:xhkg) +4%. After collapsing 16% in share price yesterday, Longfor (00960) only managed to recover around 3% after the company denied market speculation that it failed to repay commercial papers due. UBS’ downgraded Longfor and Country Garden (02007:xhkkg) yesterday citing negative free cash flows for the first half of 2022 highlighted the tight spots even the leading Chinese private enterprise property developers are in. Chinese internet stocks rallied, Alibaba (09988:xhkg) +3%, Tencent (0700:xhkg) +1%, Meituan (03690:xhkkg) +2.7%. China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. USD: Treasuries don’t point to further weakness here The US dollar knee-jerked lower on the softer-than-expected July CPI data, although US yields ended the day unchanged, creating an interesting tension in a pair like USDJPY, which normally takes its lead from longer US yields (unchanged yesterday after a significant dip intraday after the US CPI release). USDJPY dipped almost all the way to 132.00 after trading above 135.00 earlier in the day. What are traders to do – follow the coincident US yield indicator or the negative momentum created by yesterday’s move? Either way, a return above 135.00 would for USDJPY would likely require an extension higher in the US 10-year yield back near 3.00%. EURUSD is another interesting pair technically after local resistance just below 1.0300 gave way, only to see the pair hitting a brick wall in the 1.0350 area (major prior range low from May-June). Was this a break higher or a misleading knee-jerk reaction to the US data? A close below 1.0250 would be needed there to suggest that EURUSD is focusing back lower again. A similar setup can be seen in AUDUSD and the 0.7000 area, with a bit more sensitivity to risk sentiment there. Gold (XAUUSD) did not have a good day on Wednesday Gold was trading lower on the day after failing to build on the break above resistance at $1803 as the dollar weakened following the lower-than-expected CPI print, thereby reducing demand for gold as an inflation hedge. Instead, the prospect for a potential shallower pace of future rate hikes supported a major risk on rally in stocks and another daily reduction in bullion-backed ETF holdings. Yet comments by two Fed officials saying it doesn’t change the central bank’s path toward even higher rates – and with that the risk of a gold supportive economic weakness - did not receive much attention. Gold now needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver, which initially received a boost from higher copper prices before following gold lower needs to hold above its 50-day SMA at $20.26. Crude oil Crude oil futures (CLU2 & LCOV2) traded higher on Wednesday supported by a weaker dollar after the lower US inflation print gave markets a major risk on boost. Also, the weekly EIA report showed a jump in gasoline demand reversing the prior week’s sharp drop. Gasoline inventories dropped 5 million barrels to their lowest seasonal level since 2015 on a combination of strong exports and improved domestic demand while crude oil stocks rose 5.4m barrels primarily supported by a 5.3 million barrels release from SPR. Focus today on monthly Oil Market Reports from OPEC and the IEA. Dutch natural gas The Dutch TTF natural gas benchmark futures (TTFMQ2) rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments of fuel and coal, thereby forcing utilities and industries to consumer more pipelined gas. Dutch front month futures rose 6.9% to EUR 205.47/MWh while the October to March winter contract closed at a fresh cycle high above €200/MWH. European countries have been filling up their gas storage, largely by factories cutting back on their usage and through LNG imports, the flow of the latter likely to be challenged by increased demand from Asia into the autumn. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. US Treasuries (IEF, TLT) shrug off soft July CPI data US yields at first reacted strongly to the softer-than-expected July CPI release (details below), but ended the day mostly unchanged at all points along the curve, suggesting that the market is unwilling to extend its already aggressive view that the Fed is set to reach peak policy by the end of this year and begin cutting rates. Some Fed members are pushing back strongly against that notion as noted below (particularly Kashkari). A stronger sign that yields are headed back higher for the US 10-year benchmark would be on a close above 2.87% and especially 3.00%. Yesterday’s 10-year auction saw strong demand. What is going on? US July CPI lower than expected The US CPI print came in lower than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category marked -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers maintain hawkish message Fed speaker Evans and Kashkari were both on the hawkish side in rhetoric yesterday. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. Long thought of previously as the pre-eminent dove among Fed members, he has waxed far more hawkish of late and said yesterday that nothing has changed his view that the Fed funds rate should be at 3.9% at the end of this year (vs. market pricing of 3.5%) and 4.4% by the end 2023 (vs. market pricing of 3.1%). Siemens cuts outlook Germany’s largest industrial company is cutting its profit outlook on impairment charges related to its energy division. FY22 Q3 results (ending 30 June) show revenue of €17.9bn vs est. €17.4bn and orders are strong at €22bn vs est. €19.5bn. Orsted lifts expectations The largest renewable energy utility company in Europe reports Q2 revenue of DKK 26.3bn vs est. 21.7bn, but EBITDA misses estimates and the fiscal year guidance on EBITDA at DKK 20-22bn is significantly lower than estimates of DKK 30.4bn. However, the new EBITDA guidance range is DKK 1bn above the recently stated guidance, so Orsted is doing better than expected but the market had just become too optimistic. Disney beats on subscribers Disney reported FY22 Q3 (ending 2 July) results showing Disney+ subscribers at 152.1mn vs est. 148.4mn surprising the market as several surveys have recently indicated that Amazon Prime and Netflix are losing subscribers. The entertainment company also reported revenue for the quarter of $21.5bn vs est. $21bn with Parks & Experiences deliver the most to the upside surprise. EPS for the quarter was $1.09 vs est. $0.96. If subscribers for ESPN and Hulu are added, then Disney has surpassed Netflix on streaming subscribers. Shares were up 6% in extended trading. Despite the positive result the company lowered its 2024 target for Disney+ subscriber to 135-165mn range. Coupang lifts fiscal year EBITDA outlook The South Korean e-commerce company missed slightly on revenue in Q2 but lifted its fiscal year adjusted EBITDA from a loss of $400mn to positive which lifted shares 6% in extended trading. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. What are we watching next? Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch Today’s US earnings in focus are NIO and Rivian with market running hot again on EV-makers despite challenging environment on input costs and increased competition. NIO is expected to grow revenue by 15% y/y in Q2 before seeing growth jumping to 72% y/y in Q3 as pent-up demand is released following Covid restrictions in China in the first half. Rivian, which partly owned by Amazon and makes EV trucks, is expected to deliver its first quarter with meaningful activity with revenue expected at $336mn but free cash flow is expected at $-1.8bn. Today: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0800 – IEA's Monthly Oil Market Report 1230 – US Weekly Initial Jobless Claims 1230 – US Jul. PPI 1430 – US Weekly Natural Gas Storage Change 1700 – US Treasury to auction 30-year T-Bonds 2330 – US Fed’s Daly (Non-voter) to speak During the day: OPEC’s Monthly Oil Market Report Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 11, 2022  
The US Has Again Benefited From Military Conflicts In Other Parts Of The World, The Capital From Europe And Other Regions Goes To The US

Is Fed Ready For It's Counter-Attack? Commodities, Earnings And More

Saxo Bank Saxo Bank 11.08.2022 13:52
Summary:  Today we look at the sharp correction in energy prices driving a softer than expected CPI print for the US in July, which saw sentiment responding by piling on to the recent rally and taking equities to new highs for the local cycle since June. Interestingly, the reaction to the CPI data has generated some tension as US treasury yields are trading sideways after erasing the knee-jerk drop in yields in the wake of yesterday's data. With financial conditions easing aggressively, the Fed faces quite a task if it wants to counter this development, with recent protests from individual Fed members failing to make an impression. Perhaps the Jackson Hole Fed forum at the end of this month is shaping up as a key event risk? Crude oil, the USD, metals, earnings and more also on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: Soft CPI revives risk rally, but treasury reaction creates dissonance    
Oz Minerals’ Quarterly Copper Output Hit A Record High, Brent Futures Rose

Copper Is Smashing For The Second Time This Summer! WTI Is Back From The Dead

Marc Chandler Marc Chandler 11.08.2022 14:12
Overview: The US dollar is consolidating yesterday’s losses but is still trading with a heavier bias against the major currencies and most emerging market currencies. The US 10-year yield is soft below 2.77%, while European yields are mostly 2-4 bp higher. The peripheral premium over the core is a little narrower today. Equity markets, following the US lead, are higher today. The Hang Seng and China’s CSI 300 rose by more than 2% today. Among the large bourses, only Japan struggled, pressured by the rebound in the yen. Europe’s Stoxx 600 gained almost 0.9% yesterday and is edging higher today, while US futures are also firmer. Gold popped above $1800 yesterday but could not sustain it and its in a $5 range on both sides of $1788 today. September WTI rebounded yesterday from a low near $87.65 to close near $92.00. It is firmer today near $93.00. US natgas is 1.4%, its third successive advance and is near a two-week high. Europe’s benchmark is also rising for the third session. It is up nearly 8% this week. Iron ore rose 2% today and it is the fourth gain in five sessions. September copper is also edging higher. If sustained, it would be the fifth gain in six sessions. It is at its highest level since late June. September wheat is 1.1% higher. It has risen every session this week for a cumulative gain of around 4.25%.  Asia Pacific In its quarterly report, the People's Bank of China seemed to downplay the likelihood of dramatic rate cuts or reductions in reserve requirements. It warned that CPI could exceed 3% and ruled out massive stimulus, while promising "high-quality" support, which sounds like a targeted measure. It is not tightening policy but signaled little scope to ease. Note that the 10-year Chinese yield is at the lower end of its six-month range near 2.74%. Its two-year yield is a little above 2.15%, slightly below the middle of its six-month range. Separately, Yiwa, a city of two million people, south of Shanghai has been locked down for three days starting today due to Covid. It is a manufacturing export hub. South Korea reported its first drop (0.7%) in technology exports in two years last month. While some read this to a statement about world demand, and there is likely something there given the earnings reports from the chip sector. However, there seems to be something else at work too. South Korea figures show semiconductor equipment exports to China have been more than halved this year (-51.9%) through July. China had accounted for around 60% of South Korea's semiconductor equipment. Reports suggest the main drivers are the US-China rivalry. Semiconductor investment in China has fallen and South Korea has indicated it intensions to join the US Chip 4 semiconductor alliance. Singapore's economy unexpectedly contracted in Q2. Initially, the government estimated the economy stagnated. Instead, it contracted by 0.2%. Given Singapore's role as an entrepot, its economic performance is often seen as a microcosm of the world economy. There was a nearly a 7% decline in retail trade services, while information and communication services output also fell. After the data, the Ministry of Trade and Industry narrowed this year's GDP forecast to 3%-4% from 3%-5%. While the drop in the US 10-year yield saw the dollar tumble against the yen yesterday, the recovery in yields has not fueled a recovery in the greenback. The dollar began yesterday above JPY135- and fell to nearly JPY132.00. Today, it has been confined to a little less than around half a yen on either side of JPY132.85. The cap seen at the end of last week and early this week in the JPY135.50-60 area, and the 20-day moving average (~JPY135.30) now looks like formidable resistance. Recall that the low seen earlier this month was near JPY130.40. The Australian dollar is also consolidating near yesterday's high set slightly below $0.7110. It was the best level in two months. The $0.7050 area may now offer initial support. The next upside target is seen in the $0.7150-70 band, which houses the (50%) retracement objective of the Aussie's slide from the April high (~$0.7660) and the July low (~$0.6680), and the 200-day moving average. The broad greenback sell-off yesterday saw it ease to about CNY6.7235, its lowest level in nearly a month. Despite the less-than-dovish message from the PBOC, it seemed to signal it did not want yuan strength. It set the dollar's reference rate at CNY6.7324, a bit above the median (Bloomberg's survey) of CNY6.7308. Europe Germany's coalition government has begun debating over the contours of the next relief package. The center-left government has implemented two support programs to ease the cost-of-living squeeze for around 30 bln euros. A third package is under construction now. The FDP Finance Minister Linder suggested as one of the components a 10 bln euro program to offset the "bracket creep" of higher inflation putting households into a higher tax bracket. The Greens want a more targeted effort to help lower income families. More work needs to be done, but a package is expected to be ready next month. The International Energy Agency estimates that Russian oil output will fall by around a fifth early next year as the EU import ban is implemented. The IEA warns that Russian output may begin declining as early as this month and estimates 2 mln barrels a day will be shut by early 2023. The EU's ban on most Russian oil will begin in early December, and in early February, oil products shipments will also stop. Now the EU buys around 1 mln barrels a day of oil products and 1.3 mln barrels of crude. Russia boosted output in recent months, to around 10.8 mln barrels a day. The IEA estimates that in June, the PRC overtook the EU to become the top market for Russia's seaborne crude (2.1 mln bpd vs. 1.8 mln bpd). Separately, the IEA lifted its estimate of world consumption by about 380k barrels a day from its previous forecast, concentrated in the Middle East and Europe. The unusually hot weather in the Middle East, where oil is burned for electricity, has seen stronger demand. In Europe, there has been more switched from gas to oil. The euro surged to almost $1.0370 yesterday on the back of the softer than expected US CPI. It settled near $1.03. It is trading firmly in the upper end of that range today. It held above $1.0275, just below the previous high for the month (~$1.0295). Today's high, was set in the European morning, near $1.0340. There is a trendline from the February, March, and June highs found near $1.04 today. It is falling by a little less than half a cent a week. Sterling's rally yesterday stalled in front of this month's high set on August 1 slightly shy of $1.2295. It is straddling the area where it settled yesterday (~$1.2220). We suspect the market may test the lows near $1.2180, and a break could see another half-cent loss ahead of tomorrow's Q2 GDP. The median forecast in Bloomberg's survey is for a 0.2% contraction after a 0.8% expansion in Q1.  America What the jobs data did for expectations for the Fed at next month's meeting were largely reversed by slower the expected CPI readings. On the eve of the employment data, the market was discounting a little better than a 35% chance of another 75 bp hike. It jumped to over a 75% chance after employment report but settled yesterday around a 45% chance. It is still in its early days, and the Fed will see another employment and CPI report before it has to decide. Although the market has downgraded the chances of a 75 bp hike at next month's meeting, it still has the Fed lifting rates 115 bp between now and the end of year. The market recognizes that that Fed is not done tightening no matter what trope is dragged out to use as a strawman. The truth is the market is pushing against some Fed views. Chicago Fed's Evans, who many regard as a dove from earlier cycles, said that Fed funds could finish next year in the 3.75%-4.00% area, which opined would be the terminal rate. The swaps market says that the Fed funds terminal rate is closer to 3.50% and in the next six months. More than that, the Fed funds futures are pricing in a cut late next year. At least a 25 bp cut has been discounted since the end of June. It was the Minneapolis Fed President Kashkari that surprised many with his hawkishness. Many see him as a dove because five years ago, he dissented against rate increases in 2017. However, he has been sounding more hawkish in this context and revealed yesterday that it was his "dot" in June at 3.90% this year and 4.4% next year. These were the most extreme forecasts. Perhaps it is not that he is more dovish or hawkish, labels that seemingly take a life on of their own but more activity. While neither Evans nor Kashkari vote on the FOMC this year, they do next year. San Francisco Fed President Daly seemed more willing to consider moderating the pace of tightening but still sees more work to be done. She does not vote this year or next.  Headline CPI was unchanged last month and the 0.3% rise in the core rate was less than expected. At 8.5%, the headline is rate is still too high for comfort, and the unchanged 5.9% core rate warns significant progress may be slow. Shelter is about a third of the CPI basket and it is rising about 0.5% a month. It is up 5.7% year-over-year. If everything else was unchanged, this would lift CPI to 2%. The US reports July Producer Prices. Both the core and headline readings are expected to have slowed. The headline peaked in March, 11.6% above year ago levels. It was 11.3% in June and is expected to have fallen to 10.4%. The core rate is likely to post its fourth consecutive decline. It peaked at 9.6% in March and fell to 8.2% in June. The median forecast (Bloomberg's survey) is for a 7.7% year-over-year pace, which would be the lowest since last October.  Late in the North American session, Mexico's central bank is expected to deliver its second consecutive 75 bp rate hike. It will lift the overnight target rate to 8.5%. The July CPI reported Tuesday stood at 8.15% and the core 7.65%. The swaps market has a terminal rate near 9.5% in the next six months. The subdued US CPI reading, helped spur a 0.85% rally in the JP Morgan Emerging Market Currency Index yesterday, its largest gain in almost four weeks. The peso, often a liquid and accessible proxy, rose around 1.1%. The greenback briefly traded below MXN20.00 for the first time since late June. The move was so sharp that closed below its lower Bollinger Band (~MXN20.08) for the first time in six months. The US dollar slumped to almost CAD1.2750 yesterday to hold above the 200-day moving average (~CAD1.2745). It is the lowest level in nearly two months, and it has not traded below the 200-day moving average since June 9. Like the other pairs, it is consolidating today near the lower end of yesterday's greenback range. The swaps market downgraded the likelihood that the Bank of Canada follows last month's 100 bp hike with a 75 bp move when it meets on September 7. It is now seen as a 30% chance, less than half of what was projected at the end of last week. We suspect that the US dollar can recover into the CAD1.2800-20 area today.     Disclaimer   Source: US Dollar Soft while Consolidating Yesterday's Drop
Eyes On Iran Nuclear Deal: Oil Case. Gold Price Is Swinging

Eyes On Iran Nuclear Deal: Oil Case. Gold Price Is Swinging

Craig Erlam Craig Erlam 11.08.2022 14:32
Oil treading water after volatile 24 hours Needless to say, it was quite a volatile session in oil markets on Wednesday. A positive surprise on inflation was followed by a huge inventory build reported by EIA and then the highest US output since April 2020. Meanwhile, oil transit via the Druzhba pipeline resumed after a brief pause that jolted the markets. That’s a lot of information to process in the space of a couple of hours and you can see that reflected in the price action. And it keeps coming this morning, with the IEA monthly oil report forecasting stronger oil demand growth as a result of price incentivised gas to oil switching in some countries. It now sees oil demand growth of 2.1 million barrels per day this year, up 380,000. It also reported that Russian exports declined 115,000 bpd last month to 7.4 million from around 8 million at the start of the year. The net effect of all of this is that oil prices rebounded strongly on Wednesday but are pretty flat today. WTI is back above $90 but that could change if we see progress on the Iran nuclear deal. It’s seen plenty of support around $87-88 over the last month though as the tight market continues to keep the price very elevated. Gold performs handbrake turn after breakout It was really interesting to see gold’s reaction to the inflation report on Wednesday. The initial response was very positive but as it turned out, also very brief. Having broken above $1,800, it performed a swift u-turn before ending the day slightly lower. It can be difficult to gauge market reactions at the moment, in part because certain markets seem to portray far too much economic optimism considering the circumstances. With gold, the initial response looked reasonable. Less inflation means potentially less tightening. Perhaps we then saw some profit-taking or maybe some of that economic optimism crept in and rather than safe havens, traders had the appetite for something a little riskier. Either way, gold is off a little again today but I’m not convinced it’s peaked. From a technical perspective, $1,800 represents a reasonable rotation point. Fundamentally, I’m just not convinced the market is currently representative of the true outlook. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Source: Oil stablizes, gold pares gains
Bitcoin Is Showing The Potential For The Further Downside Rotation

Bitcoin Like Phoenix!? Crypto Community Can Breathe A Sigh Of Relief

Craig Erlam Craig Erlam 11.08.2022 14:48
Investors are certainly in a more upbeat mood as the relief from the US inflation data ripples through the markets. Positive surprises have been hard to come by on the inflation front this year and yesterday’s report was very much welcomed with open arms. While we shouldn’t get too carried away by the data, with headline inflation still running at 8.5% and core 5.9%, it’s certainly a start and one we’ve waited a long time for. Fed policymakers remain keen to stress that the tightening cycle is far from done and a policy u-turn early next year is highly unlikely. Once again, the markets are at odds with the Fed’s assessment on the outlook for interest rates but this time in such a way that could undermine its efforts so you can understand their concerns. I expect we’ll continue to see policymakers unsuccessfully push back against market expectations in the coming weeks while further driving home the message that data dependency works both ways. That said, the inflation report has further fueled the optimism already apparent in the markets and could set the tone for the rest of the summer. PBOC signals no further easing Unlike many other central banks, the PBOC has the scope to tread more carefully and continue to support the economy as it contends with lockdowns amid spikes in Covid cases. The country’s zero-Covid policy is a huge economic headwind and proving to be a drain on domestic demand. The PBOC has made clear in its quarterly monetary policy report though that it doesn’t want to find itself in the same position as many other countries right now. With inflation close to 3%, further easing via RRR or interest rates looks unlikely for the foreseeable future. Cautious targeted support looks the likely path forward as the central bank guards against inflation risks, despite the data yesterday surprising to the downside. Singapore trims growth forecasts A surprise contraction in the second quarter has forced Singapore to trim its full-year growth forecast range from 3-5% to 3-4% as the economy contends with a global slowdown, to which the country is particularly exposed, and Covid-related uncertainty in China. While the MAS has indicated monetary policy is appropriate after tightenings this year, inflation remains high so further pressures on this front may add to the headwinds for the economy. Where’s the momentum? Bitcoin took the inflation news very well and it continues to do so. Slower tightening needs and improved risk appetite is music to the ears of the crypto community who will be more confident that the worst is behind it than they’ve been at any point this year. Whether that means stellar gains lie ahead is another thing. The price hit a new two-month high today but I’m still not seeing the momentum I would expect and want. That may change of course and a break of $25,000 could bring that but we still appear to be seeing some apprehension that may hold it back in the near term. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Source: Welcome relief
UK Budget: Short-term positives to be met with medium-term caution

Boris Johnson Resignation Cause Further Difficulties For Pound Sterling (GBP)!? MarketTalk

Swissquote Bank Swissquote Bank 11.08.2022 12:20
US consumer prices eased in July, and they eased more than expected. US yields pulled lower after the CPI print, the US 10-year yield retreated, the US dollar slipped, gold gained, and the US stock markets rallied. Forex The EURUSD jumped to 1.0370 mark, as Cable made another attempt to 1.2272 but failed to extend gains into the 1.23 mark. And It will likely be hard for the pound sterling to post a meaningful recovery even if the dollar softens more, as there are too much political uncertainties in Britain following Boris Johnson’s resignation.   The sterling is under pressure, but the FTSE100 does just fine, and I will focus on why the British blue-chip companies are in a position to extend gains in this episode. Disney Elsewhere, Disney jumped on strong quarterly results, Tesla rallied despite news that Elon Musk dumped more stocks to prepare for an eventual Twitter purchase. Twitter shares gained.   Watch the full episode to find out more!   0:00 Intro 0:27 Softer-than-expected US CPI boosts appetite… 2:03 … but FOMC members warn that inflation war is far over! 3:39 FX update: USD softens, gold, euro, sterling advance 5:55 Why FTSE 100 is still interesting? 8:06 Disney jumps on strong results, Tesla, Twitter gain Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #US #inflation #data #Gold #XAU #USD #EUR #GBP #FTSE #Disney #earnings #Tesla #Twitter #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq   Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH Source: Stocks up on soft US CPI, but inflation war is not over! | MarketTalk: What’s up today? | Swissquote
Behind Closed Doors: The Multibillion-Dollar Deals Shaping Global Markets

US Jobless Claims: Even More Than The Previous Year. PBOC Hopes CPI To Stay At 3%

Saxo Strategy Team Saxo Strategy Team 12.08.2022 09:03
Summary:  Another downside surprise in US inflation in the wake of lower energy prices lifted the equity markets initially overnight. However, sustained hawkishness from Fed speakers brought the yields higher, weighing on equities which closed nearly flat in the US. Crude oil prices made a strong recovery with the IEA boosting the global growth forecast for this year. EURUSD stayed above 1.0300 and will be eying the University of Michigan report today along with UK’s Q2 GDP. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  After rising well over 1% in early trading amid the weaker-than-expected PPI prints, U.S. equities wiped out gains and closed lower, S&P 500 -0.07%, Nasdaq 100 -0.65%. Energy stocks were biggest gainers, benefiting from a 2.6% rally in the price of WTI crude, Devon Energy (DVN:xnys) +7.3%, Marathon Oil (MRO:xnys) +7%, Schlumberger (SLB:xnys) +5.7%.  Consumer discretionary and technology were the biggest decliners on Thursday. Chinese ADRs gained, Nasdaq Golden Dragon Index climbed 2.6%.  U.S. treasuries bear steepened In spite of weaker-than-expected PPI data, U.S. long-end treasury yields soared, 10-year yields +10bps to 2.99%, 30-year yields +14bps to 3.17%. The rise in long-end yields were initially driven by large blocks of selling in the T-bond and Ultra-long contracts and exacerbated in the afternoon after a poor 30-year auction. The yield of 2-year treasury notes was unchanged and the 2-10-year yield curve steepened 10bps to minus 23bps.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities surged, Hang Seng Index +2.4%, CSI300 Index +2.0%. Northbound inflows into A shares jumped to a 2-month high of USD1.9 billion. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +17.7%, Sunny Optical (02382:xhkg) +9%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. China internet names rebounded, Alibaba (09988:xhkg) +4.3%, Tencent (00700:xhkg) +2.7%, Meituan (03690:xhkkg) +4.0%, Baidu (09888:xhkg) +5.2%. Power tool and floor care manufacturer, Techtronic Industries (00669:xhkg) soared nearly 11% after reporting  a 10% year-on-year growth in both revenues and net profits in 1H22. The company rolled out a new generation of drill drivers that have embedded with machine learning algorithm. After collapsing 16% in share price yesterday, Longfor (00960) managed to stabilize and recover 5.7% following the company’s refutation of market speculation that it had failed to repay commercial papers due. EURUSD re-tested resistance levels EURUSD reclaimed the key 1.0300 on Thursday amid a softer dollar, and printed highs of 1.0364. While weaker-than-expected inflation prints in the US this week have curtailed dollar strength, it is hard for EURUSD to sustain gains amid the energy crisis and European recession concerns. A break below 1.0250 would be needed for EURUSD to reverse the trend, however. AUDUSD, likewise, trades above 0.7100 amid the risk on tone, but a turn lower in equities could reverse the trend. GBPUSD has been more range-bound around 1.2200 ahead of the Q2 GDP data scheduled to be released today, and EURGBP may be ready to break above 0.8470 resistance if the numbers come out weaker-than-expected. Crude oil prices (CLU2 & LCOV2) Crude oil prices gained further on Thursday amid signs of softer inflation, weaker dollar and improving demand. The International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch to oil. This could be aided by lower gasoline prices, which have dented demand during the US driving season. Prices fell below USD4/gallon for the first time since March. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures rose towards the 100-mark.   What to consider? Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. The PBOC reiterates that it will avoid excessive money printing to spur growth so as to safeguard against inflation.  China’s President Xi is said to be visiting Saudi Arabia next week The Guardian reports that President Xi Jinping is expected to visit Saudi Arabia on an invitation extended from Riyadh in March.  China has been eager to secure its oil supply and explore the possibility of getting its sellers to accept the renminbi to settle oil trade.   While relying on the United States for security in a volatile region and supplies of weapons, Saudi Arabia with Prince Mohammed being in charge is looking for leverage in the kingdom’s relationship with the United States.  UK Q2 GDP likely to show a contraction The Q2 GDP in the UK is likely to show a contraction after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 12, 2022
Siemens Gained 27% But Announced Its First Loss Since 2010. What Are The Causes?

Siemens Gained 27% But Announced Its First Loss Since 2010. What Are The Causes?

Conotoxia Comments Conotoxia Comments 12.08.2022 10:00
Germany's Siemens, a manufacturer of technology to automate and digitalise businesses and households by supplying hydraulic, electrical and electronic equipment and household appliances, today reported revenue growth of 27% (year-on-year) and 1% growth between quarters. What happened? This exceeded analysts' expectations of €17.47 billion, reaching €17.87 billion in Q3 (the financial year starts earlier than the calendar year). This growth was mainly attributed to an increase in orders from the areas of business automation and intelligent infrastructure.   "Demand in the European capital goods sector is holding up," commented Barclays last week, following the publication of results from other companies in the sector, such as ABB and Schneider Electric. This was also confirmed by CEO Roland Busch, who said that demand remained strong in the quarter despite an environment affected by sanctions on Russia, high inflation and the ongoing effects of a pandemic. However, it is worth noting that these companies typically operate on long-term contracts and the decline in demand can be noticed after a long delay.    Siemens has a strongly diversified business, not only in terms of products but also in respect of the countries of origin of its customers. However, this may not protect it from the looming recession, which seems to be a problem not only for Europe or the US but for the whole world.    Alarming are, for example, the data of the German manufacturing PMI (Purchasing Managers' Index), which measures the assessment of the economic situation by managers. This index is currently at almost its lowest level in two years. The results in other countries in Europe and America also look similar. Asian economies also appear to be weakening.   Siemens also incurred a net loss of €1.66 billion charge for the write-down of the value of its stake in Siemens Energy, which operated in Russia. In addition, the company estimates that it has incurred additional losses of €0.6 billion due to the actions of the Russian Federation.   Despite high energy prices, Siemens is struggling to make savings from its 35% stake in the turbine and wind energy company. It has had a difficult two years since the spin-off in 2020, with operational problems and losses in the Siemens Gamesa wind turbine division.   Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)   Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.   CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Siemens posted its first loss since 2010, yet shares are gaining
Commodities Update: Strong Russian Oil Flows to China and Volatility in European Gas Market

Natural Gas Report After Weekly US Storage - Obnoxious Results

Saxo Bank Saxo Bank 12.08.2022 11:34
Summary:  Today we note that the big surge in yields at the long end of the US yield curve were likely the critical factor in capping and reversing the extension of the rally in equities yesterday. The US dollar found a bit of resilience on the development as well, if only half-hearted. Elsewhere, we zoom in on global natural gas supply concerns after the latest weekly US storage yesterday, discuss the grains outlook with a key report up late today and look ahead at the fairly busy macro calendar next week, while wondering how the Fed deals with re-establishing its hawkish credibility. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please!   We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: US yields jump, capping complacency
RBA Pauses Rates as Australian Dollar Slides; ISM Manufacturing PMI in Focus

Dollar (USD) Became Stronger, Not Enough Yet. Fed Better Meet Expectations!

John Hardy John Hardy 12.08.2022 14:23
Summary:  US treasury yields at the long end of the yield curve jumped higher yesterday to multi-week highs, a challenge to widespread complacency across global markets. The USD found a modicum of support on the development, though this was insufficient to reverse the recent weakening trend. It will likely take a more determined rise in US yields and a tightening of financial conditions, possibly on further Fed pushback against market policy expectations, to spark a more significant USD comeback. FX Trading focus: US yields jump, not yet enough to reverse recent USD dip A very interesting shift in the US yield curve yesterday as long yields jumped aggressively higher, with the 30-year yield getting the most focus on a heavy block sale of US “ultra” futures and a softer than expected 30-year T-bond auction from the US treasury. The 30-year benchmark yield jumped as much as 15 basis points from the prior close, with the 10-year move a few basis points smaller. We shouldn’t over-interpret a single day’s action, but it is a technical significant development and if it extends, could be a sign of tightening liquidity as the Fed ups its sales of treasuries and even a sign that market concern is growing that the Fed will fail to get ahead of inflation. As for the market reaction, the USD found some support, but it was modest stuff – somewhat surprisingly in the case of the normally very long-US-yield-sensitive USDJPY. Overnight, a minor shuffle in Japanese PMI Kishida’s cabinet has observers figuring that there is no real determined pushback yet against the Kuroda BoJ’s YCC policy, with focus more on bringing relief to lower income households struggling with price rises for essentials. Indeed, BoJ policy is only likely to come under significant pressure again if global yields pull to new cycle highs and the JPY finds itself under siege again. As for USDJPY, it has likely only peaked if long US yields have also peaked for the cycle. Chart: EURUSD EURUSD caught in limbo here, having pulled up through the resistance in the 1.0275+ area after a long bought of tight range trading, but not yet challenging through the next key layer of resistance into 1.0350+. It wouldn’t take much of a further reversal here to freshen up the bearish interest – perhaps a dip and close below 1.0250 today, together with a bit of follow through higher in US yields and a further correction in risk sentiment. Eventually, we look for the pair to challenge down well through parity if USD yields retest their highs and beyond. Source: Saxo Group Elsewhere – watching sterling here as broader sentiment may be at risk of rolling over and as we wind our way to the conclusion of the battle to replace outgoing Boris Johnson, with Liz Truss all but crowned. Her looser stance on fiscal prudence looks a sterling negative given the risks from UK external deficits. Her instincts seem pro-supply side on taxation, but the populist drag of cost-of-living issues has shown her to be quick to change her stripes – as she has often been, having reversed her position on many issues, including Brexit (was a former remainer). Today’s reminder of the yawning trade deficit (a current run rate of around 10% of GDP) and the energy/power situation together with dire supply side restraints on the UK economy have us looking for sterling weakness – a start would be a dip below 1.2100 in GBPUSD, which would reverse the reaction earlier this week to the US July CPI release. The week ahead features an RBNZ on Wednesday (market nearly fully priced for another two meetings of 50 basis points each). NZDUSD has looked too ambitious off the lows – there is no strong external surplus angle for the kiwi like there is for the Aussie – might be a place to get contrarian to the recent price action if global risk sentiment is set to roll over again finally now that the VIX has pushed all the way to 20 (!).  A Norges Bank meeting on Thursday may see the bank hiking another 50 basis points as it continues to catch up to inflationary outcomes. The US FOMC minutes are up next Wednesday and may be a bit of a fizzle, given that the bulk of the easing financial conditions that the Fed would like to push back against came after the meeting. Table: FX Board of G10 and CNH trend evolution and strength. The US dollar hasn’t gotten much from the latest development in yields – watching the next couple of sessions closely for direction there, while also watching for the risk of more sterling downside, while NZD looks overambitious on the upside. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. The EURGBP turn higher could follow through here – on the lookout for that development while also watching GBPUSD status in coming sessions and whether the EURUSD move higher also follows through as per comments on the chart above. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Fed’s Barkin (non-voter) to speak 1400 – US Aug. Preliminary University of Michigan sentiment Share Source: FX Update: US yield jump brings USD resilience if not a reversal.
Canadian Dollar Falters as USD/CAD Tests Key Support Amidst Rising Oil Prices and Economic Data

Zantac: $40bn Scandal Meets The Market! S&P 500 Has Troubles?

Peter Garnry Peter Garnry 12.08.2022 14:52
Summary:  The easing inflation narrative has been building strength for six weeks now and the short-term vindication in the US CPI release on Wednesday has bolstered the bulls. However, the structural issues in the supply-side of the economy have been resolved and wages combined with rents will add more pressure on inflation going forward. We also highlight the unfolding scandal around the heartburn drug Zantac as it has erased $40bn in market value from Sanofi and GSK. Finally, we take a look at next week's earnings. It is too early to call inflation is tamed The US July CPI release on Wednesday has bolstered the soft-landing and easing inflation trade catapulting high duration assets higher. S&P 500 futures are attempting to push higher and the 200-day moving average sitting around the 4,325 level is suddenly not an outrageous gravitational point for US equities in the near-term. While the equity market is buying the all good scenario on inflation we would emphasise that it is too early to call. The Fed will like to see the 6-month average on the US CPI core m/m to go back to 0.2% before easing policy and that is simply not possible until at least the end of Q1 next year. Many of the structural issues except maybe for logistics, and this pain could come back again this winter if China gets another big Covid outbreak, are still not solved as capital expenditures in real terms are still not coming up in the global mining and energy industry. Labour markets remain tight with especially the US being the worst hit having lost around 1.5%-point of its labour force due to the pandemic and these people are likely never coming back. Rent dynamics are also heating up in both the US and Europe, and this winter will test the strength of the European population as the energy crisis could get much worse. We encourage investors to watch the US 10-year yield as a break above 3% again should cause a negative reaction in global equities. S&P 500 continuous futures | Source: Saxo Group US CPI core m/m | Source: Bloomberg Potential gigantic Zantac liabilities hit Sanofi, GSK, and Pfizer Health care is typically associated with stability, high valuations, and high predictability in the underlying cash flows, but the industry is being rocked by increasing concerns over the heartburn drug Zantac. Sanofi, GSK, and Pfizer have lost combined market value of $40bn and analysts are estimating that damage liabilities could reach $10-45bn. Zantac was removed from the market in 2019 by the FDA as the drug appears to be producing unacceptably high levels of a cancer-causing chemical. There is case coming up in Illinois on 22 August which will give the first indications of where this is going. There will continue to be short-term headwinds for both Sanofi and GSK where Pfizer seems to have been selling the drug for a much more reduced period than the two others. Weekly share prices of Sanofi, GSK, and Pfizer | Source: Bloomberg Earnings to watch next week The Q2 earnings season is slowly coming to end and what a quarter it has been with earnings jumping to a new all-time high (see chart) driven by a significant increase in profits in the energy sector. The technology sector measure by the Nasdaq 100 had another bad quarter with earnings declining reinforcing the need to cut costs of many of these previously fast growing technology companies. Next week’s most important earnings are highlighted below with the names in bold being those that can move market or industry sentiment. Meituan on Monday is important for gauging consumer spending and behaviour in China. BHP Group is must watch on Monday as the Australian miner is tapped into China’s growth and demand for iron ore. On Tuesday, earnings from Walmart and Home Depot can provide an updated picture on global supply chains and price pressures across a wide range of consumer products. Tencent reports on Wednesday and is an important earnings release for investors watching Chinese technology stocks as the recent amendment to China’s anti-monopoly laws is adding more pressure on the big technology platform companies. In the payments industry, Adyen’s result on Thursday will be highly watched as Adyen is really challenging PayPal on growth and dominance in the industry. Monday: China Construction Bank, Agricultural Bank of China, Meituan, China Life Insurance, China Shenhua Energy, China Petroleum & Chemical, BHP Group, COSCO Shipping, Li Auto, Trip.com Group, DiDi Global Tuesday: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Source: The soft-landing and inflation easing narrative is thriving
Chile's Lithium Nationalization and the Global Trend of Resource Nationalism: Implications for EV Supply Chains and Efforts to Strengthen Battery Metal Supply

Commodities: Prices Are Rising, Heatwaves In US And China Affect The Production Of Cotton

Ole Hansen Ole Hansen 12.08.2022 16:00
Summary:  The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing, driven by recent economic data strength, dollar weakness and signs inflation may have peaked. With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support, especially across the sectors of energy and key agriculture commodities. The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing. According to the Bloomberg commodity sector indices, the correction period triggered peak to bottom moves of 41% in industrial metals, 31% in grains and 27% in energy. The main reason for the dramatic correction following a record run of strong gains was the change in focus from tight supply to worries about demand. Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver has been the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing but recent economic data strength, dollar weakness and signs inflation may have peaked have all helped support markets that have gone through weeks and in some cases months of sharp price declines, and with that an aggressive amount of long liquidation from financial traders as well as selling from macro-focused funds looking for a hedge against an economic downturn.With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support and problems for those who have been selling markets looking for even lower prices in anticipation of recession and lower demand. Backwardation remains elevated despite growth worries The behaviour of spot commodity prices, as seen through first month futures contracts, rarely gives us the full fundamental picture with the price action often being dictated by technical price-driven speculators and funds focusing on macroeconomic developments, as opposed to the individual fundamental situation. The result of this has been a period of aggressive selling on a combination of bullish bets being scaled back but also increased selling from funds looking to hedge an economic slowdown.An economic slowdown, or in a worst-case scenario a recession, would normally trigger a surplus of raw materials as demand falters and production is slow to respond to a downturn in demand. However, during the past three months of selling, the cost of commodities for immediate delivery has maintained a healthy premium above prices for later deliveries. The chart below shows the spread measured in percent between the first futures and the 12-month forward futures contract, and while the tightness has eased a bit, we are still seeing tightness across a majority, especially within energy and agriculture. A sign that the market has sold off on expectations more than reality, and it raises the prospect of a strong recovery once the growth outlook stabilises. Crude oil The downward trending price action in WTI and Brent for the past couple of months is showing signs of reversing on a combination of the market reassessing the demand outlook amid continued worries about supply and who will and can meet demand going forward. The recovery from below $95 in Brent and $90 in WTI this week was supported by signs of softer US inflation reducing the potential peak in the Fed fund rates, thereby improving the growth outlook. In addition, the weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March.In addition, the International Energy Agency (IEA) lifted its global consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel-based products. Meanwhile, OPEC may struggle to raise output in the coming months due to limited spare capacity. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold (XAUUSD) The recently under siege yellow metal was heading for a fourth weekly gain, supported by a weaker dollar after the lower-than-expected US CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. We believe the markets newfound optimism about the extent to which inflation can successfully be brought under control remains too optimistic and together with several geopolitical worries, we see no reason to exit our long-held bullish view on gold as a hedge and diversifier. Gold has found some support at the 50-day moving average line at $1783, and needs to hold $1760 in order to avoid a fresh round of long liquidation the short-term. While some resistance is located just above $1800 gold needs a decisive break above $1829 in order to trigger the momentum needed to attract fresh buying in ETFs and managed money accounts in futures. Source: Saxo Group Industrial metals (Copper)   Copper has rebounded around 18% since hitting a 20-month low last month, thereby supporting a general recovery across industrial metals, the hardest hit sector during the recent correction. Supported by a softer dollar, data showing the US economy remains robust, easing concerns about the demand outlook in China and not least disruptions to producers in Asia, Europe as well as South America potentially curtailing supply at a time when exchange-monitored inventories remain at a decade low. All developments that have forced speculators to cut back recently established short positions.The potential for an improved demand outlook in China and BHP's recent announcement that it has made an offer for OZ Minerals and its nickel and copper-focused assets, is the latest in a series of global acquisitions aimed at shoring up supplies of essential metals for the energy transition. With its high electrical conductivity, copper supports all the electronics we use, from smartphones to medical equipment. It already underpins our existing electricity systems, and it is crucial to the electrification process needed over the coming years in order to reduce demand for energy derived from fossil fuels.Following a temporary recovery in the price of copper around the beginning of June when China began easing lockdown restrictions, the rally quickly ran out of steam and copper went on to tumble below key support before eventually stabilizing after finding support at $3.14/lb., the 61.8% retracement of the 2020 to 2022 rally. Since then, the price has recovered strongly but may temporarily pause after reaching finding resistance in the $3.70/lb area. We maintain a long-term bullish view on copper and prefer buying weakness instead of selling into strength. Source: Saxo Group The grains sector traded at a five-week high ahead of Friday’s supply and demand report from the US Department of Agriculture. The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat and corn in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon-to-be-harvested crop has given the World Agricultural Supply and Demand Estimates report some additional attention with surveys pointing to price support with the prospect of lower yields lowering expectations for the level of available stocks ahead of the coming winter. Cotton, up 8% this month has seen the focus switch from growth and demand worries, especially in China, to deepening global supply concerns as heatwaves in the US and China hurt production prospects. Friday’s monthly supply and demand report (WASDE) from the US Department of Agriculture was expected to show lower US production driving down ending stocks by around 10% to 2.2 m bales, an 11-year low. Arabica coffee, in a downtrend since February, has also seen a steady rise since bouncing from key support below $2/lb last month. A persistent and underlying support from South American production worries has reasserted itself during the past few weeks as the current on-season crop potentially being the lowest since 2014. Brazil’s drought and cold curbed flowering last season and severe frosts in July 2021 led farmers to cut down coffee trees at a time of high costs for agricultural inputs, notably fertilizer. In addition, Columbia another top producer, has seen its crop being reduced by too much rainfall. Source: WCU: Commodity correction may have exhausted itself
The Gold Rally Is Continuing To Stall, This Could Be A Good Year For Crude Oil

WTI Astonishing Streak! Japan Jumps. China, Australia And South Korea Are In Trouble?

Marc Chandler Marc Chandler 12.08.2022 15:15
Overview: The markets are putting the finishing touches on this week’s activity. Japan, returning from yesterday’s holiday bought equities, and its major indices jumped more than 2%. China, South Korea, and Australia struggled. Europe’s Stoxx 600 is firmer for the third consecutive session. It is up about 1.3% this week. US futures are also firmer after reversing earlier gains yesterday to close lower on the day. The US 10-year yield is flat near 2.88%, while European benchmarks are 4-6 bp higher. The greenback is mixed. The dollar-bloc currencies and Norwegian krone are slightly firmer, while the Swedish krona, sterling, and the yen are off around 0.3%-0.6%. Emerging market currencies are also mixed, though the freely accessible currencies are mostly firmer. The JP Morgan Emerging Market Currency Index is up about 1.15% this week, ahead of the Latam session, which if sustained would be the strongest performance in three months. Gold is consolidating at lower levels having been turned back from $1800 in the middle of the week. Near $1787.50, it is up less than 0.7% for the week. September WTI is edging higher for the third consecutive session, which would match the longest streak since January. US natgas surged 8.2% yesterday but has come back offered today. It is off 2.3%. Europe’s natgas benchmark is snapping a three-day advance of nearly 8% and is off 1.8% today. Iron ore rose 2.2% yesterday and it gave most of its back today, sliding almost 1.7%. September copper is unchanged after rallying more than 3.3% over the past two sessions. September wheat has a four-day rally in tow but is softer ahead of the Department of Agriculture report (World Agricultural Supply and Demand Estimates). Asia Pacific   Japan and China will drop some market sensitive high-frequency economic data as trading begins in the new week.  Japan will release its first estimate of Q2 GDP. The median in Bloomberg's survey and the average of a dozen Japanese think tanks (cited by Jiji Press) project around a 2.7% expansion of the world's third-largest economy, after a 0.5% contraction in Q1. Consumption and business investment likely improved. Some of the demand was probably filled through inventories. They added 0.5% to Q1 growth but may have trimmed Q2 growth. Net exports were a drag on Q1 (-04%) and may be flat. The GDP deflator was -0.5% in Q1 and may have deteriorated further in Q2. Some observers see the cabinet reshuffle that was announced this week strengthening the commitment to ease monetary policy. The deflation in the deflator shows what Governor Kuroda's successor next April must address as well. China reports July consumption (retail sales), industrial output, employment (surveyed jobless rate), and investment (fixed assets and property).  The expected takeaway is that the world's second-largest economy is recovering but slowly. Industrial output and retail sales are expected to have edged up. Of note, the year-to-date retail sales compared with a year ago was negative each month in Q2 but is expected to have turned positive in July. The year-over-year pace of industrial production is expected to rise toward 4.5%, which would be the best since January. The housing market, which acted as a critical engine of growth is in reverse. New home prices (newly build commercial residential building prices in 70 cities) have been falling on a year-over-year basis starting last September, and likely continued to do so in July. Property investment (completed investment in real estate) likely fell for the fourth consecutive month. It has slowed every month beginning March 2021. The pace may have accelerated to -5.6% year-over-year after a 5.4% slide in the 12-months through June. The surveyed unemployed rate was at 4.9% last September and October. It rose to 6.1% in April and has slipped back to 5.5% in June. The median forecast in Bloomberg's survey expects it to have remained there in July. Lastly, there are no fixed dates for the lending figures and the announcement of the one-year medium-term lending facility rate. Lending is expected to have slowed sharply from the surge in June, while the MLF rate is expected to be steady at 2.85%. Over the several weeks, foreign investors have bought a record amount of Japanese bonds.  Over the past six weeks, foreigners snapped up JPY6.44 trillion (~$48 bln). It may partly reflect short-covering after the run-in with the Bank of Japan who bought a record amount to defend the yield-curve control cap of 0.25% on the 10-year bond. There is another consideration. For dollar-based investors, hedging the currency risk, which one is paid to do, a return of more than 4% can be secured. At the same time, for yen-based investors, hedging the currency risk is expensive, which encourages the institutional investors to return to the domestic market. Japanese investors have mostly been selling foreign bonds this year. However, the latest Ministry of Finance data shows that they were net buyers for the third consecutive week, matching the longest streak of the year. Still, the size is small. suggesting it may not be a broad or large force yet. Although the US 10-year yield jumped 10 bp yesterday, extending its recovery from Monday's low near 2.75% for a third session, the dollar barely recovered against the yen.  After falling 1.6% on Wednesday, after the softer than expected US CPI, the greenback rose 0.1% yesterday and is edging a little higher today. Partly what has happened is that the exchange rate correlation with the 10-year yield has slackened while the correlation with the two-year has increased. In fact, the correlation of the change in the two-year and the exchange rate is a little over 0.60 and is the highest since March. The dollar appears to be trading comfortably now between two large set of options that expire today. One set is at JPY132 for $860 mln and the other at JPY134 for $1.3 bln. Around $0.7120, the Australian dollar is up about 3% this week and is near two-month highs. It reached almost $0.7140 yesterday. The next technical target is in the $0.7150-$0.7170 area. Support is seen ahead of $0.7050. Next week's data highlight is the employment data (August 18). The greenback traded in a CNY6.7235-CNY6.7600 on Wednesday and remained in that range yesterday and today. For the second consecutive week, the dollar has alternated daily between up and down sessions for a net change of a little more than 0.1%. The PBOC set the dollar's reference rate at CNY6.7413, tight to expectations (Bloomberg's survey) of CNY6.7415. Europe   The UK's economy shrank by 0.6% in June, ensuring a contraction in Q2.  The 0.1% shrinkage was a bit smaller than expected but the weakness was widespread. Consumption fell by 0.2% in the quarter, worse than expected, while government spending collapsed by 2.9% after a 1.3% pullback in Q1. A decline in Covid testing and slower retail sales were notable drags. The one bright spot was business investment was stronger than expected. The June data itself was miserable, though there was an extra holiday (Queen's jubilee). All three sectors, industrial output, services, and construction, all fell in June and the trade balance deteriorated. The market's expectation for next month's BOE meeting was unaffected by the data. The swaps market has about an 85% chance of another 50 bp hike discounted.  Industrial output in the eurozone rose by 0.7%, well above the 0.2% median forecast in Bloomberg's survey and follows a 2.1% increase in May.  The manufacturing PMI warned that an outright contraction is possible. Of the big four members, only Italy disappointed. The median forecast in Bloomberg's survey anticipated a decline in German, France, and Spain. Instead, they reported gains of 0.4%, 1.4%, and 1.1% respectively. Industrial output was expected to have contracted by 0.1% in Italy and instead it reported a 2.1% drop. In aggregate, the strength of capital goods (2.6% month-over-month) and energy (0.6%) more than offset the declines in consumer goods and intermediate goods. The year-over-year rise of 2.4% is the strongest since last September. The disruption caused by Russia's invasion of Ukraine and the uneven Covid outbreaks and responses are as Rumsfeld might have said known unknowns.  But the disruptive force that may not be fully appreciated is about to get worse. The German Federal Waterways and Shipping Administration is warning that water in the Rhine River will fall below a critical threshold this weekend. At an important waypoint, the level may fall to about 13 inches (33 centimeters). Less than around 16 inches (40 centimeters) and barges cannot navigate. An estimated 400k barrels a day of oil products are sent from the Amsterdam-Rotterdam-Antwerp region to Germany and Switzerland. The International Energy Agency warns that the effects could last until late this year, and hits landlocked countries who rely on the Rhine the hardest. Bloomberg reported that Barge rates from Rotterdam to Basel have risen to around 267 euros a ton, a ten-fold increase in a few months. The strong surge in the euro to almost $1.0370 on Wednesday has stalled.  The euro is consolidating inside yesterday's relatively narrow range (~$1.0275-$1.0365). The momentum traders may be frustrated by the lack of follow-through. We suspect a break of $1.0265 would push more to the sidelines. The downtrend line from the February, March, and June highs comes in slightly above $1.0385 today. The broad dollar selloff in response to the July CPI saw sterling reach above $1.2275, shy of the month's high closer to $1.2295. Similar to the euro, sterling stalled. It has slipped through yesterday's low (~$1.2180). A break of the $1.2140 area could see $1.2100. That said, the $1.20 area could be the neckline of a double top and a convincing break would signal the risk of a return to the lows set a month ago near $1.1760. America   Think about the recent big US economic news.  It began last Friday with a strong employment report, more than twice what economists expected (median, Bloomberg survey) and a new cyclical low in unemployment. The job gains were broadly distributed. That was followed by a softer than expected CPI and PPI. Some observers placed emphasis on the slump in productivity and jump in unit labor costs. Those are derived from GDP figures and are not measured separately, though they are important economic concepts. Typically, when GDP is contracting, productivity contracts and by definition, unit labor costs rise. In effect, the market for goods and services adjusts quicker the labor market, and the market for money, even quicker. If the economy expands as the Atlanta Fed GDPNow tracker or the median in Bloomberg's survey project (2.5% and 2.0%, respectively), productivity will improve, and unit labor costs will fall. Barring a precipitous fall today, the S&P 500 and NASDAQ will advance for the fourth consecutive week.  The 10-year yield fell by almost 45 bp on the last three week of July and has recovered around half here in August. That includes five basis points this week despite the softer inflation readings. The two-year note yield fell almost 25 bp in the last two weeks of July and jumped 34 bp last week. It is virtually flat this week around 3.22%. The odds of a 75 bp rate hike at next month's FOMC meeting fell from about 75% to about 47%. The year-end rate expectation fell to 3.52% from 3.56%. Some pundits claim the market is pricing in a March 2023 cut, but the implied yield of the March 2023 Fed funds futures contract is 18 bp above the December 2022 contract. It matches the most since the end of June. Still, while the Federal Reserve is trying to tighten financial conditions the market is pushing back. The Bloomberg Financial Conditions Index is at least tight reading since late April. The Goldman Sachs Financial Condition index is the least tight in nearly two months.  US import and export prices are the stuff that captures the market's imagination.  However, the preliminary University of Michigan's consumer survey, and especially the inflation expectations can move the markets, especially given that Fed Chair Powell cited it as a factor encouraging the 75 bp hike in June. The Bloomberg survey shows the median expectation is for a tick lower in inflation expectations, with the one-year slipping to 5.1% from 5.2%. The 5-10-year expectation is seen easing to 2.8% from 2.9%. If accurate, it would match the lowest since April 2021. The two-year breakeven (difference between the conventional yield and the inflation-protected security) peaked in March near 5% and this week reached 2.70%, its lowest since last October. It is near 2.80% now. Mexico delivered the widely anticipated 75 bp hike yesterday.  The overnight rate target is now 8.50%. The decision was unanimous. It is the 10th consecutive hike and concerns that AMLO's appointments would be doves has proven groundless. The central bank meets again on September 29. Like other central banks, it did not pre-commit to the size of the next move, preserving some tactical flexibility. If the Fed hikes by 75 bp, it will likely match it. Peru's central bank hiked its reference rate by 50 bp, the 10th consecutive hike of that magnitude after starting the cycle last August with a 25 bp move. It is not done. Lima inflation was near 8.75% last month and the reference rate is at 6.50%. The Peruvian sol is up about 1.2% this month, coming into today. It has appreciated by around 3.25% year-to-date, making it the second-best performer in the region after Brazil's 8.1% rise. Argentina hiked its benchmark Leliq rate by 950 bp yesterday to 69.5%. It had delivered an 800 bp hike two weeks again. Argentina's inflation reached 71% last month. The Argentine peso is off nearly 23.5% so far this year, second only to the Turkish lira (~-26%). The US dollar fell slightly below CAD1.2730 yesterday, its lowest level since mid-June. The slippage in the S&P 500 and NASDAQ helped it recover to around CAD1.2775. It has not risen above that today, encouraged perhaps by the firmer US futures. Although the 200-day moving average (~CAD1.2745) is a good mile marker, the next important chart is CAD1.2700-CAD1.2720. A convincing break would target CAD1.2650 initially and then CAD1.2600. While the Canadian dollar has gained almost 1.4% against the US dollar this week (around CAD1.2755), the Mexican peso is up nearly 2.4%. The greenback is pressing against support in the MXN19.90 area. A break targets the late June lows near MXN19.82. The MXN20.00 area provides the nearby cap.       Disclaimer   Source: Heading into the Weekend, Dollar's Downside Momentum Stalls
The Commodity Sector Has Dropped Significantly

People Are Buying Gold. SIlver And Copper Stopped? Crude Oil Weakness

Ole Hansen Ole Hansen 16.08.2022 09:23
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 9. A relatively quiet week where a continued improvement in risk appetite drove stocks higher while softening the dollar. Some commodity positions, with crude oil the major exceptions, showed signs of having reached a trough following weeks of heavy selling Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 9. A relatively quiet summer holiday impacted week where stocks traded higher ahead of last week’s CPI and PPI print after better than expected economic data helped reduce US recession fears while the market was looking for inflation to roll over. The dollar traded a tad softer, bond yields firmed up while commodities showed signs of having reached a trough following weeks of heavy selling.    Commodities Hedge funds were net buyers for a second week with demand concentrated in metals and agriculture while the energy sector saw continued selling. Overall the net long across 24 major commodity futures rose for a second week after recently hitting a two-year low. Buying was concentrated in gold, platinum, corn and livestock with crude oil and wheat being to most notable contracts seeing net selling. Energy: Speculators responded to continued crude oil weakness by cutting bullish bets in WTI and Brent crude by a combined 14% to a pre-Covid low at 304.5k lots. The reductions were primarily driven by long liquidation in both contracts following a demand fear driven breakdown in prices. Gas oil and gasoline longs were also reduced. Metals: Buying of metals extended to a second week led by gold which saw a 90% jump in the net long to 58.2k lots. Overall, net short positions were maintained in silver, platinum and copper with the latter seing a small amount of fresh selling due to profit taking on recently established longs. Agriculture: Grains were mixed with corn and soybeans seeing continued buying ahead of Friday's WASDE  report while the CBOT corn net short jumped 36% to 20k lotsand the Kansas net long was cut to a two-year low. The total grain long rose for second week having stabilised around 300k lots having collapse from a near record 800k lot on April 22.Soft commodities saw elevated short positions in sugar and cocoa being maintained with price gains in coffee and not least cotton supporting a small increase in their respective net longs. This before Friday's surge in cotton which left it up 13% on the week after the US Department of Agriculture slashed the US crop forecast by 19% to a 12-year low. Driven by a high level of abandonment of fields in the drought-stricken Southwest.      Forex In the week to August 9 when the dollar traded close to unchanged against a basket of major currencies, speculators increased to three the number of weeks of continued dollar selling. The pace of selling even accelerated to the highest since January after the gross long against ten IMM futures and the Dollar Index was slashed by 20% to $17.4 billion, a nine week low. Most notable selling of the greenback was seen against GBP and JPY followed by EUR and CHF. The Japanese yen, under pressure for months as yield differentials to the dollar widened saw its net short being cut by 22% to a 17-month low.     What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming  Source: COT: Speculators cut oil long to pre-covid low
USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

Saxo Strategy Team Saxo Strategy Team 16.08.2022 14:00
Summary:  Equities traded higher still yesterday as treasury yields fell further back into the recent range and on hopes that an Iran nuclear deal will cement yesterday’s steep drop in oil prices. The latest data out of the US was certainly nothing to celebrate as the July US Homebuilder survey showed a further sharp drop in new housing interest and a collapse in the first regional US manufacturing survey for August, the New York Fed’s Empire Manufacturing.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their gains yesterday getting closer to the 200-day moving average sitting around the 4,322 level. The US 10-year yield seems well anchored below 3% and financial conditions indicate that S&P 500 futures could in theory trade around 4,350. The news flow is light but earnings from Walmart later today could impact US equities should the largest US retailer lower their outlook for the US consumer. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities were mixed. CSI300 was flat, with electric equipment, wind power, solar and auto names gained. Hang Seng Index declined 0.5%. Energy stocks fell on lower oil price. Technology names were weak overall, Hang Seng TECH Index (HSTECH.I) declined 0.9%. Sunny Optical (02382:xhkg) reported worse than expected 1H22 results, revenues -14.4% YoY, net profits -49.5%, citing weakening component demand from the smartphone industry globally. The company’s gross margin plunged to 20.8% from 24.9%. Li Auto’s (02015:xhkg/LI:xnas) Q2 results were in line with expectations but Q3 guidance disappointed. The launch L9 seems cannibalizing Li ONE sales. USD: strength despite weak US data and falling treasury yields and strong risk sentiment Yesterday, the JPY tried to make hay on China cutting rates and as global yields eased back lower, with crude oil marked several dollars lower on hopes for an Iran nuclear deal. But the move didn’t stick well in USDJPY, which shrugged off these developments as the USD firmed further across the board, despite treasury yields easing lower, weak data and still strong risk sentiment/easy financial conditions. A strong US dollar is in and of itself is a tightening of financial conditions, however, and yesterday’s action has cemented a bullish reversal in some pairs, especially EURUSD and GBPUSD, where the next important levels pointing to a test of the cycle lows are 1.0100 and 1.2000, respectively. Elsewhere, USDJPY remains in limbo (strong surge above 135.00 needed to suggest upside threat), USDCAD has posted a bullish reversal but needs 1.3000 for confirmation, and AUDUSD is teetering, but needs a close back below 0.7000 to suggest a resurgent US dollar and perhaps widening concerns that a Chinese recession will temper interest in the Aussie. Crude oil Crude oil (CLU2 & LCOV2) trades lower following Monday’s sharp drop that was driven by a combination softer economic data from China and the US, the world’s top consumers of oil, and after Iran signaled a nuclear deal could be reached soon, raising the prospect of more Iranian crude reaching the market. The latest developments potentially reducing demand while adding supply forced recently established longs to bail and short sellers are once again in control. Brent needs to hold support at $93 in order to avoid further weakness towards $90. Focus on Iran news. Copper Copper (COPPERUSSEP22) led the metals pack lower, without breaking any key technical levels to the downside, after China’s domestic activity weakened in July. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. HG copper jumped 19% during the past month and yesterday’s setback did not challenge any key support level with the first being around $3.50/lb. BHP, the world’s top miner meanwhile hit record profits while saying that China is likely to offer a “tail wind” to global growth (see below). EU power prices hit record high on continued surge in gas prices ... threatening a deeper plunge into recession. The latest surge being driven by low water levels on Europe’s rivers obstructing the normal passage for diesel, coal, and other fuel products, thereby forcing utilities to use more gas European Dutch TTF benchmark gas futures (TTFMU2) has opened 5% higher at €231/MWh, around 15 times higher than the long-term average, suggesting more pain ahead for European utility companies. Next-year electricity rates in Germany (DEBYF3) closed 3.7% higher to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That is almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. US Treasuries (IEF, TLT) see long-end yields surging. Yields dipped back lower on weak US economic data, including a very weak Empire Manufacturing Survey (more below) and another sharp plunge in the NAHB survey of US home builders, suggesting a rapid slowdown in the housing market. The survey has historically proven a leading indicator on prices as well. The 10-year benchmark dipped back further into the range after threatening to break up higher last week. The choppy range extends down to 2.50% before a drop in yields becomes a more notable development, but tomorrow’s US Retail Sales and FOMC minutes offer the next test of sentiment. What is going on? Weak Empire State manufacturing survey and NAHB Index Although a niche and volatile measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. China's CATL plans to build its second battery factory in Europe CATL unveiled plans to build a renewable energy-powered factory for car battery cells and modules in Hungary. It will invest EUR 7.34 billion (USD 7.5bn) on the 100-GWh facility, which will be its second one in Europe. To power the facility CATL will use electricity from renewable energy source, such as solar power. At present, CATL is in the process of commissioning its German battery production plant, which is expected to roll out its first cells and modules by the end of 2022. Disney (DIS) shares rise on activist investor interest Daniel Loeb of Third Point announced a significant new stake in Disney yesterday, helping to send the shares some 2.2% higher in yesterday’s session. The activist investor recommended that the company spin off its ESPN business to reduce debt and take full ownership of the Hulu streaming service, among other moves. Elliott exits SoftBank Group The US activist fund sold its stake in SoftBank earlier this year in a sign that large investors are scaling back on their investments in technology growth companies with long time to break-even. In a recent comment, SoftBank’s founder Masayoshi Son used more cautious words regarding the investment company’s future investments in growth companies. BHP reports its highest ever profit, bolstered by coal BHP posted a record profit of $21.3bn supported by considerable gains in coal, nickel and copper prices during the fiscal year ending 30 June 2022. Profits jumped 26% compared to last year’s result. The biggest driver was a 271% jump in the thermal coal price, and a 43% spike in the nickel price. The world’s biggest miner sees commodity demand improving in 2023, while it also sees China emerging as a source of stable commodity demand in the year ahead. BHP sees supply covering demand in the near-term for copper and nickel. According to the company iron ore will likely remain in surplus through 2023. In an interview Chief Executive Officer Mike Henry said: Long-term outlook for copper, nickel and potash is really strong because of “unstoppable global trends: decarbonization, electrification, population growth, increasing standards of living,” What are we watching next? Australia Q2 Wage Index tonight to determine future RBA rate hike size? The RBA Minutes out overnight showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, tonight sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35 bps move. RBNZ set to decelerate its guidance after another 50 basis point move tonight? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 44 bps for the October meeting after tonight’s 50 bps hike and another 36 bps for the November meeting. US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.   Earnings to watch Today’s US earnings focus is Walmart and Home Depot with analysts expecting Walmart to report 7% revenue growth y/y and 8% decline y/y in EPS as the US retailer is facing difficulties passing on rising input costs. Home Depot is expected to report 6% growth y/y in revenue and 10% growth y/y in EPS as the US housing market is still robust driving demand for home improvement products. Sea Ltd, the fast-growing e-commerce and gaming company, is expected to report revenue growth of 30% y/y in Q2 but worsening EBITDA margin at -16.2%. The previous winning company is facing headwinds in its gaming division and cash flow from operations have gone from positive $318mn in Q1 2021 to negative $724mn in Q1 2022. Today: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Germany Aug. ZEW Survey 0900 – Eurozone Jun. Trade Balance 1200 – Poland Jul. Core CPI 1215 – Canada Jul. Housing Starts 1230 – US Jul. Housing Starts and Building Permits 1230 – Canada Jul. CPI 2030 – API Weekly Report on US Oil Inventories 2350 – Japan Jul. Trade Balance 0130 – Australia Q2 Wage Index 0200 – New Zealand RBNZ Official Cash Rate announcement 0300 – New Zealand RBNZ Governor Orr Press Conference  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 16, 2022
Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Lowest China's Yield Level In 2 Years!? Dollar (USD) Is Disturbing Gold In It's Challenge

Marc Chandler Marc Chandler 16.08.2022 11:44
Overview: Equities were mostly higher in the Asia Pacific region, though Chinese and Hong Kong markets eased, and South Korea and India were closed for national holidays. Despite new Chinese exercises off the coast of Taiwan following another US congressional visit, Taiwan’s Taiex gained almost 0.85%. Europe’s Stoxx 600 is advancing for the fourth consecutive session, while US futures are paring the pre-weekend rally. Following disappointing data and a surprise cut in the one-year medium-term lending facility, China’s 10-year yield fell to 2.66%, its lowest in two years. The US 10-year is soft near 2.83%, while European yields are mostly 2-4 bp lower. Italian bonds are bucking the trend and the 10-year yield is a little higher. The Antipodeans and Norwegian krone are off more than 1%, but all the major currencies are weaker against the greenback, but the Japanese yen, which is practically flat. Most emerging market currencies are lower too. The Hong Kong Dollar, which has been supported by the HKMA, strengthened before the weekend, and is consolidating those gains today. Gold tested the $1800 level again but has been sold in the wake of the stronger dollar and is at a five-day low near $1778. The poor data from China raises questions about demand, and September WTI is off 3.6% after falling 2.4% before the weekend. It is near $88.60, while last week’s five-month lows were set near $87.00. US natgas is almost 2% lower, while Europe’s benchmark is up 2.7% to easily recoup the slippage of the past two sessions. China’s disappointment is weighing on industrial metal prices. Iron ore tumbled 4% and September copper is off nearly 3%. September wheat snapped a four-day advance before the weekend and is off 2.3% today.  Asia Pacific With a set of disappointing of data, China surprised with a 10-bp reduction in the benchmark one-year lending facility rate to 2.75%  It is the first cut since January. It also cut the yield on the seven-day repo rate to 2.0% from 2.1%. The string of poor news began before the weekend with a larger-than-expect in July lending figures. However, those lending figures probably need to be put in the context of the surge seen in June as lenders scramble to meet quota. Today's July data was simply weak. Industrial output and retail sales slowed sequentially year-over-year, whereas economists had projected modest increases. New home prices eased by 0.11%, and residential property sales fell 31.4% year-over-year after 31.8% decline in June. Property investment fell 6.4% year-over-year, year-to-date measures following a 5.4% drop in June. Fix asset investment also slowed. The one exception to the string of disappointment was small slippage in the surveyed unemployment rate to 5.4% from 5.5%. Incongruous, though on the other hand, the jobless rate for 16–24-year-olds rose to a record 19.9%. Japan reported a Q2 GDP that missed estimates, but the revisions lifted Q1 GDP out of contraction  The world's second-largest economy grew by 2.2% at an annualized pace in Q2. While this was a bit disappointing, Q1 was revised from a 0.5% fall in output to a 0.1% expansion. Consumption (1.1%) rebounded (Q1 revised to 0.3% from 0.1%) as did business spending (1.4% vs. -0.3% in Q1, which was originally reported as -0.7%). Net exports were flat after taking 0.5% off Q1 GDP. Inventories, as expected, were unwound. After contributing 0.5% to Q1 GDP, they took 0.4% off Q2 growth. Deflationary forces were ironically still evident. The GDP deflator fell 0.4% year-over-year, almost the same as in Q1 (-0.5%). Separately, Japan reported industrial surged by 9.2% in June, up from the preliminary estimate of 8.9%. It follows a two-month slide (-7.5% in May and -1.5% in April) that seemed to reflect the delayed impact of the lockdowns in China. The US dollar is little changed against the Japanese yen and is trading within the pre-weekend range (~JPY132.90-JPY133.90). It finished last week slightly above JPY133.40 and a higher closer today would be the third gain in a row, the longest advance in over a month. The weakness of Chinese data seemed to take a toll on the Australian dollar, which has been sold to three-day lows in the European morning near $0.7045. It stalled last week near $0.7140 and in front of the 200-day moving average (~$0.7150). A break of $0.7035 could signal a return to $0.7000, and possibly $0.6970. The greenback gapped higher against the Chinese yuan and reached almost CNY6.7690, nearly a two-week high. The pre-weekend high was about CNY6.7465 and today's low is around CNY6.7495. The PBOC set the dollar's reference rate at CNY6.7410, a little above the Bloomberg survey median of CNY6.7399. Note that a new US congressional delegation is visiting Taiwan and China has renewed drills around the island. The Taiwan dollar softened a little and traded at a three-day low. Europe Turkey's sovereign debt rating was cut a notch by Moody's to B3 from B2  That is equivalent to B-, a step below Fitch (B) and two below S&P (B+). Moody's did change its outlook to stable from negative. The rating agency cited the deterioration of the current account, which it now sees around 6% of GDP, three times larger than projected before Russia invaded Ukraine. The Turkish lira is the worst performing currency this year, with a 27.5% decline after last year's 45% depreciation. Turkey's two-year yield fell below 20% today for the first time in nine months, helped ostensibly by Russia's recent cash transfer. The dollar is firm against the lira, bumping against TRY17.97. The water level at an important junction on the Rhine River has fallen below the key 30-centimeter threshold (~12 inches) and could remain low through most of the week, according to reports of the latest German government estimate  Separately, Germany announced that its gas storage facility is 75% full, two weeks ahead of plan. The next target is 85% by October 1 and 95% on November 1. Reports from France show its nuclear reactors were operating at 48% of capacity, down from 50% before the weekend. A couple of reactors were shut down for scheduled maintenance on Saturday.  Ahead of Norway' rate decision on Thursday, the government reported a record trade surplus last month  The NOK229 bln (~$23.8 bln). The volume of natural gas exports surged more than four-times from a year earlier. Mainland exports, led by fish and electricity, rose by more than 20%. The value of Norway's electricity exports increased three-fold from a year ago. With rising price pressures (headline CPI rose to 6.8% in July and the underlying rate stands at 4.5%) and strong demand, the central bank is expected to hike the deposit rate by 50 bp to 1.75%. The euro stalled near $1.0370 last week after the softer than expected US CPI  It was pushed through the lows set that day in the European morning to trade below $1.02 for the first time since last Tuesday. There appears to be little support ahead of $1.0160. However, the retreat has extended the intraday momentum indicators. The $1.0220 area may now offer initial resistance. Sterling peaked last week near $1.2275 and eased for the past two sessions before breaking down to $1.2050 today. The intraday momentum indicators are stretched here too. The $1.2100 area may offer a sufficient cap on a bounce. A break of $1.20 could confirm a double top that would project back to the lows. America The Congressional Budget Office estimates that the Inflation Reduction Act reduces the budget deficit but will have a negligible effect on inflation  Yet, starting with the ISM gauge of prices paid for services, followed by the CPI, PPI, and import/export prices, the last string of data points came in consistently softer than expected. In addition, anecdotal reports suggest the Big Box stores are cutting prices to reduce inventories. Energy is important for the medium-term trajectory of measured inflation, but the core rate will prove sticky unless shelter cost increases begin to slow. While the Democrats scored two legislative victories with the approval of the Chips and Science Act and the Inflation Reduction Act, the impact on the poll ahead of the November midterm election seems minor at best. Even before the search-and-seizure of documents still in former President Trump's residence, PredictIt.Org "wagers" had turned to favor the Democratic Party holding the Senate but losing the House of Representatives. In terms of the Republican nomination for 2024, it has been back-and-forth over the last few months, and recently Florida Governor DeSantis narrowly pulled ahead of Trump. The two new laws may face international pushback aside from the domestic impact  The EU warned last week that the domestic content requirement to earn subsidies for electric vehicles appears to discriminate against European producers. The Inflation Reduction Act offers $7500 for the purchases of electric cars if the battery is built in North America or if the minerals are mined or recycled there. The EU electric vehicle subsidies are available for domestic and foreign producers alike. On the other hand, the Chips and Science Act offers billions of dollars to attract chip production and design to the US. However, it requires that companies drawing the subsidies could help upgrade China's capacity for a decade. Japan and Taiwan will likely go along. It fits into their domestic political agenda. However, South Korea may be a different kettle of fish. Hong Kong and China together accounted for around 60% of South Korea's chip exports last year. Samsung has one overseas memory chip facility. It is in China and produces about 40% of the Galaxy phones' NAND flash output. Pelosi's apparent farewell trip to Asia, including Taiwan, was not well received in South Korea. President Yoon Suk Yeol did not interrupt his staycation in Seoul to meet the US Speaker. Nor was the foreign minister sent. This is not to cast aspersions on South Korea's commitment to regional security, simply that it is not without limits. Today's economic calendar features the August Empire State manufacturing survey  A small decline is expected. The June TIC data is out as the markets close today. Today is also the anniversary of the US ending Bretton Woods by severing the last links between gold and the dollar in 1971. Canada reports manufacturing sales and wholesale trade, but the most market-sensitive data point may be the existing home sales, which are expected to have declined for the fifth consecutive month. Canada reports July CPI tomorrow (Bloomberg survey median forecast sees headline CPI slowing to 7.6% from 8.1% in June).  The Canadian dollar is under pressure  The US dollar has jumped above CAD1.2900 in Europe after finishing last week near CAD1.2780. Last week's high was set near CAD1.2950, where a $655 mln option is set to expire today. A move above CAD1.2920 could target CAD1.2975-CAD1.3000 over the next day or day. A combination of weaker equities, thin markets, and a short-term market leaning the wrong way after the likely drivers today. The greenback posted its lowest close in two months against the Mexican peso before the weekend near MXN19.85. However, it is rebounding today and testing the MXN20.00 area Initial resistance may be encountered around MXN20.05, but we are looking for a move toward MXN20.20 in the coming days. Mexico's economic calendar is light this week, and the highlight is the June retail sales report at the end of the week.    Disclaimer Source: China Disappoints and Surprises with Rate Cut
Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Saxo Strategy Team Saxo Strategy Team 17.08.2022 08:35
Summary:  S&P500 index broke above the key 4,300 resistance level while the NASDAQ pushed lower amid mixed economic data and better-than-feared earnings from Walmart and Home Depot. US housing data continues to worsen, but the focus now turns to FOMC minutes due later today, as well as the US retail sales which will be next test of the strength of the US consumer. Asia session may have trouble finding a clear direction, but Australia’s wage price index and RBNZ’s rate hike may help to provide some bounce. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities were mixed. Tech names had an initial pullback, followed by short-coverings that narrowed the loss of the Nasdaq 100 to 0.23% at the close. S&P500 edged up 0.19% to 4,305 on better-than-feared results from retailers, moving towards its 200-day moving average (4,326). Walmart (WMT:xnys) and Home Depot (HD:xnys) reported Q2 results beating analyst estimates. Walmart gained 5% on strong same-store sales growth and a deceleration in inventory growth. Home Depot climbed 4% after reporting better than expected EPS and same-store sales but with an acceleration in inventory buildup. The declines in housing starts and building permits released on Monday and the downbeat comments about the U.S. housing market from the management of Compass (COMP:xnys), an online real estate brokerage, highlighted the challenges faced in the housing sector.  Short-end U.S. treasury yields rose as the long-end little changed The bigger than expected increases in July industrial production (+0.6% MoM), manufacturing production (+0.7% MoM), and business equipment production (+0.6%) triggered some selling in the short-end of U.S. treasury curve, pushing the 2-year yield 8 bps higher to 3.25% as 10-year yield edged up 1bp.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) China internet stocks were sold off on Tuesday afternoon after Reuters ran a story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan (03690:xhkg).  The shares of Meituan collapsed 9% while Tencent gained 0.9%.  After the close of the Hong Kong market, Chinese media, citing sources “close to the matter” suggested that the divesture story is not true. However, the ADRs of Meituan managed to recover only 1.7% in New York trading. The newswire story also triggered selling on Kuaishou (01024:xhkg), -4.4%, which has Tencent as a major investor. The decline in internet stocks dragged the Hang Seng Index 1% lower. On the other hand, Chinese developers soared on another newswire report that state-owned China Bond Insurance is going to provide guarantees to new onshore debts issued by several “high quality” developers, including Country Garden (02007:xhkg) +9%, Longfor (00960:xhkg) +12%, CIFI (00884:xhkg) +12.9%, and Seazen (01030:xhkg) +7.6%.  Shares of Chinese property management services also surged higher.  GBPUSD bounced off the 1.2000 support, NZD eyeing RBNZ A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than what was expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable got lower to remain in close sight of the 1.2000 big figure, but rose above 1.2100 subsequently. UK CPI report due today may confirm the need for further BOE action after labor data showed wage pressures. NZDUSD remains near lows of 0.6320 but may see a knee-jerk higher if RBNZ surprises on the hawkish side. Crude oil prices (CLU2 & LCOV2) Crude oil prices remain under pressure due to the prospect of Iran nuclear deal, and printed fresh lows since the Ukraine invasion. Some respite was seen in early Asian session, and WTI futures were last seen at $87/barrel and Brent is below $93. The EU submitted a final proposal to salvage the Iran nuclear deal, and prospects of more energy supply are dampening the price momentum. It has been reported that Iran’s response was constructive, and they are now consulting with the US on a way ahead for the protracted talks. The API reported crude inventories fell by 448,000 barrels last week, while gasoline stockpiles increased by more than 4 million barrels. Government data is due later Wednesday. European Dutch TTF benchmark gas futures (TTFMU2) touched €250/MWh, but has cooled off slightly recently, but still signals the heavy price that Europe is paying for the dependence on Russian gas. Copper holding up well despite China slowdown concerns Despite reports of weaker financing and activity data from China earlier this week, Copper remains well supported and registered only modest declines. BHP’s results provided some offset, as did the supply side issues in Europe. Only a break below the key 350 support will turn the focus lower. Meanwhile, zinc rallied amid concerns of smelter closures in Europe. What to consider? US housing scare broadens, industrial production upbeat Housing starts fell 9.6% in July to 1.446 mn, well beneath the prior 1.599 mn and the expected 1.537 mn. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1.674 mn from 1.696 mn, but printed above the expected 1.65 mn. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. US retailer earnings come in better than feared Walmart (WMT:xnys) and Home Depot (HD:xnys) reported better-than-feared results on Tuesday. Walmart’s Q2 revenues came in at USD152.9 billion (+8.4% YoY, consensus USD150.5bn). Same-store sales increased 8.4% YoY (vs consensus +6.0% YoY).  EPS of USD1.77, down 0.8% from a year ago quarter but better than the consensus estimate of USD1.63. While inventories increased 25.5% in Q2, the rate of increase has moderated from the prior quarter’s +32.0%. The company cited falls in gas prices, market share gain in grocery, and back-to-school shopping key reasons behind the strength in sales.  Home Depot reported Q2 revenues of USD43.9 billion (vs consensus USD43.4bn), +6.5% YoY.  Same-store sales grew 5.8%, beating analyst estimates (+4.9%).  EPS rose 11.5% to $5.05, ahead of analyst estimates (USD4.95). However, inventories grew 38% YoY in Q2, which was an acceleration from the prior quarter. The management cited inflation and pulling forward inventory purchases given supply chain challenges as reasons for the larger inventory build-up. Target (TGT:xnys) is scheduled to report on Wednesday. Eyes on US retail sales US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. A cooling labor market in the UK UK labor market showed signs of cooling as job vacancies fell for the first time since August 2020 and real wages dropped at the fastest pace in history. Unemployment rate was steady at 3.8%, and the number of people in employment grew by 160,000 in the April-June period as against 256,000 expected. There was also a sprinkle of good news, with the number of employees on payrolls rising 73,000 in July, almost triple the pace expected. Also, wage growth was strong at 4.7% in the June quarter from 4.4% in the three months to May, which may be key for the BOE amid persistent wage pressures. Australia Q2 Wage Index to determine future RBA rate hike size? The RBA Minutes out on Tuesday showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, today sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35bps move. RBNZ set to decelerate its guidance after another 50 basis point move today? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 45bps for the October meeting after today’s 50bps hike and another 37bps for the November meeting. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps to bring the Fed Funds rate at the level that they consider is neutral at the July meeting, but stayed away from providing any forward guidance. Meeting minutes will be out today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot jobs report and the cooling inflation number has further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts at least in ‘early’ 2023. We only have Kansas City Fed President Esther George (voter in 2022) and Minneapolis Fed President Kashkari (non-voter in 2022) speaking this week at separate events on Thursday, so the bigger focus will remain on Jackson Hole next week for any updated Fed views.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 17, 2022
Online Sales Are Becoming A Part Of Everyday Life. Supermarkets Are Having A Good Time

Online Sales Are Becoming A Part Of Everyday Life. Supermarkets Are Having A Good Time

Conotoxia Comments Conotoxia Comments 17.08.2022 09:15
Home Depot (HD) and Walmart (WMT) are among the largest US retailers whose results seem to show the attitude of the average American consumer towards spending money. HD is a chain of large-format home improvement shops, very similar to Europe's Leroy Merlin. WMT, on the other hand, is the largest US retail chain. Last month, Walmart spooked markets by lowering its profit forecasts and warned of a rapid decline in demand. However, the results announced today said sales were up more than 8% year-on-year to $152.9 billion against expectations of $150.8 billion. Online sales alone rose by as much as 12%. The company is struggling with a gigantic inventory problem (worth $61 billion at the end of Q1), prominent among the backlog of products is apparel, for example. To deal with this, discounts have been introduced on many products, thereby boosting sales by stimulating demand. At present, the value of stock amounts to USD 59.9 billion. However, the increased sales do not translate directly into profits. "The actions we’ve taken to improve inventory levels in the US, along with a heavier mix of sales in grocery, put pressure on the profit margin for Q2 and our outlook for the year," - CEO Doug McMillon said. Walmart's second-quarter net income rose to $5.15bn, or $1.77 per share (EPS) against Wall Street analysts' estimates of $1.62. In the same period a year ago, net income was $4.28bn, or $1.52 per share (EPS). Walmart maintained its forecast for the second half of the year. It expects US shop sales to grow by about 3% (excluding fuel), in the second half of the year, or about 4 per cent for the full year. It expects adjusted earnings per share to decline 9% for the year. Home Depot also announced a 5.8% increase in sales, to 43.8 billion against expectations of $43.36 billion. Net sales were up 6.5% year-over-year, marking the highest quarterly sales in the company's history. "Our team has done a fantastic job serving our customers while continuing to navigate a challenging and dynamic environment," - CEO Ted Decker said, commenting on the company's results. Net income increased to $5.17 billion, up 7.6% year-over-year. EPS was $5.05 against analysts' forecasts of $4.94. Walmart and Home Depot gain 4.7% and 1.9%, respectively, on the market open. The retailers' results show that, despite the looming recession, consumers are spending money and the situation could be not that bad in the short term. However, at the same time, the figures for financing this spending are alarming. A large proportion of Americans are covering higher prices with credit cards, which must eventually be repaid, according to data published by Bloomberg. The worsening outlook for economic health, alarming PMI levels and the bond yield curve all translate into possible future deterioration in consumer health.   Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.  Source: Retailers announce strong results - shares rise
Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Ole Hansen Ole Hansen 19.08.2022 15:50
Summary:  Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. Overall, however, we do not alter our long-term views about commodities and their ability to move higher over time, with some of the main reasons being underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. The dollar found renewed strength and bond yields rose while the month-long bear-market bounce across US stocks showed signs of running out of steam.The trigger being comments from Federal Reserve officials reiterating their resolve to continue hiking rates until inflation eases back to their yet-to-be revised higher long-term target of around 2%. Those comments put to rest expectations that a string of recent weak economic data would encourage the Fed to reduce the projected pace of future rate hikes.The result of these developments being an elevated risk of a global economic slowdown gathering pace as the battle against inflation remains far from won, not least considering the risk of persistent high energy prices, from gasoline and diesel to coal and especially gas. A clear sign that the battle between macro and micro developments continues, the result of which is likely to be a prolonged period of uncertainty with regards to the short- and medium-term outlook.Overall, however, these developments do not alter our long-term views about commodities and their ability to move higher over time. In my quarterly webinar, held earlier this week, I highlighted some of the reasons why we see the so-called old economy, or tangible assets, performing well over the coming years, driven by underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Returning to this past week’s performance, we find the 2.3% drop in the Bloomberg Commodity Index, seen above, being in line with the rise in the dollar where gains were recorded against all the ten currencies, including the Chinese renminbi, represented in the index. It is worth noting that EU TTF gas and power prices, which jumped around 23% and 20% respectively, and Paris Milling wheat, which slumped, are not members of the mentioned commodity index.Overall gains in energy led by the refined products of diesel and US natural gas were more than offset by losses across the other sectors, most notably grains led by the slump in global wheat prices and precious metals which took a hit from the mentioned dollar and yield rise. Combating inflation and its impact on growth remains top of mind Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver for commodities recently has been the macro-economic outlook currently being dictated by the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing and the longer the process takes to succeed, the bigger the risk of an economic fallout. US inflation expectations in a year have already seen a dramatic slump but despite this the medium- and long-term expectations remain anchored around 3%, still well above the Fed’s 2% target.Even reaching the 3% level at this point looks challenging, not least considering elevated input costs from energy. Failure to achieve the target remains the biggest short-term risk to commodity prices with higher rates killing growth, while eroding risk appetite as stock markets resume their decline. These developments, however, remain one of the reasons why we find gold and eventually also silver attractive as hedges against a so-called policy mistake. Global wheat prices tumble The prospect for a record Russian crop and continued flows of Ukrainian grain together with the stronger dollar helped push prices lower in Paris and Chicago. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace, it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat futures contract touched a January low after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. With most of the uncertainties driving panic buying back in March now removed, calmer conditions should return with the biggest unknown still the war in Ukraine and with that the country’s ability to produce and export key food commodities from corn and wheat to sunflower oil. EU gas reaches $73/MMBtu or $415 per barrel of oil equivalent Natural gas in Europe headed for the longest run of weekly gains this year, intensifying the pain for industries and households, while at the same time increasingly threatening to push economies across the region into recession. The recent jump on top of already elevated prices of gas and power, due to low supplies from Russia, has been driven by an August heatwave raising demand while lowering water levels on the river Rhine. This development has increasingly prevented the safe passage of barges transporting coal, diesel and other essentials, while refineries such as Shell’s Rhineland oil refinery in Germany have been forced to cut production. In addition, half of Europe’s zinc and aluminum smelting capacity has been shut, thereby adding support to these metals at a time the market is worried about the demand outlook.An abundance of rain and lower temperatures may in the short term remove some of the recent price strength but overall, the coming winter months remain a major worry from a supply perspective. Not least considering the risk of increased competition from Asia for LNG shipments. Refinery margin jump lends fresh support to crude oil Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driven by China’s troubled handling of Covid outbreaks and its property sector problems as well as rapidly rising interest rates were the main drivers behind the selling since March across other commodity sectors before eventually also catching up with crude oil around the middle of June. Since then, the price of Brent has gone through a $28 dollar top to bottom correction. While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The mentioned energy crisis in Europe continues to strengthen, the result being surging gas prices making fuel-based products increasingly attractive. This gas-to-fuel switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published, the incentive to switch has increased even more, adding more upward pressure on refinery margins. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. In addition, the previously mentioned increased demand for fuel-based products to replace expensive gas. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold and silver struggle amid rising dollar and yields Both metals, especially silver, were heading for a weekly loss after hawkish sounding comments from several FOMC members helped boost the dollar while sending US ten-year bond yields higher towards 3%. It was the lull in both that helped trigger the recovery in recent weeks, and with stock markets having rallied as well during the same time, the demand for gold has mostly been driven by momentum following speculators in the futures market. The turnaround this past week has, as a result of speculators' positioning, been driven by the need to reduce bullish bets following a two-week buying spree which lifted the net futures long by 63k lots or 6.3 million ounces, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication that investors, for now, trust the FOMC’s ability to bring down inflation within a relatively short timeframe. An investor having doubts about this should maintain a long position as a hedge against a policy mistake. Some investors may feel hard done by gold’s negative year-to-date performance in dollars, but taking into account it had to deal with the biggest jump in real yields since 2013 and a surging dollar, its performance, especially for non-dollar investors relative to the losses in bonds and stocks, remains acceptable. In other words, a hedge in gold against a policy mistake or other unforeseen geopolitical events has so far been almost cost free.   Source: WCU: Bearish macro, bullish micro regime persists
NZD/USD: Reserve Bank Of New Zealand Is Expected To Hike The Rate By 50bp

Breaking News: Eurozone: Is Europe In Recession Already!? PMI Plunged!

ING Economics ING Economics 23.08.2022 11:49
The August PMI indicates this economy is heading towards recession quickly if it’s not already in one. Meanwhile, weaker demand is leading to some fading of inflationary pressure, but the question is how soaring energy costs will impact this in the coming months The post-pandemic rebound in consumer spending on services is fading rapidly   The composite PMI fell from 49.9 to 49.2. Anything under 50 indicates falling business activity, so the survey is hinting at a contraction that started in the third quarter. This is consistent with our forecasts, and the colour that the survey gives on the weakness is not pretty. The manufacturing output PMI ticked up a bit in August but remained deep in contraction territory at 46.5. New orders continue to fall and inventory build-up is very strong, which reflects the squeeze in demand that the eurozone economy is currently experiencing. The services PMI fell rapidly in August to a level indicating stagnation in activity at 50.2. Demand also weakened for the service sector as the post-pandemic rebound in consumer spending on services is fading rapidly. The good news is coming from the inflation side. While high costs continue to play a major role in weakening demand, the pace of inflation seems to be fading among manufacturers and in the service sector. Weaker demand and easing input prices are helping selling price inflation moderate a bit, but the question is whether this can last now that natural gas prices are reaching new records again. For the months ahead, economic weakness is set to persist. We expect that a eurozone recession has started as the purchasing power squeeze in the eurozone economy continues. For the ECB, this complicates matters significantly, but we do think that September will still see a 50 basis point rate hike. After that, we think the rapid cooling of the economy will cause the ECB to pause its hike cycle, if we can call it that… Read this article on THINK TagsInflation GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Saxo Bank Podcast: Natural Gas On Colder Weather, Wheat And Coffee Under Pressure, JPY Weaker And More

Governments Are Looking Into Ways To Mitigate The Impact Of Higher Energy Prices

ING Economics ING Economics 03.09.2022 08:55
  It is no secret that Europe is heading for a severe energy crisis. Energy prices have already skyrocketed but companies and households will only be confronted with higher energy bills in the coming months. While rising bills are inevitable, the other big risk for Europe is supply disruption In this article Europe's gas storage tanks are 80% full Governments are stepping in Europe's gas storage tanks are 80% full Amid all the doom and gloom, there is at least some positive news in that European countries have been able to fill gas storage ahead of schedule. The European Commission has asked member states to fill reserves up to at least 80% by 1 November. Most countries have already reached that level well ahead of time. Overall, Europe is currently at 80.2%, which is about two months ahead of time. European gas storage has been filling up Natural gas, stock level, country total, fill level (%) Source: Gas Infrastructure Europe (GIE), Macrobond Governments are stepping in This means that the EU has chosen to pay a high price to achieve sufficient gas supply ahead of the winter. At the same time, it is no guarantee that shortages will not happen. As Europe still relies on further imports in the winter months, there is a chance that a cold winter still results in shortages. If these shortages occur, it will be at the end of the winter. However, it currently also looks as if energy supply issues could go beyond this winter into next. While countries are filling their national gas reserves, governments are looking into ways to tackle or at least mitigate the impact of higher energy prices on consumers and corporates. Measures differ between countries, both in terms of magnitude and nature. We provide an overview of the current state of play below and expect more measures to be announced in the coming weeks. National policies introduced to help consumers with rising energy prices Western Europe Eastern Europe   Energy Source: https://think.ing.com/articles/how-europe-is-preparing-for-a-hard-winter/?utm_campaign=September-01_how-europe-is-preparing-for-a-hard-winter&utm_medium=email&utm_source=emailing_article&M_BT=1124162492   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hungary: Budget deficit jumps above full-year cash flow target by ca. 10%

HUF And PLN May Be Fluctuating This Week! Hungarian Forint Meets Economic Data And National Bank Of Poland Is Expected To Hike The Rate

ING Economics ING Economics 03.09.2022 23:00
A busy week ahead for Hungary with July's economic activity data and August's inflation reading. Retail sales should improve while inflation is expected to lift further. We're also expecting a 25bp rate hike from the National Bank of Poland In this article Poland: central bank decision on rates Russia: inflation subsiding after a big spike Turkey: annual inflation expected to increase further Hungary: August core inflation reading expected to be 18.6% Kazakhstan: above expected inflation calls for another key rate hike Source: Shutterstock Poland: central bank decision on rates In recent public statements, Polish policymakers pointed out the need to continue monetary tightening albeit at a smaller scale than before. Rate-setters mainly mentioned a 25bp rate hike and some even seemed reluctant to hike at all. An upward surprise from the August flash CPI means that a 25bp rate hike to 6.75% (our baseline scenario) looks like a done deal and the Council may even discuss a 50bp rate hike. Still, the end of the rate-hiking cycle is nearing and we currently see the terminal National Bank of Poland rate at 7.0-7.5%. Russia: inflation subsiding after a big spike Following a sharp spike to 17.8% year-on-year in April, Russia has been on a disinflationary path due to weaker demand, ruble appreciation and a good harvest. Next Friday’s CPI numbers for August are likely to show a 0.6% month-on-month decline in prices and a deceleration in the annual rate to 14.2% YoY. This challenges our year-end expectations of 13% and suggests that the actual print is likely to be at the lower end of the Bank of Russia’s 12-15% range. This means that the key rate, which has already been cut from 20.0% in February-March to 8.0% in July, has room to go lower. Yet given the stabilisation of households’ inflationary expectations and unclear supply-side prospects, we expect CPI to remain elevated next year and doubt that this downside to the key rate could exceed 100 basis points by year-end. The next Central Bank of Russia meeting is scheduled for 16 September. Turkey: annual inflation expected to increase further We expect annual inflation to have risen further in August to 81.6% (2.2% on monthly basis) from 79.6% a month ago, despite a decline in gasoline prices, as pricing pressures will likely remain broad-based with a largely supportive policy framework leading to currency weakness and external factors weighing on import prices. Hungary: August core inflation reading expected to be 18.6% We are facing a really busy calendar in Hungary next week. The first set of data will be July economic activity. Retail sales could improve a bit as pensioners got extra transfers from the government which is practically a retroactively increased pension due to higher-than-expected inflation. This could boost food consumption, while non-food retail got a boost from the new (less favourable) utility bill support scheme, which urged households to replace old household appliances with newer, more energy-efficient ones. Based on PMI data, July industrial production could still be OK, though we see some downside risk here due to planned summer shutdowns. While industry is doing well despite the plethora of challenges, the trade balance is rather driven by the ever-rising energy bill of the country, and so we see further deterioration in the trade deficit in July. The highlight of the week is going to be the August inflation reading. Due to a refined fuel price cap, which narrowed the range of beneficiaries, the Statistical Office will recalculate the fuel price higher in the consumer basket (some weighted average of capped and market prices). This might explain 0.9-1.0ppt from the 2.3% month-on-month inflation, which will lift the yearly reading up to 16.2%. As rising energy and agricultural commodity prices spill over into processed food and service providers adjusting their prices to the rising utility bills, we see core inflation at 18.6% year-on-year. However, there is one beneficiary of this sky-high inflation environment: the government budget, where we expect yet another surplus on rising revenues in August. Kazakhstan: above expected inflation calls for another key rate hike National Bank of Kazakhstan is likely to make another key rate hike on Monday from the current level of 14.50% to 15.00% or higher. Following the latest 50bp hike at the end of July, inflation continued to outperform the market and NBK expectations, reaching 16.1% YoY in August. Higher inflationary pressure appears to be broad-based in terms of structure and most likely calls for an adjustment in the key rate level. Key events in EMEA next week Source: Refinitiv, ING TagsEmerging Markets EMEA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German labour market starts the year off strongly

Better Supply Chain Status Contrasted With Ecological Problems And Energy Prices. Situation In Germany Leaves Investors With Mixed Feelings

ING Economics ING Economics 05.09.2022 12:51
With disappointing July trade data, the German economy starts the third quarter on a weak footing Trade is no longer a growth driver but has become a drag on German growth Germany: Exports and imports declined German exports (seasonally and calendar-adjusted) disappointed at the start of the third quarter and dropped by 2.1% month-on-month in July. Imports also decreased, by 1.5% month-on-month, lowering the trade surplus to €5.4bn, from €6.2bn in June. Exports to Russia as a result of the sanctions almost came to a standstill and fell by another 15% month-on-month. Lower energy imports from Russia were the reason for German imports from Russia to drop by more than 17% MoM. Trade is no longer a growth driver but has become a drag on German growth. Since the second quarter of 2021, the growth contribution of net exports has actually been negative. Global supply chain frictions, geopolitical risks and rising production costs are the obvious drivers behind this new trend. Looking ahead, the outlook for German trade is mixed. There is some relief in supply chains and transportation costs. However, at the same time, low water levels, high energy prices and the possible fundamental change in supply chains and production processes on the back of geopolitical uncertainty will be clear obstacles to growth. After yesterday’s encouraging increase in July retail sales, today’s trade data add to the long list of growth concerns for the German economy in the second half of the year. Read this article on THINK TagsGermany Exports Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Monitoring Hungary: Glimmering light at the end of the tunnel

Hungary: Retail Sales Hit 4.3%, What Leaves Investors With Mixed Feelings

ING Economics ING Economics 05.09.2022 15:14
Behind the solid headline retail sales figure, we see some worrying developments. In our assessment, the economy is getting closer to a technical recession Shoppers in Budapest 4.3% Retail sales (year-on-year, wda) ING forecast 5.1% / Previous 4.5% Worse than expected July Retail sales looks not that bad, but... If we look at things superficially, the July retail sales performance in Hungary looks quite good. It shows a 4.3% year-on-year growth rate (adjusted for working days), which is only a tad slower than the headline figure from the previous month. However, as soon as we dig a bit deeper into the data, we see some red flags and signs of weakness. First and foremost, the month-on-month growth in retail sales was only 0.5%. The only good thing we have to say about this is that it is at least positive after three months of continuous decline. But is also says a lot about the yearly index, which was able to remain strong because of the base effect and not due to the strong monthly performance. Breakdown of retail sales (% YoY, wda) Source: HCSO, ING   After checking the detailed data, today’s release on retail sales paints a rather gloomy picture. Retail sales turnover in the food sector decreased by roughly 0.1% on a monthly basis and also showed an annual drop. This is quite a bad reading in light of the fact that consumers with the highest marginal propensity to consume (i.e. pensioners), received their pension supplement in July. But even this was not enough to boost the volume of food shop turnover, so it can still be said that ever-rising prices are increasingly restraining the consumption of households. A similar phenomenon can also be observed in the sales volume of non-food stores. Turnover in this segment fell by 0.25% compared to the previous month, even though the news was full of stories about households rushing to the shops to replace non-energy-efficient appliances as the government announced changes to the utility bill support scheme. Moreover, sales people have echoed that demand has increased sharply for alternative heating devices in order to reduce gas consumption. It seems that either these effects have not yet been reflected in the July statistics or, despite the boost in demand, households have already closed their purses and cancelled shopping for non-essential major goods and cut fast-moving consumer good spending. Retail sales volume in detail (2015 = 100%) Source: HCSO, ING   Only the turnover of fuel retailers was able to increase on a monthly basis in July. In essence, this one item ensured that retail turnover did not shrink continuously for four months. This, therefore, paints a rather gloomy picture, especially as we know that the increase in fuel sales may be a one-time effect as the government announced a reduced range of beneficiaries of the fuel price cap from 1 August. Many people who use a company car for private purposes will have to buy fuel at a much higher market price from August, so the last chance to buy fuel at administered prices came in July, giving an extra boost to fuel demand. In addition to all of this, it is also quite telling that in all the sub-sectors, the turnover of second-hand shops increased the most, which once again highlights the increase in the price sensitivity of consumers and the transformation of shopping habits. Retail sales and consumer confidence Source: Eurostat, HCSO, ING Q3 begins with reduced consumption? Based on today's retail statistics, we can say that although the main indicator does not reflect this, the underlying processes and detailed data already show a strong slowdown in consumption at the beginning of the third quarter. Households continue to adapt to higher inflation, and in the coming months the effect of budget tightening (e.g. the changes in the utility bill support scheme) may further strengthen this. Although it is still too early to make a judgment, the probability that the volume of GDP will show a quarter-on-quarter decrease in the July-September period has clearly increased. Our silver lining here would be that during the summer, services can help the expansion of consumption to a greater extent. Instead of buying things, consumers are focusing their spending on experiences, which is not measured by retail sales data. Read this article on THINK TagsRetail sales Hungary Households Consumption Consumer confidence Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Disappointing German March macro data increase risk of technical recession

Germany: What Is Third Relief Package About? Germans' Battle With Inflation

ING Economics ING Economics 05.09.2022 15:36
The German government is increasing fiscal stimulus to offset the impact of higher energy prices, but we doubt that these measures will be sufficient to prevent a recession German Chancellor Olaf Scholz What does third relief package help Germans with? The German government on Sunday announced a third relief package to cushion citizens and companies from soaring energy costs while also vowing to reform the energy market to collect windfall profits and cap prices. The measures are aimed at, at least, partly offsetting the impact of higher energy prices on low-income households but the more groundbreaking elements of the package are so far only plans and not actual measures. The announced measures in more detail: One-off financial support of 300 euro for pensioners and 200 euro for students. Extension of housing allowance from currently 700,000 recipients to around 2 million recipients and a slight increase Cuts in social security contributions for people with a monthly income below €2,000 Increase in the child allowances by 18 euro per month The reduction of the VAT to 7% for restaurants and bars, which was part of the pandemic stimulus package, will be extended Extension of furlough schemes Credit support for companies And here is what the government did not announce or plans that still need additional work: The government announced a price cap on electricity prices but this price cap is linked to a mechanism to tax windfall profits, which the government wants to be agreed at the European level. The government did not announce a price cap on gas consumption but only the start of a task force to look into this issue. There is no new incentive to use public transportation but the government offered to spend 1.5bn euro per year if the regional states find an agreement on the details of such an incentive and are willing to spend at least the same amount as the federal government. Interestingly, the government also talks about a concerted action between social partners for the next wage rounds, offering to exempt one-off payments by companies to their employees from taxes and social contributions. Hardly enough The new relief package, which comes on top of two previous packages that together amounted to 30bn euro, is obviously aimed at bringing financial relief for low-income households and the ones who will be hit the hardest by higher energy prices. How much relief this package will actually provide remains unclear. At the press conference, German Chancellor Olaf Scholz talked about a 65bn euro package. However, as so often with these kind of packages, it is unclear how the number is really calculated. In any case, while the announced package will indeed bring some relief for the financially weaker ones, it is doubtful that the package will be enough to offset the impact from higher energy bills entirely. Don't forget that 65bn euro are less than 2% of German GDP. German fiscal stimulus during the pandemic, excluding guarantees, amounted to roughly 15% of GDP.  Also, the fact that two crucial elements, price caps and a windfall profit tax, are still works in progress suggests that the full package is hardly operational this year. The fact that there is basically no support for households, which currently do not receive social transfers and that there is also little support for companies, implies that the package will probably fall short in preventing the broader economy from falling into recession. Read this article on THINK TagsGermany Fiscal stimulus Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The UK Markets Remain Volatile, Possible Contraction Of The Eurozone Economy

Would Liz Truss (UK Prime Minister-Elect) Freeze Energy Bills? Bitcoin Jumped Above $20K, But Seems Not To Feel Strong.

Craig Erlam Craig Erlam 06.09.2022 11:50
It’s been a mixed start to trade on Tuesday, similar to what we saw in Asia overnight, and as we await the return of the US after the long bank holiday weekend. Europe in particular was rattled on Monday by the Gazprom announcement that came after the close on Friday in relation to Nord Stream 1. The latest move in the apparent weaponisation of energy supplies has once more created huge uncertainty ahead of the winter. Conveniently the announcement came hours after the G7 agreed to a Russian price cap and as Europe was boasting about being ahead of schedule on filling gas stores. RBA signals more hikes ahead The Reserve Bank of Australia raised the cash target rate by 50 basis points to 2.35% on Tuesday, in line with expectations, as it continues to aggressively push back against soaring inflation. The central bank reiterated that it is not on a pre-set path but will continue hiking interest rates with markets of the belief that there’s still plenty more to come including another 50bps next month and 25 at each of the following three. Read next: Russia Suspends Flow Through The Nord Stream 1 Pipeline, Cotton Futures, Gold Prices Increase For The First Time In 3-weeks| FXMAG.COM Of course, forecasting even that far ahead has become far more challenging in such an uncertain global environment but it’s clear that central banks around the world still have a massive job on their hands and the coming months will be tough. That said, the RBA is of the belief that inflation will peak later this year before returning to 3% in 2024. PBOC desperate to support CNY The PBOC once again set a stronger yuan fix today as it continues to push back against its decline. Controlling the decline in the yuan has clearly become a huge priority, with the 2% cut in the FX reserve requirement ratio intended to support that initiative. Rather than stop a decline in the yuan, these efforts may simply slow it with a move above 7 against the dollar looking like a matter of when rather than if, given the relentless rally in the greenback. Hit the ground running Liz Truss will be sworn in as Prime Minister today and will have to hit the ground running as the UK prepares for a brutal winter. Reports claim the new PM intends to freeze energy bills this winter at a cost of up to £130 billion, a move that would certainly fall into the bold category. The question is what impact it will have on inflation and gas demand. This will be a core part of what will need to be a much greater package to shield the economy from the grim forecasts we’ve seen in recent weeks. Struggling for rally momentum Bitcoin pushed briefly back above $20,000 today but is struggling to build on that. Broadly speaking, it’s trading in a range between $19,500 and $20,500 as it has for a little over a week now but rallies do appear to be increasingly struggling which may be a slightly bearish signal. A break of $19,500 would confirm that although with trading currently so choppy, it’s tough to read too heavily into today’s moves so far. The broader market environment also remains quite risk averse which could work against cryptos. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Steady after a rocky start - MarketPulseMarketPulse
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

The New UK Prime Minister Will Face Energy Bills Climb. The EBC Open For Further Rate Hikes.

ING Economics ING Economics 03.09.2022 09:12
Despite headline inflation at a new record high and multiple hawkish comments by European Central Bank members, we are expecting the ECB to ‘only’ hike by 50bp next week. In Canada, with excess demand causing inflation to remain well above target, we expect the Bank of Canada to opt for a 75bp hike on Wednesday In this article US: Focus next week will be Powell's comments on monetary policy UK: New prime minister to face immediate test as energy bills climb Canada: Bank of Canada expected to hike rates by 75bp next week Eurozone: ECB to implement another 50bp hike; 75bp not ruled out US: Focus next week will be Powell's comments on monetary policy Markets continue to favour a 75bp rate hike from the Federal Reserve on 21 September despite the economy having been in a technical recession since the first half of the year. With more than three million jobs added since the start of 2022, consumer spending continuing to grow, and inflation running at more than 8%, it is hard to argue this is a “real recession” with the fall in GDP instead down to volatility in trade and inventory data which continues to swing wildly due to ongoing supply chain issues. Monday is a holiday and the data calendar is light so instead we will be focusing on Federal Reserve Chair Jerome Powell’s comments at a conference on monetary policy next Thursday. With the Fed’s “quiet period” ahead of the 21 September FOMC meeting set to kick in the following weekend, it will be the last opportunity he has to shift market expectations. We expect him to talk up the need to act forcibly to get a grip on inflation. Moreover, with core inflation set to rise from 5.9% to 6.1% on 13 September, we agree that a 75bp hike is the most likely outcome. UK: New prime minister to face immediate test as energy bills climb The new UK prime minister will finally be announced on Monday, and Foreign Secretary Liz Truss is widely expected to beat Rishi Sunak to be Boris Johnson’s successor. Markets will be looking at two key areas in the first few days of the new leader. First, extra government support for households and businesses amid soaring energy costs seems inevitable – the question is what form it will take. Truss has said during her campaign that her preference is for tax cuts, though the sheer scale of the energy bill increase anticipated by early next year suggests this is unlikely to be sufficient. Most households will be paying more than 10% of their income on energy in the 12 months from October, which is when the next big increase in bills kicks in. That suggests blanket support payments (or a price cap of some form), in addition to more targeted measures for low-income households, will be required – as will similar support for smaller businesses. Markets are increasingly assuming this will translate into extra Bank of England rate hikes. We agree with that assessment, even if markets are heavily overestimating the scale of tightening that’s likely to be required. Second, Brexit is expected to come back to the fore. Truss is pushing for the passage of the Northern Ireland Protocol Bill, which would enable ministers to unilaterally override parts of the deal agreed with the EU in 2019, and has already passed through the House of Commons. Press reports also suggest Truss is considering triggering Article 16, which in theory allows either side to take safeguard measures if elements of the Northern Ireland agreement aren’t perceived to be working. This story is not likely to be a fast-moving one, but ultimately a unilateral move by the UK to overwrite parts of the deal could see Brussels suspend the UK-EU trade deal, which it can do with 9-12 months' notice. Canada: Bank of Canada expected to hike rates by 75bp next week Next week will see the Bank of Canada hike rates by 75bp after a 100bp hike in July. Inflation is well above target and the economy is growing strongly, and with the BoC having openly talked of the need to front-load policy tightening we do not expect it to switch back to more modest 50bp incremental changes just yet. Read our full BOC preview Eurozone: ECB to implement another 50bp hike; 75bp not ruled out Even if the ECB doves have been very silent in recent weeks, we expect the ECB to ‘only’ hike by 50bp next week. This would be a compromise, keeping the door open for further rate hikes. A 75bp rise looks like one bridge too far for the doves but cannot be excluded. Further down the road, we can see the ECB hiking again at the October meeting but have difficulties seeing the ECB continue hiking when the eurozone economy is hit by a winter recession. Hiking into a recession is one thing, hiking throughout a recession is another. Read our full ECB preview Key events in developed markets next week Source: Refinitiv, ING   ECB Canada Bank of Canada    Source: https://think.ing.com/articles/key-events-in-developed-markets-next-week-020922/?utm_campaign=September-02_key-events-in-developed-markets-next-week-020922&utm_medium=email&utm_source=emailing_article&M_BT=1124162492 Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bitcoin Stagnates at $30,000 Level, Awaits US Bitcoin ETF Update and Fed Meeting

The Current Picture Of Economies In The Old Continent

Conotoxia Comments Conotoxia Comments 01.09.2022 14:45
Among economic data, PMI indexes can often be the fastest to show the current picture of the economy. Unlike GDP data, for which one has to wait a long time, preliminary PMIs are published the same month they refer to, with final readings appearing as early as the following month. The donwward of Europe's largest economy The data released today seem to indicate a deterioration in the economy, which could have an impact on stock indexes. For Europe, data from its largest economy, Germany, may be important. The S&P Global/BME Germany Manufacturing PMI for August was revised downward to 49.1 points from a preliminary reading of 49.8 points, indicating a second consecutive month of decline in factory activity. According to this report, there is a sustained decline in new orders, which seemed to affect production levels and slowed the pace of job creation in factories. On the positive side, companies may have been less pessimistic about the outlook than a month earlier, although concerns about high inflation, uncertainty in the energy market and the risk of an economic slowdown still seem to persist. PMI for the eurozone The index for the eurozone as a whole was also at a lower level. The S&P Global Eurozone Manufacturing PMI was revised down to 49.6 points in August from an initial estimate of 49.7 points. Manufacturing declined at a similar pace to July, when the deceleration was the strongest since May 2020. New orders once again fell sharply. Weak demand conditions were a major drag on manufacturers in August, reflecting deteriorating purchasing power across Europe with high inflation. In response to the deteriorating economic outlook, manufacturers further reduced their purchasing activity, the report said. The Lowest Poland Manufacturing PMI In Poland, the situation does not seem optimistic either. Poland Manufacturing PMI was the lowest since 2020. The S&P Global Poland Manufacturing PMI fell to 40.9 in August from 42.1 in July, below market forecasts of 41.8 points. The reading pointed to the fourth consecutive month of declining factory activity and was the worst since May 2020, as both production and new orders fell sharply. On the price front, costs and fees continued to rise at a slower pace, although high inflation continues to erode purchasing power, with sales from both domestic and international sources falling, a statement to the publication said. So it seems that economies still may not have reached their, which may also translate into a lack of bottoms in stock market indices. The following indicated their drop today, with Germany's DAX losing 1.7 percent from the start of the session until 10:55 GMT+3, France's CAC40 losing 1.68 percent and Italy's FTSE MIB losing 1.5 percent.
Copper prices hit lowest level this year. Crude oil decreased second day in a row. BoE went for a 25bp hike

Poland: Industrial Production Increased By Almost 11%

ING Economics ING Economics 20.09.2022 12:29
Industrial output expanded by 10.9% YoY in August even though manufacturers face soaring energy prices and uncertainty about the availability of energy sources this winter. At the same time, producers’ prices continued running at ¼ level higher than in the corresponding period of 2021 and higher costs will continue to be passed on to retail prices August's production reading is a signal of economic resilience   Industrial production rose by 10.9% year-on-year in August (ING: 9.8%YoY; consensus: 9.7%YoY), following an increase of 7.1%YoY in July (revised from 7.6%YoY). The higher annual growth rate than the month before was due in part to calendar effects (a negative pattern of working days in July). Production was also supported by a smaller scale of shutdowns in the automotive and house appliances sectors in August. Production of motor vehicles, trailers and semi-trailers increased by 40%YoY and electrical appliances by 23.9%YoY. Interestingly, while the second quarter saw month-on-month declines in seasonally-adjusted production, the third quarter has brought a rebound in the level of output. No manufacturing recession in 3Q22 Industrial output (MoM SA)   We find the August production reading a positive signal of economic resilience, given poor leading indicators, weaker orders and high energy and commodity prices as well as uncertainty about the availability of energy in the autumn-winter period. We observe a gradual cooling down rather than a sudden and abrupt halt in activity as suggested by the latest manufacturing PMI index readings. We estimate that there will be an increase in 3Q22 GDP on a quarter-on-quarter seasonally-adjusted basis and that annualised growth will be close to 3%. In other words, we do not see a technical recession in 3Q22, but we still expect the second half of the year to be markedly worse for the Polish economy than the first with the most risk still in winter. Producer prices increased by 25.5% YoY in August, i.e. at the same pace as in July (after revision), despite another marked decline in fuel production prices (-6.5% month-on-month). Prices in manufacturing increased by 20.2%YoY and in mining and quarrying by 30.4%YoY. However, the greatest pressure was seen from energy prices, which rose in August at a double-digit rate (10.0%MoM) for the second month in a row and are already nearly 80% higher than a year earlier. Overall, the producers’ prices index (PPI) is around ¼ higher than a year ago, and the process of passing on rising production costs to final prices will continue in the coming months. This confirms our concern that the next few months will bring a new wave of retail price increases. We do not share the optimism of the Monetary Policy Council representatives who speak of a stabilisation or decline in CPI inflation before the end of the year. We rather expect an adjustment of prices and the economy to face another price surge, this time an energy shock. In our view, the expansionary nature of fiscal policy will even increase beyond what we see in 2022, making it easier to still pass on high costs to retail prices. Nevertheless, rate hikes are coming to an end. Recent comments show that the National Bank of Poland (NBP) is rather targeting a decline in the annual CPI (in our view possible by the end of 2023) and a 'soft landing' of the economy, while CPI at 2.5%YoY is a seemingly forgotten target. An important factor that reduces the effectiveness of the rate hikes so far is fiscal expansion. Currently, the total policy mix is only slightly restrictive despite inflation at 16.1%YoY. With such a definition of NBP targets, we can imagine a rate cut in 2023. With that in place, we may face another cycle of rate hikes in 2024. The way to fight inflation on the monetary and budgetary policy fronts in Poland differs from the approach of other countries, where central banks and governments communicate that domestic demand and labour market need to cool down and wage growth to moderate below the rate of inflation. All of this is to avoid a repeat of the 1970s scenario in the US when it took a couple of cycles of rate hikes to bring inflation down to required levels. The ultimate cost of fighting it was greater than the cooling of the economy at the start of a period of high inflation. Read this article on THINK TagsPoland industrial production Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The EUR/USD Pair Is Showing A Potential For Bearish Drop

Europe: Eurozone PMI Declined. Is Recession Here? | Euro: Next ECB Move Could Be A 75bp Hike

ING Economics ING Economics 23.09.2022 14:35
The third decline in a row for the eurozone PMI indicates that business activity has been contracting throughout the quarter. This confirms our view that a recession could have already started. At the same time, the August increase in energy prices is translating into stronger price pressures Shoppers in Lubeck, Germany German Composite PMI Reached 45.9 The third quarter clearly marks a turning point in the eurozone economy. After a strong rebound from contractions caused by the pandemic, the economy is now becoming more severely affected by high inflation both at the consumer and producer level. Led by Germany, which saw its composite PMI drop to 45.9 in September, the eurozone saw its composite PMI fall to 48.2. Both services and manufacturing output are well below 50 at 48.9 and 46.2, respectively, signalling broad-based contracting business activity. Read next:  The manufacturing sector is bearing the brunt of the problems. Supply chain problems still disturb production, but weaker global demand has caused backlogs of work to fall as new orders are decreasing quickly. Incidental production stoppages due to high energy costs are also adding to declining production in the sector. But with the tourism season behind us, there are few opportunities left for any marked catch-up effects in the eurozone economy. That has pushed the services PMI deeper into negative territory as consumers are starting to become more cautious in spending as energy bills rise across the monetary union. Overall, the view of a eurozone economy moving into recession seems confirmed by the gloomy September PMI survey. European Central Bank May Hike The Rate By 75bp The surge in gas and electricity prices in August is now leading to further price pressures emerging for businesses in September, even though other costs have been moderating due to weakening global demand. This confirms the stagflationary environment that the eurozone is currently in. The ECB has made clear that it will continue to hike in a determined manner for the short-run, as it tries to battle stubbornly high inflation. A 75 basis point hike in October is therefore definitely on the table, despite a weakening economy. Read this article on THINK TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Decarbonizing Steel: Contrasting Coal-based and Hydrogen-based Production Methods

Polish Zloty (PLN): National Bank Of Poland Surprised With Its Monetarty Policy Decision

ING Economics ING Economics 06.10.2022 12:08
The Monetary Policy Council kept National Bank of Poland rates unchanged, surprising investors. The Council rather prefers a longer period of disinflation and soft landing than a prompt return of CPI to 2.5%. Given the fast hikes in developed markets and a tense geopolitical environment, the zloty is at a risk of further weakening   ING and the consensus expected a 25bp rise in the main policy rate, while markets priced in a 25-50bp hike. In previous weeks, some Council members had explicitly declared a significant probability of ending the hiking cycle. The further sharp rise in inflation in September (especially core) did not change that opinion. This is surprising, since September's CPI negated the scenario of inflation peaking in the summer and trending downwards in the following months. In addition, major central banks entered a period of strong interest rate hikes, and the PLN weakened again. The decision to leave interest rates unchanged raises the risk of PLN depreciation, which will make it even more difficult to contain already high inflation. In the first reaction after the decision was announced, the PLN lost some 4gr against the EUR. In the post-meeting statement, the MPC assessed that past rate hikes and the expected economic downturn will contribute to weakening demand and lowering inflation "toward the inflation target". In particular, the document notes that the MPC writes about lowering inflation "towards the target", not "to the target". In addition, it was noted that the return to the NBP target will be gradual, suggesting that the MPC is not determined to bring inflation down to 2.5% year-on-year quickly, and accepts a longer period of elevated CPI levels. Markets will now focus on tomorrow's speech by NBP President Adam Glapinski, which may shed more light on the outlook for interest rates in the coming months. In our view, September's inflation data clearly point to another wave of price increases in response to earlier increases in costs, especially wholesale energy prices. Given the lag mechanism, the pass-through of higher costs to final prices will continue in the months ahead, even as demand softens. Inflation risks remain high, and in our view the peak in inflation is still ahead. At this stage we think the guidance that the tightening cycle is completed and discussion on possible rate cuts in 2023 to be risky. We see increasing chances of PLN weakening. The NBP's goals at the moment are rather to reverse the inflation trend and ensure a soft landing for the economy, than to bring inflation down to the target (2.5% YoY) as quickly as possible. Such a strategy raises the risk of a sustaining high inflation expectations and a prolonged period of elevated inflation. While we expect CPI in 2023 will fall from 20% to below 10% YoY, in 2024, when the fiscal measures (mainly cuts in indirect taxes) are reverted, inflation will rebound. Also, our models present a persistently high CPI in 2023-24 even with a GDP slowdown from 4.1% on average in 2022 to 1.5% ion average in 2023. Therefore, in our opinion, we are facing policy tightening again in 2024, either rate hikes or fiscal tightening. The ultimate cost of fighting long-term high inflation will be higher than if the policy mix tightens now. Read this article on THINK TagsPoland rates Poland MPC Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German industry rebounds in January

Supply Chain Issues And Rivers Status Affect German Industry Sector. Retail Sales Down (07/10/22)

ING Economics ING Economics 09.10.2022 17:23
Weak industrial production and retail sales provide further evidence that the German economy continues to slide into recession Industrial production declined... Germany continues to descend into recession. In August, production in industry in real terms was down by 0.8% on the previous month on a price, seasonally and calendar-adjusted basis, from an upwardly revised stagnation in July. Over the year, industrial production was up by 2.1%. Ongoing supply chain frictions as well as the low water levels in German rivers were the main reasons behind this drop in industrial activity. To make things worse, production in the energy sector was down by 6.1% month-on-month and the construction sector by 2.1%. According to the statistical office, production in the energy-intensive sectors was down by 2.1% MoM and by 8.6% compared with February this year. Retail sales in August were down by 1.3%, from an increase of 0.7% in July. Read next: Great Britain Expects Positive Results For Its Economy | FXMAG.COM More to come German industry and the entire economy have not come to an abrupt stop but are rather in the middle of a long and gradual slide into recession. Some examples? At the start of the year, production expectations were close to all-time highs but since the start of the war in Ukraine they have gradually come down, with no end currently in sight. Order books were richly filled at the start of the year and companies were filling inventories. Since then, new orders have dropped in almost every single month, and actual production has weakened since the summer. We don't need a crystal ball to see a further weakening of German industry in the coming months. The full impact of higher energy prices will only be felt in the last months of the year. It is not only the price effect putting a burden on German industry but also the lack of industrial input goods (including industrial gas). Today’s data are like a sneak preview of more to come. High energy prices will increasingly weigh on private consumption and industrial production, making a contraction of the economy inevitable. The only question is how severe such a contraction or recession will be. Read this article on THINK TagsIndustrial Production Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Hungarian Central Bank Confirmed Its Commitment To Keeping Conditions Tight For A Longer Period

Europe: The Latest Hungarian Budget Data Is Quite Surprising

ING Economics ING Economics 10.10.2022 15:33
The recent budgetary performance has been volatile from month to month. This time, we saw a positive surprise. We see further improvement in the short run but growing challenges in the long run Source: Shutterstock Budget deficit improves in September The Hungarian budget posted a HUF 181bn surplus in the month of September, after posting a deficit in August and a surplus in July. This is quite a surprise, especially considering the historic budgetary performances in September. After the good result last month, the cash flow-based year-to-date budget balance shows a HUF 2,691.7bn deficit, which amounts to 85.4% of the full-year target. The main reason for the improvement is the revenue side of the budget. The press release from the Ministry of Finance highlighted that tax- and excise duty-related income increased by almost 16% compared to a year ago. This outcome hardly comes as a surprise with the still positive real GDP growth and surging inflation, which boosts revenues. Cash flow-based year-to-date central budget balance Source: Ministry of Finance, ING   When it comes to the expenditure side, the press release did not reveal any new information about the budgetary developments. The latest information related to spending is that the government mandated a general “expenditure freeze” in late September. This takes us back to summer when the government ordered budgetary institutions to cut expenditures. It looks as though some of these institutions failed to meet their targets, and the government has now reacted. In practice, this “expenditure freeze” means that the finance minister will oversee all the invoices on spending. In our view, this decision is more of a political and management issue than a financing matter. 2022 deficit target increase is formally announced The Finance Ministry also announced – formally for the first time – that it increased the accrual-based (Maastricht) deficit-to-GDP target. The 1.2ppt increase to 6.1% is due to the accelerated accumulation of natural gas reserves by the Hungarian Hydrocarbon Stockpiling Association (HUSA), which covers roughly HUF 740bn worth of gas purchases. As Eurostat has counted HUSA as part of the public sector since 2019, its gas purchases increase the Maastricht deficit, while the debt taken by the association increases the public debt. However, since the extra purchases were sourced from a syndicated loan with a state guarantee, this did not generate a debt financing requirement. To put it more simply, the deficit from a cash-flow perspective was not affected by this, so the higher deficit target is purely a technical change. Steps might be needed to meet the 2023 deficit target Looking forward, we expect a significant improvement in the budgetary figures as the latest tax measures (e.g. windfall tax-related payments) will start to boost revenues alongside rising inflation. On the other hand, due to higher inflation, the government needed to adjust the pension expenditure to preserve its purchasing power at a real value, fulfilling a legal requirement. This, with an extra one-off pension bonus (due to the expected +3.5% real GDP growth in 2022), will create an extra budgetary burden of roughly HUF 200bn in November. But even with that, we expect the government to be in line with this year’s cash flow and accrual-based deficit targets. Next year, however, could be trickier as the 2023 budget included a 3.5% deficit target. The severely dampened economic outlook compared to the summer outlook might provide some extra hurdles. The government will reveal the amended budget in late December when we still see the government keeping the original 3.5% deficit target, but probably deciding on some measures on both the revenue and the expenditure sides. Read this article on THINK TagsHungary Fiscal policy Deficit Debt Budget Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Italy: ING Economics expect quarter-on-quarter GDP in the fourth quarter may contract by 0.2%

ING Economics: Italy - Even If In Q3 Gross Domestic Product (GDP) Will Avoid A Decline, Q4 May Be Worse

ING Economics ING Economics 11.10.2022 18:27
Volatile August production data should be taken with a pinch of salt as underlying developments continue to point to more accentuated weakness over 4Q22, when industry will very likely be confirmed as a drag on growth Car production line in Turin, Italy   According to Istat data, Italy's seasonally-adjusted industrial production increased a surprisingly strong 2.3% month-on-month in August (from an upwardly revised 0.5% in July). The working day adjusted measure posted a 2.9% year-on-year change (from -1.3% YoY in July). "August effect" possibly at play, in 3Q22 industry should remain a drag on GDP growth The broad aggregate breakdown shows that consumer and investment goods were the main drivers of the acceleration while the production of energy contracted. To be sure, this is a positive reading, but it should be taken with a pinch of salt, as the August release is often affected by marked volatility due to firm closures and their impact on seasonal adjustments. In order to get a sense of the underlying developments, we look at the moving quarter and note that over the June-August period, production contracted by 1.2% from the previous three months. Confidence and PMI data point to a deterioration in September While the August reading can still be partially interpreted as evidence that Italian industry continues to be relatively more resilient to international supply chain disruptions and to ballooning energy prices, we expect the picture to get gloomier over the coming months. The manufacturing PMI has been in contraction territory since July and business confidence plunged in September, with the expected production subcomponent down to levels not seen since November 2020. The set of measures recently put in place by the outgoing government to weather the energy inflation shock will help limit the damage for businesses but is unlikely to stop industry from becoming a drag on growth in both 3Q22 and 4Q22. The European Central Bank's tightening mode will not make things any easier over the next few months, possibly weighing on the investment component. A GDP contraction could still be avoided in 3Q22, not in 4Q22 After today’s reading we are mildly comforted in our view that the Italian economy might manage to avoid a contraction in 3Q22 (we expect a minor 0.1% GDP expansion) but remain convinced that this will not be possible in 4Q22, when we project a 0.5% quarter-on-quarter contraction, which should mark the start of a recession. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
That's A Surprise! Eurozone Industrial Production Went Up By Over 1%

That's A Surprise! Eurozone Industrial Production Went Up By Over 1%

ING Economics ING Economics 12.10.2022 12:00
The strong August reading does not fully reverse the losses from July, and expectations for manufacturing in the months ahead continue to weaken. Still, for the ECB this is another argument not to pivot towards a more dovish stance in the short run   Industrial production increased by 1.5% in August after a -2.3% drop in July. This was much better than expected but still does not erase losses from July. Ireland is experiencing very volatile production at the moment, which is affecting total eurozone numbers, but among the large industrial economies we see similar – though more muted – moves. France, Italy and Spain all experienced decent to strong growth in August, while Germany remained the exception with another month-on-month loss in production. This is the third consecutive month of declines in German production. Industrial production is generally volatile from month to month and therefore we do not think this is to be taken as the start of a recovery. All survey data and anecdotal evidence point toward a more significant slump ahead as demand is weakening and high energy costs are forcing businesses to slow production or stop it altogether in certain energy-intensive sectors. The upside risk to that view comes from improving supply chains, which could unlock some backlogs of production. Still, our base case is for the manufacturing sector to contract in the months ahead. Overall, while the outlook for production is weakening, this data in itself is no reason for the ECB to change tack in terms of its rate hike strategy. For a dovish pivot, the ECB would need to see evidence that the economy is contracting quickly. While a quarterly contraction in manufacturing is definitely a possibility, these August data are far from alarming. A 75bp hike in October is therefore very much on the table at the moment. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The German Purchasing Managers' Index, ZEW Economic Sentiment  And More Ahead

Podcast: Europe's Real Troubles Discovered As A Result Of The War In Ukraine

Saxo Bank Saxo Bank 13.10.2022 11:42
Summary:  As we await today's US September CPI and wonder whether a soft surprise can really move the needle, we highlight one of the starkest assessments of Europe's current predicament, which has crystallized since Russia invaded Ukraine earlier this year and is not just about stocking up on enough gas to survive the coming winter, but will require decades to address. A look at burgeoning interest in the nuclear energy, stocks to watch and upcoming earnings reports, crude oil, wheat and a 79-year low in the orange crop in the US and more on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting an on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: https://www.home.saxo/content/articles/podcast/podcast-oct-13-2022-13102022
Short-term analysis - Euro to US dollar by InstaForex - 31/10/22

ING Economics Think Inflation Is Already There In The Eurozone. Q3 GDP May Decline By 0.2%

ING Economics ING Economics 17.10.2022 12:34
Looking at all the evidence available so far, it looks like the eurozone fell into a shallow recession in the third quarter. For the European Central Bank, this is unlikely to be enough to prompt an immediate dovish pivot given its determination to hike interest rates in the face of double-digit inflation. We still expect another 75bp hike in October   A recession in the eurozone has now become the near-consensus view, with the IMF being the latest international institution to predict a contraction in the eurozone economy in 2023. The only question seems to be how severe this winter recession will be and when it will start. We take a look at whether the economy actually started to shrink in the third quarter. Soft data suggests that a recession is likely to have started During the pandemic, we developed a nowcast indicator that gave us insight into how the eurozone economy was performing during lockdowns. While it was designed to perform well in the specific circumstances of the pandemic, there is merit in looking at it once again. The big caveat is that electricity use is an important driver of the index, which has of course been subject to large productivity gains as the energy crisis has unfolded. Nevertheless, we see that the direction for most underlying variables is slightly negative at the moment, corresponding to a view that the economy fell into a mild contraction at the end of the third quarter. Nowcast tracker suggests that activity has been moderately declining recently For more on how this index is constructed, read here: https://think.ing.com/articles/introducing-the-ing-weekly-economic-activity-index-for-the-eurozone/ Source: ING Research   Mobility indicators are an important part of the nowcast index. When the economy reopened earlier in the year, we saw a strong increase. But except for workplace activity, most mobility indicators normalised during the spring and have remained at these levels over the course of the third quarter. Our average of the Google mobility indicators shows that the second quarter still saw large mobility gains, while the third quarter was flat. While seasonal factors may understate the performance in this regard, it does seem fair to assume that most, if not all, of the post-lockdown rebound is now behind us. Adding to meagre nowcast data, surveys suggest that a recession is likely to have started already. The composite PMI was below 50 – signalling contraction – for all three months of the third quarter. In fact, it gradually worsened as the quarter progressed, with September showing more serious signs of contraction as the summer months ended. Both services and manufacturing activity are now well below 50. This is a broader indicator of activity, which adds to signs that a shallow recession began in 3Q. Still, some evidence from data not collected from surveys would be useful so as not to miss out on positive surprises. Retail sales are weak and tourism is not expected to make up for it When looking at consumer spending, we see a clear downward trend in retail sales. November last year was the recent peak in sales activity after which a steady decline set in. This is because of the sharp decline in purchasing power that households have experienced since then, but will also be related to the reopening of certain services. With people returning to restaurants and bars and starting to take holidays again, spending patterns have shifted away from goods. The latter seems to be a smaller part of this though. As chart 2 shows, people are spending more than ever in retail, but volumes are down. So the impact of inflation is that people are forced to spend more and more at the store but take home less for it. Interestingly, car sales have been increasing in August, coming from a very low base. Consumers pay more in retail, but take home lower volumes than late last year Source: Eurostat, ING Research   The ECB put a lot of emphasis on the positive impact of tourism on third-quarter growth. This is a bit of a blind spot in terms of more frequent data and could indeed add to positive activity this quarter. Looking at overnight stays in the eurozone, we see that July and August were very close to pre-pandemic levels which suggests continued 3Q strength, but businesses are less optimistic. Surveys suggest that the peak in tourism activity was in June and that the summer may have slightly disappointed. Still, tourism is likely to have added positively to the third quarter GDP growth number. All in all though, it looks like the summer was not strong enough to have kept consumption growth positive overall. Industry limits losses so far due to improving supply chains, but trend is down When looking at industry, we see a divergence between the survey and hard data so far. While surveys suggest a sizable weakening in activity, August data was better than expected. It seems that the improvement in supply chain problems and the availability of inputs to production are allowing businesses to catch up on backlogs of orders. Still, new orders are falling and survey data suggests a weaker September. Particularly in energy-intensive sectors, production seems to have dropped again in September. The German statistical office has started to release a new times series for energy-intensive industry, showing that production in these sectors dropped by more than 8% between February and August. If September was indeed weaker than August, industrial production will have been negative on the quarter, adding to expectations that the economy was already in a shallow contraction in 3Q. Production recovered a bit in August, but energy-intensive sectors look problematic in September Right chart shows total manufacturing and the most energy-intensive sectors Source: Eurostat, Macrobond, European Commission DGECFIN, ING Research   Interestingly enough, trade is very difficult to judge at the moment. Data on volumes is hard to come by and strongly rising prices for energy have caused nominal imports to soar. It looks like real export growth weakened over the summer, but imports could have fallen even more as energy is such an important component and energy use is down due to high prices. This means that net exports could have actually contributed positively to GDP growth last quarter. If this makes growth positive, it would mean that a recessionary environment saw positive growth. Just as the US went through a technical recession in the first half of this year when the economy contracted but no real signs of recession were visible, so the eurozone could be in a technical expansion, where the economy expands in a recessionary setting. Contraction in 3Q, but no smoking gun for a dovish pivot from the ECB Taking this all together, we find enough weakness in recent data to believe that a recession has already started and stick to our forecast of a -0.2% quarter-on-quarter contraction in 3Q. But shallow negative growth – still held up by temporary recovery factors – is also unlikely to give the ECB the smoking gun for a dovish pivot. In fact, at the next ECB meeting on 27 October, there won’t be any new staff projections, nor will there be hard data for September, allowing the ECB to announce another hike by 75 basis points. It will take until the December meeting before the ECB has a better view on the severity of the recession, which should then be enough to embark on a dovish pivot. Read this article on THINK TagsGDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
China's Position On The Russo-Ukrainian War Confirmed At The G20 Meeting

The Japanese Yen (JPY) Is The Only G20 Currency Which Have Been Weaken | China Delays Publication Of GDP Report

Saxo Bank Saxo Bank 18.10.2022 10:40
Summary:  Risk sentiment was supported by more U-turns in UK fiscal policy and strong earnings from Bank of America supporting the US banks. Equities rallied and the USD declined, but the Japanese yen failed to ride on the weaker USD and continued to test the authorities’ patience on intervention. Higher NZ CPI boosted bets for RBNZ rate hikes, and the less hawkish RBA meeting minutes brought AUDNZD to fresh lows. EU meetings remain key ahead as the bloc attempts to finalize Russian price caps. What’s happening in markets?   The Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) rally after UK-policy U-turn. So far this reporting season earnings are declining The mood was risk-on amid Monday’s rally; with the major indices charging higher with the S&P500 up 2.7%. The breadth of the rally was so strong that at one point over 99% of the companies in the S&P500 were rising, which pushed the index up away from its 200-week moving average (which it fell below last week). Meanwhile the Nasdaq 100 gained 3.5%. The rally came after the UK made $30 billion pounds worth of savings after scrapping tax cuts (see below for more). It was received well by markets and investors looking for short term relief. Bond yields fell, equities rallied and after the GBP lifted 1.6% the US dollar lost strength. But the UK is not out of the lurch with power outages likely later this year. Plus also consider, so far this US earnings season, only 38 of the S&P500 companies have reported results and earnings growth has so far declined on average by 3%. So it’s too soon to gauge if markets can sustain this rally, particularly with the Fed likely to hike rates by 75 bps later this month and next. Strong earnings from bank boosted market sentiment. Bank of America (BAC:xnys), reporting solid Q3 results with net interest income beat and a 50bp sequential improvement on CET1 capital adequacy ratio, surged 6% and was one of the most actively traded stock on the day. U.S. treasury curve (TLT:xnas, IEF:xnas, SHY:xnas) steepened Initially US treasuries traded firmer with yields declining, after taking clues from the nearly 40bps drop in long-dated U.K. gilts following the new U.K. Chancellor Hunt scrapping much of the "mini budget" tax cuts and the support for household energy bills. Some block selling in the long-end treasury curve however took 30-year yields closing 3bps cheaper and 10-year yields little changed at 4.01%. The 2-year to 5-year space finished the session richer, with yields falling around 5bps and 2-year closed at 4.44%. The market has now priced in a 5% terminal Fed fund rate in 2023 and a 100% probability for a 75bps hike in November and over 60% chance for another 75bps hike in December. Australia’s ASX200 (ASXSP200.1) lifts 1.4%; with a focus on Uranium, stocks exposed to the UK and lithium Firstly Lithium stocks are in the spotlight after Pilbara Minerals (PLS) accepted a new sales contract to ship spodumene concentrate for lithium batteries from Mid-may, at $7,100 dmt. PLS shares are up 3.1% with other lithium stocks rising including Core Lithium (CXO) up 3.7% and Sayona Mining (SYA) up 4.7%. Secondly, shares in Uranium are focus today after Germany plans to extend the life of the countries three nuclear power plants till April, as it contends with the energy crisis. The Global Uranium ETF (URA) rose 5.9% on Monday and ASX uranium stocks are following suit like Paladin (PDN) up 2%. For a deep look at the uranium/nuclear sector, covering the stocks to perhaps watch and why read our Quarterly Outlook on the Nuclear sector here. Thirdly, amid the risk-on short term relief in markets from the UK, companies with UK exposure are rallying amid the short-term sentiment shift , including the UK’s 5th biggest bank, Virgin Money (VUK) which is listed on the ASX and trades up 5.3%. Ramsay Health Care (RHC), which is a private hospital/ health care business with presence in the UK trades up almost 2% today. Ramsay's recent full-year showed UK revenue doubled to $1.2 billion. Hong Kong’s Hang Seng (HSIV2) China’s CSI300 (03188:xhkg) Stocks in Hong Kong and mainland China traded lower initially and spent the rest of the day climbing to recover all the losses, with Hang Seng Index and CSI300 finishing marginally higher. General Secretary Xi’s speech last Sunday hailed China’s “Dynamic Zero-Covid” strategy and gave no hint of shifting policy priorities toward economic growth as some investors had hoped for. Among the leading Hang Seng constituent stocks, HSBC (00005:xhkg) gained 1.5% and the Hong Kong Stock Exchange (00388:xhkg), which is reporting Q3 results on Wednesday, climbed 2.3%. Chinese banks gained, with China Merchant Bank rising 2.3% and ICBC (01389) up 1.7%.  Healthcare names gained, Hansoh Pharmaceutical (03692:xhkg) surged 13.2% and Sino Biopharm (01177:xhkg) rose 3.6%. EV stocks were among the laggards, dropping from 1% to 5%. Li Ning (02331:xhkg) tumbled over 13% at one point and finished the trading day 4.3% lower following accusations on mainland social media about the sportswear company’s latest designs resembling WWII Japanese army uniforms.  Japanese yen paying no heed to jawboning efforts The US dollar moved lower on Monday, but that was no respite for the Japanese yen. All other G10 currencies got a boost, with sterling leading the bounce against the USD with the help of dismantling of the fiscal measures by the newest Chancellor of the Exchequer Jeremy Hunt and the slide in UK yields. The only G10 currency that weakened further on Monday was the JPY, which continued to test the intervention limits of the authorities. USDJPY rose to 149.08, printing fresh 42-year highs. Bank of Japan Governor Kuroda will be appearing before the Japanese parliament from 9.50am Tokyo time, after some stern remarks in the morning saying that they “cannot tolerate excessive FX move driven by speculators”. While intervention expectations rose, the yen still did not budge until last check. NZD rose on higher New Zealand CPI boosting RBNZ tightening bets Another surprisingly strong inflation print from New Zealand, with Q3 CPI easing only a notch to 7.2% y/y from 7.3% y/y against consensus expectations of 6.5% y/y and an estimate of 6.4% from the RBNZ at the August meeting. The q/q rate rose to 2.2% from 1.7% in Q2 and way above expectations of 1.5%. This has prompted expectations of more aggressive tightening from the RBNZ with a close to 75bps hike priced in for the Nov 23 meeting vs. ~60bps earlier, and the peak in overnight cash rate at over 5.3% from ~5% previously. NZDUSD rose to 0.5660 with the AUDNZD down to over 1-month lows of 1.1120 with RBA minutes due today as well for the October meeting when the central bank announced a smaller than expected rate hike of 25bps. Crude oil (CLX2 & LCOZ2) Crude oil prices stabilized in early Asian hours on Tuesday after a slight decline yesterday, despite a weaker dollar and an upbeat risk sentiment. WTI futures rose towards $86/barrel while Brent was above $91. Chinese demand concerns however weighed on the commodities complex coming out of the weekend CCP announcements. On the OPEC front, Algeria's Energy Minister echoed familiar rhetoric from the group that the decision to reduce output is a purely technical response to the world economic circumstances.   What to consider? UK need to know: Policy U-Turn provides shorter term risk-on rally, but long-term headwinds remain, UK holds talks to avoid power shutdowns New British chancellor Jeremy Hunt reversed almost all of PM Liz Truss’ mini-budget. Initially Truss’ plans sent markets into a tailspin - whereby the pound hit record lows and the Bank of England was forced to intervene. However, after Hunt virtually scrapped all of the announced tax cuts, and cut back support for household energy bills, saving $32 billion pounds, then risk sentiment improved and the pound gained strength. But, the issue is, firstly; there are still almost $40 billion pounds worth of savings to be made to close the fiscal gap; meaning more government spending cuts will come and possibly tax hikes. This is probably why new UK finance chief, Hunt, declined to rule out a windfall profit tax. Nevertheless, the U-turn was received well by markets for the short term, bond yields fell, equities rallies and the pound sterling (GPBUSD) rose 1.6% against the USD with the US dollar losing strength. And the second reason the UK is not out of the lurch is that the fundamentals haven’t changed; the UK energy crisis is not resolved – yesterday in the UK government officials met major data centers discussing the need to use diesel as backup if the power grid goes down in the coming months. Amazon.com and Microsoft run data centers in the UK. Earlier this month, National Grid also warned some UK customers they could face 3-hour power cuts on cold days. The Bank of England is expected to downgrade its rate hike expectations.    NY Fed manufacturing headline lower on mixed components The NY Fed manufacturing survey for October fell to -9.1, contracting for a third consecutive month and coming in below the expected -4.0 and the prior -1.5. While survey data remains hard to trust to decipher economic trends, given a small sample size and questioning techniques impacting results, it is worth noting that more factories are turning downbeat about future business conditions which fell 10 points to -1.8 and was the second weakest since 2009. Also, the prices paid measure rose for the first time since June, echoing similar results as seen from the University of Michigan survey. Fed speakers ahead today include Bostic and Kashkari and terminal rate expectations remain on watch after they are touching close to 5%. La Nina is underway in Australia; floods decimate some wheat crops In the Australian state of Victoria at the weekend, floods decimated some wheat crops, which has resulted in the price of Wheat futures contracts for March and May 2023 lifting in anticipation that supply issues will worsen. The Australian Federal Emergency Management Minister said parts of Australia face ‘some serious flooding’ with more rain forecast later this week, with 34,000 homes in Victoria potentially expected to be inundated or isolated. The Bureau of Meteorology forecasts the La Lina event to peak in spring that’s underway in the Southern Hemisphere, before turning to neural conditions early next year. La Nina is not only disastrous to lives, homes and businesses, but the extra rainfall usually brings about lot of regrowth when rain eases. The risk is, if El Nino hits Australia in 2023 for instance, bringing diminished rainfall and dryness, then there is a greater risk of grassfires and bushfires. Investors will be watching insurance companies like Insurance Australia Group, QBE. As well as companies that produce wheat, including GrainCorp and Elders on the ASX and General Mills in the US. RBA Meeting Minutes out – AUDUSD climbs of lows, up 1.7% The Aussie dollar rose 1.7% off its low after the USD lost strength when the UK re winded some tax cuts. The AUDUSD will be in focus with the RBA Meeting Minutes released, highlighted why the RBA rose interest rates by just 0.25% this month, moving from a hawkish to dovish stance. The RBA previously highlighted it sees unemployment rising next year, and sees inflation beginning to normalize next year, which in our view, implies the RBA will likely pause with rate hikes after December, after progressively making hikes of 25bps (0.25%). Still the Australian dollar against the US (AUDUSD) remains pressured over the medium term, given the Fed’s expected heavy-pace of hikes, while China’s commodity buying-power is restricted with President Xi maintaining a covid zero policy. As such, the AUD's rally might be questioned unless something fundamentally changes. China delays the release of Q3 GDP and September activity data Chin’s National Bureau of Statistics delays the release of Q3 GDP, September industrial production, retail sales, and fixed asset investment data that were scheduled to come on Tuesday without providing a reason or a new schedule.   For our look ahead at markets this week - Listen/watch our Saxo Spotlight.   For a global look at markets – tune into our Podcast. Source: https://www.home.saxo/content/articles/equities/market-insights-today-18-oct-18102022
The EUR/USD Pair Is Showing A Potential For Bearish Drop

Eurozone Inflation Hits 9.9%, It's The Highest Level In More Than 25 Years!

Conotoxia Comments Conotoxia Comments 19.10.2022 15:26
While consumer inflation seems to be slowing down in the United States, looking at the CPI measure, the opposite is true in the Eurozone or the United Kingdom. Price growth continues to accelerate, according to data released today. What is the inflation rate in Europe? The annual inflation rate in the eurozone rose to 9.9 percent in September 2022, up from 9.1 percent a month earlier. This is the highest inflation rate since measurements began in 1991. Inflation has thus moved further away from the European Central Bank's 2 percent target, which may cause policymakers to continue tightening monetary policy despite the risk of recession. The main upward pressure for eurozone prices came from the energy sector (40.7 percent versus 38.6 percent in August), followed by food (11.8 percent versus 10.6 percent), services (4.3 percent versus 3.8 percent) and non-energy industrial goods (5.5 percent versus 5.1 percent). Annual core inflation, which excludes volatile energy, food, alcohol and tobacco prices, rose to 4.8 percent in September. On a monthly basis, consumer prices rose 1.2 percent, Eurostat reported. Source: Conotoxia MT5, EUR/USD, H4 Prices in the UK are also rising The UK's annual inflation rate rose to 10.1 percent in September 2022 from 9.9 percent in August, returning to the 40-year high reached in July and beating market expectations of 10 percent, trading economics reported. The biggest contributor to the increase was food, which became more expensive by 14.8 percent. Costs also rose sharply for housing and utilities, as they rose by as much as 20.2 percent, mainly, due to soaring electricity or gas prices. In contrast, core inflation on an annualized basis, which excludes energy, food, alcohol and tobacco, rose to a record 6.5 percent, compared to expectations of 6.4 percent, according to data from the Office for National Statistics. Source: Conotoxia MT5, GBP/USD, H4 High inflation in Europe - central banks with no way out? High inflation may not give much room for further action by central banks in the context of executing the so-called pivot, i.e. a turnaround in the current monetary policy, which consists mainly of interest rate hikes. Further price increases could seal further interest rate hikes in the Eurozone or the UK, which in turn could affect household budgets, but also company valuations. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
Belarusian opposition leader proposed a collaboration to Ukraine

Belarusian opposition leader proposed a collaboration to Ukraine

Center Of Eastern Studies Center Of Eastern Studies 21.10.2022 13:57
On 10 October, the leader of the Belarusian opposition Sviatlana Tsikhanouskaya proposed to President Volodymyr Zelensky that an alliance be formed between Ukraine and a free & democratic Belarus – i.e. the interim cabinet formed under Tsikhanouskaya’s leadership in August this year. At the same time, she declared that Belarus should give up its political, economic and military alliance with Russia, and that Ukraine would win its war against the Russian aggressor. So far, the offer has not met with a high-level reaction from Kyiv. On 12 October Oleksiy Arestovych, an advisor to the Ukrainian presidential office, reacted positively to the Belarusian opposition leader’s appeal, while at the same time criticising the Ukrainian political class for “unfairly” holding Belarusians responsible for the pro-Russian policy of Alyaksandr Lukashenka. However the chairman of the Ukrainian parliament’s foreign affairs committee and member of the Servant of the Nation party Oleksandr Merezhko, together with another deputy from the same party Bohdan Yaremenko, stated that Ukraine could not recognise Tsikhanouskaya and her cabinet because the stance of the Belarusian opposition towards Russia remains unclear (including its failure to condemn Russia as a terrorist state); they also questioned the credibility of “certain people within her entourage”. Read full article on OSW.WAW.PL
Euro to US dollar - Ichimoku cloud analysis - 21/11/22

The week ahead looks promising. ECB Decides on interest rate, ING Economics expects a 75bp rate hike

ING Economics ING Economics 21.10.2022 15:06
All eyes will be on the European Central Bank meeting next week. We think a 75bp hike looks like a done deal. The PMI survey on Monday will also be closely watched, providing clues on whether the eurozone economy has contracted even further. For the Bank of Canada, we expect a similar 75bp rate hike, given the upside surprise in inflation In this article US: The Fed cannot slow the pace of hikes yet Canada: a 75bp hike is the most likely outcome UK: Markets looking for clarity on fiscal plans and government stability Eurozone: ECB to hike by 75bp again amid ongoing inflation concern Source: Shutterstock   US: The Fed cannot slow the pace of hikes yet There are lots of important numbers out for the US next week, but none are likely to change the market's forecast for a 75bp interest rate hike on 2 November. 3Q GDP is likely to show positive growth after the “technical” recession experienced in the first half of the year. Those two consecutive quarters of negative growth were primarily caused by volatility in trade and inventories, which should both contribute positively to the 3Q data. Consumer spending is under pressure though while residential investment will be a major drag on growth. We are forecasting a sub-consensus 1.7% annualised rate of GDP growth. We will also get the Fed’s favoured measure of inflation, the core personal consumer expenditure deflator. This is expected to broadly match what happened to core CPI so we look for the annual rate to rise to 5.2% from 4.9%. With the economy growing and inflation heading in the wrong direction, the Fed cannot slow the pace of hikes just yet. Also, look out for durable goods orders – Boeing had a decent month so there should be a rise in the headline rate although ex-transportation, orders will likely be softer. We should also pay close attention to consumer confidence and house prices. The surge in mortgage rates and collapse in mortgage applications for home purchases has resulted in falling home sales. With housing supply also on the rise, we expect to see prices fall for a second month in a row. Over the longer term, this should help to get broader inflation measures lower given the relationship with the rental components that go into the CPI. Canada: a 75bp hike is the most likely outcome In Canada, the central bank is under pressure to hike rates a further 75bp given the upside surprise in inflation. Job creation has also returned and consumer activity is holding up so we agree that 75bp is the most likely outcome having previously forecast a 50bp hike. UK: Markets looking for clarity on fiscal plans and government stability The ruling Conservative Party has said it will fast-track plans to get a new leader in place by next Friday - and potentially even by Monday if only one candidate makes it through the MP selection round. Candidates have until Monday at 2pm to clear the hurdle of 100 MP nominations to make it onto the ballot paper, before Conservative MPs vote on the outcome. With only a week to go until the Medium Term Fiscal Plan on 31 October, there's inevitably a question of whether this is enough time for a new prime minister to rubber stamp Chancellor Jeremy Hunt's plans for debt sustainability. Investors are - probably rightly - assuming that Hunt will remain in position under a new leader. But the bigger question is whether the Conservative Party can unite behind a new leader and whether a more stable political backdrop can emerge - because if it can't, then not only is there uncertainty surrounding future budget plans, but also whether we're moving closer to an early election. Eurozone: ECB to hike by 75bp again amid ongoing inflation concern The hawks have clearly convinced the few doves left of the necessity to go big on rate hikes again. Contrary to the run-up to the July and September meetings, there hasn’t been any publicly debated controversy on the size of the rate hike. In fact, European Central Bank President Christine Lagarde seems to have succeeded in disciplining a sometimes very heterogeneously vocal club. To this end, it is hard to see how the ECB cannot move again by 75bp at next week’s meeting. As the 75bp rate hike looks like a done deal, all eyes will also be on other, more open, issues: excess liquidity, quantitative tightening and the terminal interest rate. Read more here. Besides the ECB, which will be the key focal point for eurozone investors, we’re looking at the survey gauges of the economy next week. The PMIs on Monday will be critical to determine whether the eurozone economy has slid further into contraction or whether an uptick has occurred. There is not much evidence on the latter in our view, but Monday will provide more clarity on how the eurozone economy is performing in October. Key events in developed markets next week Source: Refinitiv, ING This article is part of Our view on next week’s key events   View 3 articles TagsUS UK election Eurozone Canada Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Spain: Price Pressures Higher Up The Production Chain Are Starting To Ease

According to ING, unemployment rate in Spain, which amounted to 12.7% in Q3, may crawl over 14% in 3Q2024

ING Economics ING Economics 27.10.2022 11:40
The Spanish unemployment rate rose slightly to 12.7% in the third quarter, but is still very low. However, a sharp decline in hiring intentions shows that a cooling-off in the labour market is on the way. We expect unemployment to rise further in the coming quarters due to the deteriorating economic outlook, peaking at 14.3% in the third quarter of next year We expect unemployment to continue to rise in the coming quarters due to deteriorating economic conditions Unemployment rate slightly up in the third quarter According to INE figures released this morning, unemployment rose to 12.7% in the third quarter from 12.5% in the second quarter. With the exception of the previous quarter, this still puts unemployment at its lowest level since the third quarter of 2008, the start of the financial crisis. Although the unemployment rate is historically low, it is still well above the euro average. Eurostat's harmonised figures, which differ slightly from those published by INE, show that Spain's unemployment rate was 12.4% in August, compared with the eurozone average of 6.6%, a difference of 5.8 percentage points. For under-25s, the deviation from the eurozone average even runs to 12.7 percentage points. This average harbours large differences between regions. In the south of the country (Andalusia, Extremadura, Murcia etc) unemployment is typically above the national average, while the northern regions (Cantabria, Navarre, Catalonia, and so on) pull the average down a bit. We expect unemployment to continue to rise in the coming quarters due to deteriorating economic conditions. We predict that the Spanish economy will enter a mild recession starting in the fourth quarter of 2022 that will continue until the first quarter of next year. This will put some upward pressure on unemployment rates. Since unemployment rates usually lag somewhat behind the economic cycle, the biggest impact will be next year. We think that Spanish unemployment will peak at 14.3% in the third quarter of 2023. Unemployment rate, 1976-2022 Hiring intentions dropped sharply Although the labour market is still very tight, more signals point to a cooling in the coming months. The 12-month moving average of the number of vacancies has been stabilising for several months and seems to be at a peak. Business confidence has also deteriorated sharply in recent months, which will encourage companies to be more careful with new hires. This is already reflected in the latest Manpower survey, which polls every three months on the hiring intentions of companies. The latest results polling hiring intentions in the fourth quarter of 2022 show the largest quarterly decline in the index since the start of the survey in 2003. Although the index was historically high, this points to a turnaround in the labour market. The deteriorating economic outlook is already causing companies to be more cautious about hiring new people. Manpower survey – hiring intentions in the next three months, 2003-2022 A cooling economy will take longer to restore productivity to pre-Covid levels GDP per person of working age, a good measure of an economy's productivity, is still below its pre-Covid levels. Since 2014, following the financial crisis and debt crisis, the productivity parameter was on a strong remount. Between 2014 and 2019, GDP per working age population rose by an average of 2.6% per year. This came to an abrupt end with the onset of the Covid-19 pandemic. In the first two quarters of 2020, GDP per person of working age fell 24.2% from the last quarter of 2019 due to a sharp drop in activity. Afterwards, the measure recovered strongly. In each of the past three quarters, it grew more than 6% year-on-year but is still 3.5% below its 4Q19 pre-Covid levels. However, this increase is likely to be strongly driven by the activation of lower-productivity workers. This pushes GDP per person of working age higher, but puts pressure on real labour productivity per hour worked. We see that the latter has been under strong pressure since the beginning of this year (-3.1%). The end of Covid restrictions has allowed a lot of employees in the tourism and hospitality sector to get back to work, but these are typically employees who contribute relatively less to GDP. The tight labour market also makes it easier for less skilled and recent graduates to find a job – in general, these are also people with lower productivity. With activity again under strong pressure from the energy crisis and high inflation, productivity is likely to fall. Over the winter months, we forecast a contraction of 0.8% in the Spanish economy. As a result, it will probably take until 2024 before GDP per working age person returns to its pre-pandemic level. Productivity – GDP per working age population, Q4 2019 = 100 Spanish labour market supported by strong growth in open-ended contracts The high number of temporary contracts in Spain has long been one of the weaknesses of the Spanish labour market. According to Eurostat data, about 22% of Spaniards were on temporary contracts before the pandemic, compared to an average of 14.4% in the EU. However, the number of open-ended contracts has increased over the past year. The number of permanent employees reached a record high in the second quarter to 13.5 million employees (seasonally adjusted figures), an increase of 8.7% compared to the second quarter of last year. The number of employees on temporary contracts has fallen by 6.7% in the past year to just over four million. The increase started in the middle of last year but was accelerated by the labour market reform approved by the government in December. The share of permanent contracts has increased by three percentage points in one year, from 74% in the second quarter of last year to more than 77% in the second quarter of this year. It is too early to estimate the long-term effects of the labour market reform, but we can already say that the reform, which imposes additional restrictions on the use of temporary contracts, has resulted in many temporary contracts being converted into open-ended contracts. These also offer better protection during economic headwinds. A higher share of permanent contracts is also likely to mean that the rise in the unemployment rate, which usually follows a fall in economic activity, will be less pronounced than during previous recessionary periods. Share of permanent contracts Bleak economic outlook will lead to higher unemployment rate All in all, despite a slight rise in the unemployment rate in the third quarter, the labour market remains very tight. The bleak economic outlook, which is already prompting companies to be more cautious about new hires, will ease the pressure on the labour market in the coming months. We expect the unemployment rate to rise further to 14.3% in 3Q23, partly held back by a higher number of permanent contracts, before slowing down again. Read this article on THINK TagsUnemployment rate Spain Labour market GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The EUR/USD Pair Is Showing A Potential For Bearish Drop

We could say European Central Bank has three variants to choose from today

Kenny Fisher Kenny Fisher 27.10.2022 12:06
EUR/USD is in a holding pattern ahead of today’s ECB rate meeting. In the European session, the euro is trading at 1.0068, down 0.16%. ECB projected to hike by 0.75% The ECB holds its policy meeting later today, amidst difficult economic conditions in the eurozone. Inflation jumped to 9.9% in September, up sharply from 9.1%. The manufacturing and services sectors are in decline and confidence levels are low. The markets have priced in a 0.75% hike and there has even been talk of a jumbo full-point increase. Could the ECB surprise with a lower-than-expected hike of 0.50%? Earlier this week, the Bank of Canada and Reserve Bank of Australia both delivered smaller hikes than expected, at 0.50% and 0.25%, respectively.  The message from both central banks is that they are close to ending their rate-tightening cycles and expect inflation to peak in the next several months. Read next: ECB is expected to hike by 75bp. USD is not that powerful at the moment, and it seems that a less hawkish move may be on the cards| FXMAG.COM Will the ECB follow suit? It’s possible but unlikely. The ECB only entered the tightening game in July, and the current benchmark of 1.25% remains out-of-sync with inflation, which is close to double-digits and the ECB needs to be aggressive if it hopes to beat inflation. The benchmark rates are much higher in Canada (3.75%) and Australia (2.60%) and have slowed economic growth, while the ECB’s low benchmark rate has not had the same effect. Still, the weak eurozone economy could tip into recession as a result of sharp rate hikes, which means that a 0.50% hike cannot be completely discounted. We can expect some movement from EUR/USD in response to the ECB decision – an increase of 0.75% or 1.00% will be bullish for the currency, while a 0.50% hike would disappoint investors and likely send the euro lower. EUR/USD Technical There is resistance at 1.0095 and 1.0154 0.9924 and 0.9814 are the next support levels   This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. EUR/USD eyes ECB rate decision - MarketPulseMarketPulse
Italy: ING Economics expect quarter-on-quarter GDP in the fourth quarter may contract by 0.2%

ING Economics expects GDP of Italy will plunge 0.5% in Q4, but stay positive at 3.4% considering 2022 as a whole

ING Economics ING Economics 27.10.2022 17:30
Italian consumers are feeling the pain of increasingly squeezed disposable income, and businesses worry that less demand - an increasingly important factor - is going to weigh on production Consumers in Italy are becoming increasingly pessimistic. Pictured: shoppers in Lazio Broad-based confidence decline in October points to contraction Early evidence is pointing to a contraction in Italy's economy in the fourth quarter. Today's consumer confidence data for October shows falls in all business sectors except services, taking it to the lowest level since March 2013. It has to be said that the jury's still out as to whether the Italian economy managed to avoid a contraction in the third quarter; we'll get the flash estimates for that on Monday.  The five-point fall in consumer confidence was driven by a steep decline in the difficulties people have in purchasing durable goods and saving for the future. The prospect of unemployment is also a big concern as is a general worry about current economic conditions. The re-opening effect after Covid lockdowns, which helped consumption over the first half of the year and part of the summer, is now coming to an end as confirmed by the steep fall of confidence among tourism businesses. The ongoing compression in real disposable income is the most obvious macro driver. As price expectations among businesses continue to point higher (with the exception of manufacturers) the real disposable income effect looks set to remain in place, barring unlikely generous wage concessions. Admittedly, firms are not showing clear intentions to shed workers right now and employment should continue acting as something of a shock absorber, at least in the short term.  Manufacturers increasingly point to insufficient demand The further decline in manufacturing business confidence is hardly surprising. Interestingly, manufacturers' responses are signalling that demand constraints are again at play. Orders, and particularly the domestic component, are slowing down, stocks of finished products are increasing and the level of current production is declining. For the first time since the first quarter of 2021, insufficient demand is perceived as a stronger obstacle to production than the availability of plants and materials, typical supply factors. This means that a further easing of existing supply constraints in global value chains might not automatically translate into higher production in a deteriorating demand environment. In the manufacturing domain, producers of investment goods seem to be faring better, suggesting that the demand flow originated by the implementation of the recovery and resilience facility is still playing out. GDP contraction in the last quarter seems inevitable Today’s confidence data suggest that an economic contraction in the fourth quarter of this year will be almost impossible to avoid. On the demand side, this will be driven by the evaporation of the re-opening effect (often related to tourism) and by the compression of real disposable income, which will likely translate into softer consumption. From the supply side angle, both industry and services now look likely to act as a growth drag in the quarter.   We are pencilling in a 0.5% GDP contraction in 4Q22, with average GDP growth of 3.4% for the full year.   Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Czech Republic: Tax Revenues Should Be Higher Than MinFin Expects

ING Economics expects the interest rate of Czech National Bank won't be changed

ING Economics ING Economics 28.10.2022 14:39
We do not expect any further CNB interest rate hikes. The new forecast should show lower inflation but also higher wage growth. The cost of FX intervention is low enough to continue to play a major monetary policy role. However, together with high wage growth, they remain for us as the main risk of a potential additional rate hike The Czech National Bank in Prague Lower inflation gives doves enough buffer The third monetary policy meeting under the new CNB leadership will take place on Thursday next week. We expect interest rates to remain unchanged. Thus, the central bank's new forecast will be the main focus. Compared to the August forecast, we see the biggest deviation in inflation, which surprised to the downside. In September, this deviation came in at 2.4 percentage points. Therefore, here we can expect the biggest downward revision in the new forecast. The government's new energy measures should also come into play to bring inflation down artificially. However, given the statistical office's unclear approach, the question is how the CNB will take into account this change. On the other hand, wage growth surprised to the upside by 1.7pp in the second quarter compared to the CNB forecast. Moreover, the monthly numbers show a further acceleration in the third quarter. In doing so, wage growth has become the main focus of the board as a reason for a potential additional interest rate hike. 7.00% CNB's key policy rate We expect no change next week   Nevertheless, the interest rate forecast can be expected to remain roughly similar to the CNB's summer version, indicating a rate cut already in the next quarter due to the nature of the central bank's model. On the FX side, we don't expect much change in the forecast weakening trajectory of the koruna under the pressure of the declining interest rate differential. However, we don't see much implication for FX interventions, which are fully decoupled from the CNB forecast and depend only on the discretionary decision of the board. But, at the moment, we see the CNB in a comfortable position with no reason to change anything about the current regime. CNB summer forecast Source: Macrobond, ING forecast We see little risk of a rate hike in the future, but remain vigilant In the long run, we do not expect any further CNB rate hikes. Despite the board's highlighting of the wage-inflation risk, we believe that the stability or decline in annual inflation combined with a weaker economy will be enough in coming months for the CNB to confirm the end of the rate hike cycle at future meetings. In the meantime, the main monetary policy tool will remain FX intervention, the cost of which we believe is low enough for now (around 19% of FX reserves). However, while we see the risks of additional rate hikes as low, we think the key will be the further development of wage growth and the cost of FX intervention, which we will monitor closely in the coming months. Czech FRA curve expectations Source: Refinitiv, ING What to expect in rates and FX markets The market retains a small chance (less than 50%) of a rate hike at the next meeting or possibly at subsequent meetings until the end of the first quarter of next year. Market expectations are that the CNB should then start cutting rates in the second half of 2023, later than we expect. However, given the CNB's current limited communication regarding next year, we do not see much opportunity at the short end of the curve. Therefore, we prefer to look at the long end, which we believe reopens the opportunity for ratepayers thanks to the current global rally, and next week's CNB meeting could bring tempting levels due to the central bank's dovish tone. On the bond side, Czech government bonds (CZGBs) have cheapened significantly, but we see that there is still a need to cover high financing needs this year and recent fiscal headlines are also not supporting buyers. Moreover, we expect the global sell-off to continue after the temporary current pause, which will bring further pain to the Czech bond market. However, we remain constructive and believe that the moment for buyers will come when funding strategy becomes clearer in the deluge of budget changes. In addition, the risk of a sovereign rating downgrade has been averted for this year, which may attract investors back into CZGBs at the end of the global sell-off. On the FX side, the CNB remains the main driver, remaining active in the 24.60-70 EUR/CZK levels according to our estimates. The market can be expected to build short koruna positions again ahead of next week's meeting in anticipation of changes in the FX regime. However, we do not expect any changes and anticipate a similar scenario after the CNB meeting as in the case of the last two meetings, i.e. liquidation of short positions and a stronger koruna. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone: Spanish Gross Domestic Product jumped much less than in August

Eurozone: Spanish Gross Domestic Product jumped much less than in August

ING Economics ING Economics 28.10.2022 14:58
The Spanish economy grew by 0.2% Q-on-Q in the third quarter, a significant slowdown from the 1.5% we saw the previous month. A strong tourism season helped stop the growth figures from turning negative Spain has had a good tourism season Spain's economy slowed sharply in the third quarter Spain's economy still grew by 1.5% on a quarterly basis In the second quarter, thanks to strong growth in domestic demand and the revival of tourism. However, growth slowed sharply to 0.2% QoQ. In the manufacturing sector, economic activity stagnated. While manufacturing recorded growth of 1.7% QoQ in the previous quarter, it fell to just 0.1% in the third. The services sector also slowed significantly from 1.6% to 0.7%. The leisure sector still recorded strong growth rates (7.6% QoQ), mainly thanks to a strong tourist season. The tourism sector, contributing 14% of total GDP in 2019, has held up much better than the rest of the economy so far and positively contributed to the growth figures. Economy is likely to fall in a recession over the winter months The latest figures suggest the economy is likely to contract in the fourth quarter. Both manufacturing and service sector PMIs fell below 50 in September, signalling contraction. New orders were again noticeably down in September as the high inflation and bleak economic outlook weighed on demand. There is little improvement in sight as Spanish consumer confidence fell again in September. The index stands below the Covid-19 pandemic low illustrating that Spaniards are increasingly worried about high inflation. Also, tourism, which contributed positively to growth figures in the second quarter, is starting to show signs of weakening. While the number of international visitors in July was still at 92% of its pre-pandemic levels, this dropped to 87% in August. The slowdown in domestic tourism was even greater than that of foreign tourism. The number of hotel stays booked by residents fell to 101% of pre-pandemic levels in August, from 107% in July. On the other hand, the aid packages, amounting to 30 billion euros or 2.3% of Spanish GDP announced by the government last month will bring some relief. We forecast a mild recession for the Spanish economy in the next 2 quarters. Thanks to the strong first half of the year, GDP growth will still come in at 4.3% in 2022, but for 2023 we are now looking at 0.3% growth. Read this article on THINK TagsTourism Spain PMI GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Spain: Price Pressures Higher Up The Production Chain Are Starting To Ease

Among others, lower energy prices made Spanish inflation go down by over 1.5%!

ING Economics ING Economics 28.10.2022 17:19
Spanish inflation fell in September to 7.3% from 8.9% in September, marking the third consecutive month of decline. The main driver is the fall in the energy component Spanish inflation falls to 7.3% in October Spanish inflation fell to 7.3% in October from 8.9% a month earlier. This is now the second month in a row in which inflation has fallen. Core inflation, excluding more volatile energy and food prices, remained flat at 6.2%. The decline in headline inflation is mainly due to a drop in energy prices. This translates into a significant drop in the energy component. Clothing and footwear prices also rose more moderately than last year, reducing headline inflation, albeit to a lesser extent. From 1 October, the Spanish government reduced VAT on gas from 21% to 5% to soften the inflation shock. However, according to our calculations, this had only a marginal effect on the CPI of 0.1 percentage point. Many factors ease inflationary pressures, but the decline will be very gradual There are many structural factors easing some of the pressure on inflation. Many commodity prices have already fallen sharply from their peak levels a few months ago. Container transport prices have also fallen significantly, and supply chain problems continue to ease. These factors point to less inflationary pressure in the pipeline. Much will also depend on the development of energy prices. These have recently fallen sharply from the peak in August thanks to favourable weather conditions, but the question is how long this will last when winter really starts. Due to all these factors, producer price inflation has also already fallen from 47% in March to 36% in September but is still very high. This ensures that transmission to consumer prices also starts to weaken, and that will continue as the economy slips into recession. Cooling demand will continue to ease inflationary pressures as it will become more difficult for companies to pass on higher prices to the end customer. Although still historically high, the number of companies planning to raise prices further also shows a downward trend in a wide range of sectors. Price selling expectations only continue to edge higher in food and consumer goods.  This shows that inflationary pressures will remain high in the coming months and only very gradually start to ease. For the full year of  2022, we forecast inflation to reach around 8.7%. In 2023, inflation will gradually start to come down, reaching 4.4% in 2023. Read this article on THINK TagsSpain Inflation Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Italy: ING Economics expect quarter-on-quarter GDP in the fourth quarter may contract by 0.2%

Italian Gross Domestic Product growth came at 0.5%. Q4 could be worse, ING expects

ING Economics ING Economics 31.10.2022 11:54
We suspect that a combination of post-Covid re-opening and tourism effects was at play, possibly with the support of investments. We still expect a short recession to start in 4Q22 A good recovery in domestic and international tourism helped boost Italy's second-quarter GDP Italian economy decelerating, but well clear of contraction in 3Q22 The flash estimate just released by Istat shows that Italy managed to avoid contraction in 3Q22. We had expected a positive reading, but the 0.5% QoQ gain (was 1.1% QoQ in 2Q) is clearly a positive surprise. The 2.6% YoY gain (was 4.7% in 2Q22) marks a clear deceleration, which looks set to continue ever the next few quarters. As usual at the preliminary estimate stage, no detailed demand breakdown was released but the indication is that domestic demand (gross of inventories) provided a positive contribution to quarterly growth, while net exports acted as a drag. On the supply side, value added contracted over the quarter in agriculture and industry and increased in services. The tail effects of re-opening and positive tourism numbers likely the main drivers Today’s release confirms our belief that the re-opening effect and a very positive tourism season were still powerful growth drivers in the third quarter of 2022. We suspect that detailed demand data will eventually show positive contributions from both consumption and, possibly, investments, the latter helped by the support of European recovery funds and generous domestic tax investments in the construction domain. A contraction in 4Q22 still looks hard to avoid Looking forward, we remain convinced that a GDP contraction is hard to avoid in 4Q22, opening a short-lived recession which looks set to end by 2Q23 . Confidence data headed further south in October, including in the tourism sector. Households are gloomier as disposable incomes are increasingly eroded by accelerating inflation and with a backdrop of slowly growing wages. The new government will likely prioritize a new wave of compensatory measures, but these will mostly refinance expiring ones and so limit damage rather than inducing a turnaround. Statistical carryover for 2022 GDP growth is now at 3.6%. Taking into account the 0.5% contraction that we are currently penciling in for 4Q22, we would end up with average GDP growth of 3.5% in 2022. Keeping our previous profile for 2023 unaltered, we now look for average GDP growth of 0.2% in 2023. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
National Bank of Poland President says discussion about rate cuts is premature

In Poland flash estimation of inflation almost hit 18%

ING Economics ING Economics 31.10.2022 12:22
Consumer inflation rose by 17.9% year-on-year in October (flash) from 17.2% YoY in September. In monthly terms, prices increased at the fastest pace since April. Price growth is increasingly broad-based. The majority of the MPC is calling for an end to the tightening cycle, but we believe the Council will hike rates by 25bp in November Food prices continue to soar in Poland   According to StatOffice's flash estimate, CPI inflation rose by 17.9% YoY in October from 17.2% YoY in September. CPI growth was close to our forecast (18.1% YoY) and broadly in line with the market consensus. As expected, October saw an increase in petrol prices (4.1% MoM). This was accompanied by a further increase in energy prices (2.0% MoM). Market reports suggest that the peak in coal prices is probably behind us. At the same time, we continue to see an increase in food prices. Compared to September, prices for food and non-alcoholic beverages have risen by as much as 2.7%, and on a year-on-year basis, the price increase in this category is already close to 22%. The spillover of price increases into the overall economy is ongoing, following earlier increases in energy and transport costs. We estimate that core inflation excluding food and energy prices rose to around 11.1-11.2% YoY in October from 10.7% YoY in September. Food prices rising fast Prices of food and non-alcoholic beverages, % YoY Source: GUS.   Momentum is strong, with the CPI rising by 1.8% on a monthly basis, the highest since April this year. Not only has the scenario of an inflation peak in the summer not materialised, the story of an inflation plateau is also becoming increasingly difficult to defend. The local inflation peak is still ahead. Next February, inflation will exceed 20% YoY and a decline to single-digit levels will not occur before the fourth quarter of next year. The inflation outlook remains highly uncertain with risks tilted to the upside. Should the government decide not to extend the VAT reduction on electricity from 23% to 5% beyond end-2022, inflation could jump by around 0.5 percentage points from January 2023 on top of our current estimate.   The fight against inflation is not over yet, but the MPC appears to be dominated by those who support an end to the cycle of interest rate rises. November's interest rate decision will largely depend on the shape of the latest NBP macroeconomic projection. We expect this to indicate a higher CPI path than the July projection, and the persistence of inflation above the NBP's target. Therefore, we expect the Council to raise interest rates by 25bp next week (our baseline scenario), although the probability of interest rates remaining unchanged again is also high. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Portuguese Gross Domestic Product goes up by almost 0.5%

Portuguese Gross Domestic Product goes up by almost 0.5%

ING Economics ING Economics 03.11.2022 12:50
The Portuguese economy performed much better than expected in the third quarter, growing 0.4% while the labour market remained very tight. However, the inflation shock has deepened, reaching double digits in October for the first time Source: istock Growth accelerates in 3Q Portuguese GDP grew 0.4% quarter-on-quarter in the third quarter, an improvement on the 0.1% growth in the second quarter. Despite high inflation, private consumption increased, allowing domestic demand to make a positive contribution to the growth figures. Tourism, which represented about 15% of GDP before the pandemic, also remained a powerful growth driver. Overnight stays were 2.9% above pre-pandemic levels in 3Q, thanks to a strong rebound in domestic tourism (+10.8% from 3Q19). This offset the slightly lower number of stays booked by international tourists (-0.8% compared to 3Q19).  Read next: Ferrari And Still High Demand | Tips For Money Managing| FXMAG.COM High inflation continues to trigger concern for both businesses and consumers, which will cause the economy to cool considerably towards the end of the year. The latest indicators are already pointing to a deterioration in the economic outlook, likely pushing the economy into a mild recession from the fourth quarter onwards. Consumer confidence declined further in October and is now at its lowest level since the start of the pandemic. Business confidence also fell once again across almost all sectors. In addition, funds from the EU’s Recovery and Resilience Facility (RRF) will now be lower than initially anticipated, although support measures announced by the government are expected to cushion the blow. In early September, the Portuguese government announced a support package to help households cope with rising inflation. Together with measures taken previously, this is estimated to amount to around 1.5% of GDP. Inflation hits double digits in October The inflation shock is getting worse, which is likely to put pressure on household consumption. Inflation rose sharply again in October to 10.2% year-on-year from 9.3% in the previous month, reaching the highest level since May 1992. In the space of just one month, prices rose 1.3% (up from 1.2% in September). The main drivers were the energy and food components within the inflation basket. However, the sharp rise in core inflation from 6.9% to 7.1% shows that energy and food are not the only drivers and that inflation is increasingly spreading throughout the Portuguese economy. This is likely to increase further over the coming months as the spillover effect of high energy and food prices on other sectors persists. Price expectations in industry and trade rebounded significantly in September and October, although they had fallen slightly from their peak levels before summer. This shows that, despite the recent fall in gas prices, inflationary pressures will remain high and it will probably take until early next year for Portuguese inflation to fall below 10%. Jobless figure slightly up in September In September, unemployment stood at 6.1%, 0.1 percentage points higher than in August. Despite the slight increase in the overall unemployment rate, the labour market remains very tight. In particular, employers in the tourism and construction sectors are struggling to fill vacancies. Hiring intentions also remain intact for now, with a recent survey by Manpower reporting historically high figures for expectations from Portuguese companies for the fourth quarter. Despite a slight decrease from the previous quarter, the overall health of the labour market remains strong. If growth stalls further during the winter months, unemployment is likely to rise, but any increase is expected to be modest. All in all, we still expect a year-on-year growth rate of 6.6% in Portugal thanks to a strong start to the year and a solid contribution from tourism, which has now seen a full recovery from the pandemic. High inflation and economic uncertainty will likely dampen investment and consumption over the winter months, but government support is expected to cushion the impact. Read this article on THINK TagsUnemployment rate Portugal Inflation GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Spain: Price Pressures Higher Up The Production Chain Are Starting To Ease

Spain: ING Economics expect prices of real estate will decline moderately in the near future. Spanish economy said to experience a "mild" recession

ING Economics ING Economics 03.11.2022 13:41
In the second quarter of 2022, Spanish property prices rose again by 8.0% year-on-year. Rising mortgage rates and a weakening economic outlook will dampen price growth from an expected 7% this year to 1% in 2023 House prices have risen sharply across most of Spain Strong price growth continues, although we are past the peak Spanish home prices rose 8.0% in the second quarter compared to the same period last year, a slight cooling compared to the first quarter of 2022, but price growth is still well above its historical average. On a quarterly basis, prices rose 1.9% in the second quarter compared to 2.6% in the first quarter. New and existing home prices showed similar trends, although the former rose slightly more strongly (+8.8% year-on-year) than the latter (+7.9% YoY). Figures from Tinsa, which include a monthly profile and are well correlated with the INE quarterly index, show a weakening trend over the summer. In July, Spanish house prices still rose by 3% month-on-month, but this slowed down to a growth of 0.5% MoM in September. The start of the Covid-19 pandemic has turbocharged price growth in many countries. Since the start of 2020, prices of existing dwellings in Spain have increased by 11.5%. This is slightly weaker than price growth in Portugal (+26.2%) and France (+15.5%), but stronger than in Italy where prices have risen by 7.2% since the outbreak of the pandemic. These strong price dynamics during the pandemic stretched affordability to the limit. Combined with a cocktail of rising mortgage rates, deteriorating economic prospects and high inflation eroding household purchasing power, the real estate market will continue to cool. We expect price growth to reach 7% in 2022, but slow to 1% next year. This means that nominal price growth will not be able to keep up with inflation. With a current expected inflation rate of 8.7% for this year, real price growth will turn negative at -1.7%. At an expected inflation rate of 4.4%, real price growth in 2023 will also be negative at -3.4%. Fig. 1. House price index, % YoY INE, ING Research Price growth starting to cool everywhere except in the metropolitan areas Although house prices have risen sharply in almost all of Spain, there are varying dynamics across regions and cities. The latest Tinsa figures for September show that price growth is beginning to cool off everywhere except in the metropolitan areas. Price dynamics have slowed down the most on the Mediterranean coast and in the Balearic and Canary Islands. Price growth of 6.5% on the Mediterranean coast and 3.5% in the Balearic and Canary Islands was well below the national average. On the Islands, in particular, price growth has come to a complete halt this year, even declining slightly over the summer. The cooling off does, however, come after strong price growth at the start of the pandemic. By comparison, in metropolitan areas, price growth continues unabated for now. Although house prices in the rest of Spain fell by an average of 0.4% compared to August, in metropolitan areas they still rose by 1.2% in one month, bringing the total annual growth rate in September to 10.0%. Fig 2. House price index, % YoY, Sept '22 Tinsa, ING Research Higher mortgage rates inhibit future price growth Mortgage rates have already risen sharply since the beginning of the year, and it’s unlikely that we have reached the peak yet. Mortgage rates closely follow the evolution of the 1-year Euribor, with a small lag. The 1-year Euribor has started to rise sharply. While the Euribor was still negative at -0.5 on 1 January, it rose to 2.7 in October. Although the 1-year Euribor already anticipated interest rate hikes by the European Central Bank (ECB) to combat inflation, further rate hikes could put some upward pressure on the Euribor again in the coming months. Nevertheless, we expect the Euribor to peak toward the end of the year. If the eurozone falls into recession, the ECB's willingness to raise interest rates further will also decrease. Mortgage rates, which have also risen sharply this year, are likely to follow suit. The gap between Euribor and mortgage rates has narrowed significantly recently, suggesting that mortgage rates have yet to catch up. However, the biggest upside risk lies with floating rates. Although the gap between fixed and floating rates has narrowed significantly recently, floating rates tend to be well above fixed rates. Consequently, increases in floating rates will be more outspoken, while they will be more moderate for fixed rates. We expect mortgage rates to rise to around 3.4-3.6% for fixed rates and 3.9-4.1% for variable rates early next year before stabilising at their higher levels. These higher mortgage rates, which reduce households' borrowing capacity, will dampen housing demand and price growth. Fig. 3. Fixed and floating rate of new loans for house purchase & Euribor 1Y BDE, ING Research Growing popularity of fixed interest rates continues In the past, almost all mortgage loans had variable rates, but the number of new fixed-rate mortgages has been rising sharply since 2015. According to INE data, before 2015, the share of new fixed-rate loans was less than 5%, while accounting for more than half of all loans since 2021. Many Spanish homeowners have taken advantage of the low-interest rate environment in recent years to lock in their loan costs. The prospect of further interest rate hikes by the ECB and increasing uncertainty accelerated this trend. In July, three-in-four mortgage loans were at a fixed rate, which protects households from the sharp rise in mortgage rates as their monthly repayment burden remains stable. This keeps their creditworthiness intact, reducing the risks to the banking sector. Despite the popularity of fixed rates, floating-rate loans still represent the vast majority of total outstanding mortgages. Fig. 4. Share of mortgage loans for dwellings with a fixed vs floating rate INE, ING Research Transaction data remain strong, but we expect momentum to slow The sales figures for August recently published by INE do not (yet) show a weakening in the number of transactions. The number of transactions in August 2022 were still almost 15% higher than in the same month last year, which was already an exceptionally strong year in terms of transactions. If we compare with the pre-Covid period, the number of transactions in August was still 60% and 28% higher than in August 2019 and 2018, respectively. For the coming quarters, we expect the number of transactions to start declining. The cost-of-living crisis is putting strong downward pressure on real disposable income, combined with rapidly rising mortgage rates and weakening economic growth, which are creating strong headwinds for the property market. We expect the Spanish economy to dip into a mild recession from the fourth quarter onwards. Fig. 5. Number of transactions, 2019-August 2022 INE, ING Research Mortgage production still well above pre-Covid levels Despite higher mortgage rates, mortgage production is holding up well for now. In the first eight months of this year, 14% more mortgages were issued than in the same period last year, and 2021 was already a strong year in terms of mortgage production. If we compare this to 2019, the year before Covid-19, the number of new mortgages in 2022 is up to 24% higher. In August, the last month for which figures are available, the number of new mortgages was still 10.9% higher than the same month last year. It is likely that many homeowners still took advantage of low interest rates in the first half of the year to refinance their existing mortgage loans at a fixed rate. Potential homebuyers also probably tried to get ahead of rising interest rates by accelerating their property purchases. Both factors will have boosted mortgage production in the first half of the year, but this effect will gradually diminish. Furthermore, increasing household pessimism and less favourable credit conditions will dampen demand for real estate, putting downward pressure on mortgage production. Consumer confidence has deteriorated significantly in recent months, which shows that households are increasingly concerned about high inflation amid economic uncertainty. Consumer confidence has now fallen below the low seen at the beginning of the pandemic, and is now at its lowest level in almost 10 years. This could prompt potential home buyers to postpone their purchase decision in the coming months. The latest European Commission survey that gauges Spaniards' buying intentions to buy a home in the next 12 months is holding up much better for now than in other European countries, but has also weakened somewhat over the past year. During the Covid pandemic, the index had risen to its highest level since 2010. Although the index is still historically high, we see a downward trend in 2022. Fig. 6. Mortgage production for dwellings, 2019- August 2022 INE, ING Research Strong household growth and falling supply are likely to support price growth On the other hand, structural growth in the number of households will support the real estate market over the coming years. Due to strong household thinning, the number of households is increasing faster than population growth, which supports the demand side of the real estate market. Over the past 20 years, more than 20 million households have been added, a 70% increase. Between 2002 and 2012, the number of households increased particularly sharply with an average annual growth rate of 2.4%. The growth rate has slowed to an average of 0.4% per year over the past decade, but has continued unabated. In the years ahead, household growth will continue to support the real estate market. INE forecasts that the number of households will increase by 1.1 million by 2035, a 5.3% increase in 13 years. This is mainly due to strong growth in the number of single and two-person families. These two groups are expected to grow by 16% and 11%, respectively, while the number of households with more than three people will shrink by about 5%. Spain already has a high proportion of flats (66%), compared with, for example, France (34%), Italy (55%) and Portugal (46%), but this proportion is likely to increase further over the next decade driven by a growing number of singles. In 2035, single people will account for 29% of all households, up from 26% in 2022 and 20% in 2002. Moreover, supply is rising less rapidly than the number of households, which naturally puts upward pressure on prices. Between 2011 and 2021, the number of households increased by 5.4%, while the housing stock increased by only 2.9% over the same period, according to figures from the Ministry of Transport. For this year and next, we forecast a further decline in construction volumes, which will put additional pressure on the property market. The sharp rise in the cost of building materials puts an extra brake on construction activity. Production levels are currently more than 20% lower than before the Covid pandemic and we expect the sector to shrink for the fourth year in a row. For next year, we expect some marginal recovery. The upward trend in costs seems to have slowed. In addition, the Spanish construction sector will see some positive effects from investments in the EU recovery funds. Nevertheless, the number of households is also expected to continue to grow faster than the property supply in the coming years, fuelling price growth.   Fig. 7. Evolution of the total number of households, 2002-2035 INE, ING Research Affordability under pressure, especially for low-income earners Property market inequality is relatively low in Spain. Compared to other European countries, home ownership in Spain is relatively high among low-income earners. According to Eurostat data, 73% of households in the lowest quintile are homeowners; only Hungary (78%) and Slovakia (80%) score better, and the proportion is much higher than in, for example, Italy (48%), Portugal (61%) and France (33%). The gap between the bottom and upper quintile is also much lower than in other European countries. However, the strong price increases in recent years combined with higher mortgage interest rates and declining purchasing power due to high inflation have put pressure on affordability, especially for lower-income earners. The housing cost overburden rate, or the proportion of the population living in households that spend 40% or more of their disposable income on housing, was 9.9% in 2021 compared to 8.2% in 2020. This is well above many other European countries, including Italy (7.2%), France (5.6%) and Portugal (5.9%). Fig. 8. Homeownership across the income distribution OECD, ING Research Increasing focus on energy efficiency Rising energy prices and high energy bills are a game-changer, including in the real estate market. We expect that when purchasing a home, more attention will be paid to energy efficiency, which will influence price trends. The price differences between energy-efficient homes and energy-wasting homes will increase in the coming years. There is increasing evidence from different countries of a clear relationship between the energy efficiency of a property and transaction prices. A one-letter improvement in a property’s energy performance certificate (or EPC) is estimated to increase the price by 8% in Austria, 4.3% in France and 2.8% in Ireland. In Belgium, research shows that a significant improvement in energy efficiency is associated with a 4.3% higher (advertised) price. Also, in Portugal, there is a significant relationship between eco-friendly dwellings (EPC value of A or B) and the median sales value per m². Most of this research predates the sharp rise in energy prices this year. Therefore, we expect these effects to have increased significantly by now. In Spain, there is no convincing scientific evidence (yet) that houses with a better energy label (A or B) are sold at a higher price. Owners and sellers have no incentive to disclose their EPC score. As a result, houses with low energy scores can be sold at the same price as houses with good energy scores. Although generally favourable, climate conditions play in Spain's favour compared to more northern European countries (though cooling might become an issue if the climate warms up further), so the importance of energy efficiency for both home buyers and sellers will continue to increase, which will also lead to price differences in Spain. Sellers of energy-efficient homes have a strong competitive advantage that they can exploit. Anecdotal evidence also shows increasing interest in energy efficiency among home buyers. The more energy-efficient the home, the more it can reduce energy bills and thus generate savings. Moreover, increasingly stringent regulations will further accelerate the turnaround in the coming years. We anticipate a soft landing in 2023 Although we expect a further cooling of the Spanish real estate market, a severe correction is unlikely. We expect the price level to be close to a peak and may fall slightly over the next two quarters. Currently, we expect a slight price drop during the winter months before recovering. In this way, we still arrive at 7% price growth for 2022 and 1% for 2023, considerably less than inflation. Real price growth will turn negative, expected to be -1.7% for this year and -3.4% for next year. Uncertainty, rising interest rates and a looming recession will dampen price growth. We expect the Spanish economy to fall into a mild recession from the next quarter onwards, which also makes the labour market outlook less rosy. Moreover, household purchasing power is already under severe pressure from high inflation and energy prices. While the prospect of rising interest rates may temporarily cause households to speed up their buying process to get ahead of rising interest rates, this effect will gradually disappear. On the other hand, demand for property remains strong (for now). Both the number of transactions and mortgage production are still at very high levels. A supply that increases less rapidly than the number of households will continue to put upward pressure on prices. Spanish house prices have risen less rapidly than in most other European countries, which also makes a correction less likely. Read this article on THINK TagsSpain Housing transactions Housing Prices Housing market Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Upcoming Corporate Earnings Reports: Ashtead, GameStop, and DocuSign - September 5-7, 2023

Positive PMI Results In Europe And Great Britain | Waiting For The Result Of US Nonfarm Payrolls

Kamila Szypuła Kamila Szypuła 04.11.2022 10:48
In the first half of the day, attention will be paid to PMI reports in Europe. In the second half of the day, attention will shift to the results of the North American labor market. Retail Sales The first important data for the market came from Australia at the beginning of the day. the published retail sales report for another consecutive reading remains unchanged at 0.6%. This means that the demand for manufactured goods in this country remains unchanged, which may be due to the economic situation. European Services PMI The largest economies of the euro zone today published their reports for Services PMI. The overall picture is positive. Spain was the first country in the European bloc to provide a positive report. Services PMI indices reached the level of 49.7 and it was an increase against the expected 48.3 and against the previous reading of 48.5. In France, the result was also higher than expected (51.3) and reached the level of 51.7. The current reading is much lower than the previous 52.9. In the largest economy of the European Union, i.e. Germany, this indicator also increased from the level of 45.0 to the level of 46.6. These three positive readings significantly influenced the European Services PMI score which reached 48.6 and was only 0.2 from the previous reading. Only in Italy did this indicator drop. The current reading in this country is at 46.4. UK Construction PMI For the UK, the most important event of today is the Construction PMI report. The reading turned out to be really positive. The result for this sector was higher not only than the forecasts but also higher than the previous result. Construction PMI increased from 52.3 to 53.2 ECB President’s speech At the end of the week, an important speech will be from the European Union. At 10:30 CET, the following spoke: European Central Bank (ECB) President Christine Lagarde. Her comments may determine a short-term positive or negative trend. As the most important person in a European bank, he can provide very valuable comments and guidelines regarding future actions within the framework of monetary policy. Nonfarm Payrolls The United States will publish data on the number of people employed outside the agricultural sector. This number is expected to reach 200K. This forecast shows that the downward trend continues. After March, the number dropped significantly and maintained this trend until it broke out in August which was a false sign of a change in the trend. After a positive August, the decline will begin again. It may be a positive fact that he achieved better results than expected. Source: investing.com US Unemployment Rate The unemployment rate is expected to reach 3.6%. If the results met the expectations, it would mean an increase of 0.1% and thus a return to the level obtained between April and July. Canada Employment Change Canada also share the results of its job market. The outlook for the Canadian labor market is not very good. Employment Change is expected will reach the level of 10K over the previous 21.1K. The latest reading was a positive reflection from the negative levels from previous periods, but it may turn out to be one-off. Although expectations are above zero, it is not a good picture of the Canadian economy. The unemployment rate can reflect this as well. The unemployment rate is expected to increase by 10 porcet points to 5.3%. Summary 1:30 CET Australia Retail Sales (MoM) 9:15 CET Spanish Services PMI 9:45 CET Italian Services PMI 9:50 CET French Services PMI 9:55 CET German Services PMI 10:00 CET EU Services PMI (Oct) 10:30 CET UK Construction PMI 10:30 CET ECB President Lagarde Speaks 13:30 CET US Nonfarm Payrolls (Oct) 13:30 CET US Unemployment Rate (Oct) 13:30 CET Canada Employment Change (Oct) Source: https://www.investing.com/economic-calendar/
Spain: Price Pressures Higher Up The Production Chain Are Starting To Ease

Spanish services and manufacturing PMIs hit less than 50 points, according to ING, annual GDP growth may amount to 4.3%

ING Economics ING Economics 04.11.2022 13:49
The downturn in the Spanish economy continues unabated. Both the services and manufacturing PMI remained below 50 in October, signalling a contraction. The PMIs clearly show that the Spanish economy is slipping into a winter recession The decline of the manufacturing sector in Spain seems to be accelerating Falling number of new orders in both manufacturing and services sectors The services PMI was better than expected, but remains below the neutral level of 50, signalling a contraction. The PMI index rose to 49.7 in October from 48.5 in September. However, we do not expect the rebound to continue in the coming months. The number of incoming orders fell again as households and businesses postponed their buying decisions due to high inflation and uncertainty. More worrying is the evolution in the manufacturing sector. The manufacturing PMI already fell much more sharply than expected on Wednesday, from 49 in September to 44.7 in October, deep into contraction territory. Both production and new orders fell sharply, at a pace not seen since the start of the Covid-19 pandemic or the debt crisis in 2012. In fact, the decline of the manufacturing sector seems to be accelerating. These figures do not bode well for the development of industrial production. INE figures released this morning show that industrial activity in September has already fallen by 0.3% month-on-month. The PMI figures for October already show that we can expect a solid fall in industrial production next month as well. Recession during winter months seems inevitable Despite better-than-expected inflation figures last week, the economic situation is deteriorating very fast. A recession, meanwhile, seems inevitable. Although little data is yet available for the fourth quarter, we assume a contraction of 0.5% quarter-on-quarter in the last quarter of this year. This brings annual growth for 2022 to a still very good 4.3%. However, for 2023, we expect the Spanish economy to grow by only 0.3% year-on-year. High inflation and energy prices combined with higher interest rates and greater uncertainty will dampen demand and investment, putting downward pressure on the growth figures. Read this article on THINK TagsSpain GDP Services PMIs Manufacturing production Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Romanian retail sales confirm economic slowdown

In less than a week time, we'll get to know Romanian National Bank's decision

ING Economics ING Economics 04.11.2022 14:56
The Romanian National Bank (NBR) will announce its latest policy rate decision on 8 November. We expect a reduction of the tightening pace to 50 basis points, taking the key rate to 6.75%. An open-end press release leaving the door open for another hike in January is to be expected The Romanian National Bank in Bucharest End of the tightening cycle is close With inflation stubbornly inching higher into this year-end, we believe that a rate hike at the 8 November meeting is a done deal. We currently favour a 50bp hike to 6.75% and an “open-end” press release, with little to no forward guidance. While we narrowly opt for the scenario of no more hikes into 2023, another 25bp increase to 7.00% in January cannot be ruled out. This decision will be data-dependent and – if taken – should mark the end of the hiking cycle. +50bp ING's call Change in the NBR key rate   At the 8 November meeting, the NBR will also approve its latest inflation report and we should see another upwardly revised inflation forecast. The year-end estimate could flirt with the 17.0% area, though our own estimate currently sits closer to the 16.0% handle. Nevertheless, upside surprises in inflation prints versus estimates are still persistent, and forecasts should be taken – as usual lately – with a lot more than a pinch of salt. Perhaps more important than the rate hike itself will be any hint of an alteration in the tight liquidity management stance. We see little to no chance of this being changed for now, though we still have questions about how the NBR will offset the traditional year-end spending spree of the government. Our view Given the expected inflation profile and the very likely economic slowdown or even contraction from 4Q22/1Q23, we believe that the end of the tightening cycle is close. Whether it will be in November at 6.75% (our view) or in January 2023 at 7.00% is probably less relevant for local rates which – as usual lately – tend to corroborate more with the liquidity conditions rather than the key rate. As mentioned before, we believe that the policy rates versus market rates imbalance could persist, and it is not imperative for the key rate to catch up with money market rates. 10y ROMGBs premiums versus CEE peers Source: Refinitiv, ING What to expect for rates and FX markets To some extent, the current leu appreciation might be related to the abovementioned issue of accelerated year-end spending. Though rather small by most standards, the move of the EUR/RON has been rather eye-catching lately. Unlike in August when the pair marked a pronounced V-shaped pattern, the appreciation of the leu seems to be more sustainable this time. Resistance levels that are forming at lower levels could be indicative of official offers. This likely suits the NBR’s circumstantial objectives regarding inflation and firm liquidity management. A year-end FX rate closer to 4.90 rather than 4.95 looks plausible. On the bond side, we saw yields peak in the second half of October and have since seen relatively decent demand for Romanian government bonds (ROMGBs), outperforming Central and Eastern Europe peers. This confirms our earlier assumption that Romania is well-positioned regionally against the current geopolitical risks and fiscal challenges. Premium versus Polish government bonds (POLGBs) have shrunk below 100bp since the July peak of around 300bp and we see similar developments versus other peers, pushing ROMGBs to near their most expensive levels this year. On a global level, we expect the sell-off to continue in the coming weeks, which in this mix we think will push ROMGBs more sideways at the moment. Read this article on THINK TagsNBR Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Long-Term Yields Soar Amidst Hawkish Fed: Will They Reach 5%?

Eurozone: confidence and spending power in the current status don't paint a rosy picture

ING Economics ING Economics 08.11.2022 15:56
Eurozone retail sales grew by 0.4% month-on-month in September, rounding out a disappointing quarter for sales. We see a continued cloudy outlook for retail as spending power remains under pressure and confidence is still near record lows A modest increase in retail sales in September rounded out a disappointing third quarter in terms of consumer spending. While there were some upside surprises to be noted, the consumer in general has started to reign in spending as the cost-of-living crisis continues and reopening effects from the pandemic fade. The effect of inflation is very apparent in retail sales as consumers bought -2.6% lower volumes in September than in June of last year but have spent 8.1% more. Netherlands and Germany led the way with 1.3 and 0.9% month-on-month increases respectively, while France, Italy and Spain all saw more or less stable retail trade compared to last month. The outlook for retail remains bleak, with ongoing inflation eating into consumer spending power and uncertainty about the economy increasing. This has resulted in record-low consumer confidence over recent months. While that is not necessarily a strong predictor of household consumption, movements as pronounced as this have always been associated with a contraction in consumption. We expect consumption to contract in the current and coming quarter, followed by a very modest recovery. Read this article on THINK TagsRetail sales GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Euro to US dollar - Ichimoku cloud analysis - 21/11/22

European Comission began working on "Stability and Growth Pact"

ING Economics ING Economics 09.11.2022 23:47
On Wednesday, the European Commission started a new round of intense discussions on yet another reform of the EU’s fiscal rules, aka the Stability and Growth Pact (SGP)   The SGP has always been the official implementation of the 3% GDP deficit and 60% GDP debt criteria of the Maastricht Treaty, setting up the foundations of the monetary union. It was the instrument to monitor and coordinate national fiscal and economic policies to enforce the deficit and debt limits. established by the Maastricht Treaty. Since its signing in 1997, there have been several reviews, amendments and changes, shifting from a fully rules-based system to longer-term orientations, prevention and more precise correction of excessive public finances. However, the right mix between rules and discretion, short-term and long-term orientation, investment needs and sustainable public debt has never really been found. Currently, for example, the fiscal rules have basically been suspended since the start of the pandemic in March 2020. It is important to remember that in all the previous changes, the 3% deficit and 60% debt thresholds have never been subject of discussion as these limits are laid down in the European Treaties and cannot easily be changed. A new approach with carrots and a powerful stick The European Commission on Wednesday did not propose a new set of fiscal rules but rather presented a new approach and framework to fiscal policy surveillance in the EU. In Eurocrat terms, the Commission presented a communication and not a proposal for a regulation, directive or a change in the EU Treaties, nor a communication which lays out how the European Commission will re-interpret the current rules. Therefore, the European Commission’s proposals are a starting point for what can still be a very long discussion but not the final version of any new set of fiscal rules. The Commission’s new framework keeps the 3% deficit and 60% debt targets untouched but introduces greater flexibility and more adjustments to country-specific situations. EU countries will have to present four-year plans on how to reduce debt, whereas highly indebted countries can be granted an additional three years. These plans will then have to be negotiated with the European Commission and then approved by the European Council. This is very similar to the national reform programmes governments had to present in order to qualify for money from the European Recovery Funds. The debt reduction pace will no longer follow the 1/20th rate of annual debt reduction in excess of 60% of GDP but will be replaced by country-specific formulas, which would also include a debt sustainability analysis. According to the European Commission’s paper, there will be a clear shift towards focusing solely on government expenditures as the relevant policy indicator. In this regards, interest rate payments and cyclical unemployment spending should be excluded from the measurement of an expenditure path. Contrary to what some experts had called for, the European Commission did not propose a new ‘golden rule’, excluding certain public expenditures from deficit and debt calculations. Instead, the European Commission chose a more indirect approach, allowing countries more time to reduce government debt if they commit to growth-friendly reforms and investments. By giving more time to reduce government debt and by opening the door for more flexibility and investments, the European Commission has clearly offered several carrots to the fiscal doves. At the same time, however, the European Commission also emphasized that it actually is willing to use a very powerful stick: the so-called Excessive Deficit Procedure (EDP) on too high government debt. Up to now, governments have only been reprimanded and sanctioned for having budget deficits higher than 3% GDP but the Treaties also foresee an EDP for debt in excess of 60% of GDP. By activating an EDP on debt, any high-debt country would de facto be put under strict surveillance by the European Commission almost forever. Very powerful but politically also highly explosive. It's only the start of a long discussion All in all, the European Commission has finally made the first move in what will probably still be a very long discussion to agree on yet another reform of the fiscal rules. The intentions are clear: the European Recovery Funds and the national reform programmes were a kind of blueprint for a framework which opens the door to country-specific developments and plans and also gives the European Commission more discretionary power. However, while the European Recovery Funds is a source of money for governments, providing an automatic incentive to comply with any rules, the ‘only’ upside for governments to comply with these debt reduction paths is to avoid sanctions. A very different approach. It will only work if the new flexibility and more room for investments is rightly balanced with fully committed and strict enforcement. In any case, it will still take a long while before European governments will find an agreement on any reform of the fiscal rules. Until then, it will rather be financial markets disciplining governments than any new set of rules. Read this article on THINK TagsGovernment GDP Fiscal policy Eurozone Debt Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
FX: The Gap Versus The FX spot Rate In Poland Is Already The Largest In The CEE Region

National Bank of Poland keeps the interest rate unchanged

ING Economics ING Economics 09.11.2022 23:52
The main reference rate was left at 6.75%, against the consensus of a 25 basis point hike. The Monetary Policy Council argued that the expected economic slowdown and monetary tightening, local and elsewhere, should gradually bring inflation back to target   After the MPC decision, tomorrow's conference by National Bank of Poland President Glapiński is even more important. Thus far, Glapiński has clearly held back on declaring the end of the tightening cycle and that should remain so tomorrow. Otherwise, the Polish zloty may suffer even more. The MPC's decision doesn’t help to rebuild investor confidence in Polish government bonds. In our view, the strong weakening of Polish debt, with 10-year yields peaking at 9% in October, was not only due to investor concerns about the high borrowing needs of the budget in 2023, but also was caused by the belief that inflation will remain persistently high, necessitating future hikes. The MPC statement sounded more hawkish and CPI projections were revised up The tone of the November post-meeting statement is relatively hawkish given the lack of a decision on a rate hike. In the passage on inflation, attention was drawn not only to commodity shocks, but in first instance the second-round effects (the transmission of high corporate costs to final prices) and demand pressures are mentioned as CPI drivers. Both of these factors increase core inflation. The second important change is in the projections. The NBP's expected economic growth in 2023-2024 has been slightly lowered, while the inflation path was revised up, above the July scenario. It is worth bearing in mind, however, that the July projection assumed the expiration of the Anti-Inflation Shield (VAT and excise tax cuts on electricity, gas, heating, fuel and food, among others) in October of this year. According to NBP Deputy Chairman M. Kightley, the November projection assumes the freezing of energy prices announced by the government and the maintenance of the Inflation Shield in 2023. Despite such assumptions and lower GDP growth, the inflation path went up. Still, the MPC's conclusion has not changed. The Council believes that the rate hikes made so far, as well as the slowdown of the economy, should support a decline in inflation, towards the NBP's inflation target. The MPC also hopes that low inflation should be supported by an external slowdown and rate hikes by major central banks. At the same time, it acknowledged that inflation should remain high in the short term, with a gradual return to the target. Comparison of NBP projections   We do not know the quarterly backdrop of the CPI projections, but the average of the ranges for the annual data suggest that inflation will not approach the target until 2025, so an extended period of elevated inflation lies ahead. The fact that inflation is unlikely to return to the NBP's target within the monetary policy horizon (4-7 quarters) suggests that there is still room for tightening. NBP rates remained unchanged for the second consecutive month, but this does not look like the formal end of the hike cycle. In its statement, the MPC said that further decisions should depend on incoming information on inflation and economic activity. At tomorrow's conference, the NBP president should rather refrain from declaring the end of the tightening cycle. Our inflation and rates view Inflation risks remain high, and the peak in inflation is still ahead of us. In our view, it will occur in February 2023 at around 20%. Also, the NBP is no longer talking about inflation stabilisation in the second half of 2022, but sees CPI peaking in early 2023, as do we. Over the course of 2023, CPI is expected to drop from 20% year-on-year to below 10%, but in 2024, inflation should remain stubbornly high. Our models indicate that even a slowdown in GDP to around 1-1.5% YoY in 2023 will not bring inflation even close to the NBP's target of 2.5% YoY. We see strong second-round effects (easy pass-through of corporate costs to retail prices), high inflation expectations of companies and households. The experience of other countries where inflation expectations were "deanchored" and the price spiral was set in motion shows that in order to combat stubbornly high inflation, a decisive tightening of the policy mix, i.e. monetary and fiscal policy, was necessary. Therefore, either further rate hikes or strong fiscal tightening await us in 2024. The ultimate cost of fighting long-term high inflation will be higher than if the tightening of the policy mix were greater today. The post-meeting statement indicates that the NBP rather targets a reversal of the inflation trend and want to facilitate a soft landing for the economy rather than bring inflation down to 2.5% as quickly as possible. Such a strategy raises the risk of perpetuating high inflation expectations, and this could entail higher costs of containing CPI in the future. Read this article on THINK TagsPoland rates Poland central bank Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone industrial production: a meaningful boost in September

Eurozone industrial production: a meaningful boost in September

Alex Kuptsikevich Alex Kuptsikevich 14.11.2022 21:52
According to the latest estimates, Eurozone industrial production added 0.9% for September and 4.9% y/y. The figures are much better than the expected +0.1% m/m and 2.8% y/y, showing that the euro-region economy is in no hurry to slip into recession despite high energy prices. The seasonally adjusted index was at its highest level in almost five years, remaining within the framework of multi-year global stagnation. The apparent reason for the sector's resilience is the massive backlog of orders formed on the back of the easing of pandemic restrictions. There are two sides to the solid industrial production figures in the Eurozone. The strong figures for September create a high base from which a further decline may seem particularly deep and painful. On the other side, they show the relative vitality of the European economy and its positive reaction to the collapse of the euro. In absolute terms, the Eurozone recession may not be as deep as feared a few months ago, despite high energy costs and a sharp rise in the ECB rate. We note that commodity prices have fallen significantly in recent months. A relatively strong economy by the start of the extreme hike cycle forms more room for an ECB rate hike, which is suitable for the euro. The EURUSD will likely face a few obstacles for the upside up to the area of 1.0400-1.0430, where the 200-day MA and the support of the pair in May-June are concentrated. Here, the pair could face local profit-taking, and there will be a fierce tug-of-war between the dollar bulls and the bears in the markets.
Navigating Gold's Resilience Amidst Rising Yields and a Strong Dollar

Netherlands: economy contracted by 0.2% meeting expectations

ING Economics ING Economics 15.11.2022 18:54
Dutch GDP declined in the third quarter of 2022 by a mild -0.2% compared to the second quarter, in line with expectations. The contraction was driven by a decline in investment and is expected to develop into a mild recession The third-quarter GDP figure for the Netherlands signals the start of a mild technical recession -0.2% GDP growth rate 3Q22 (QoQ) As expected GDP decline mainly caused by a fall in investment The decline in Dutch GDP was in the ballpark of ING forecasts. Investment was the biggest drag on growth, with gross capital formation falling by -1.7% compared to the second quarter. Expenditure volumes fell due to fewer purchases of transport equipment (-11.3%). Investment in housing (-2.7%), non-residential buildings (-1.7%), infrastructure (-1.7%) and intangible assets (-0.4%) also fell. While demand for (the construction of) housing is generally strong in the Netherlands and the government is ambitious with investing in several types of infrastructure, environmental regulations and insufficient administrative capacity limit the number of building permits. Investment in ICT equipment (3.8%) and machinery and other equipment (2.6%) still expanded. Government consumption dropped by a minor 0.1%, while the consumption of households stagnated – rising by just 0.1%, somewhat better than expected. While the consumption of services, durable and other non-food goods fell in an environment of higher prices and record low consumer confidence, the consumption volumes of food and tourism abroad rose. Accelerating wages, a tight labour market with low unemployment, high amounts of deposit savings among wealthy households (mostly built-up during Covid-induced lockdowns), the certainty provided by the announcement of fiscal support for households in light of the energy crisis, and an eagerness to go on holiday abroad with few Covid-restrictions may explain why consumption volumes of households have not yet collapsed. Dutch exports continue to perform surprisingly well given the worsening international trade environment, with growth of 0.9%. Goods exports expanded by 0.5%, with both domestically-produced goods exports and re-exports showing a positive development. Service exports expanded by 2.3%, at least partially driven by increases in incoming foreign tourism. Imports (1.0%) showed similar growth as exports. Imports of services increased by 1.9%, while goods imports expanded by 0.8%. The overall net contribution of international trade to GDP growth was close to zero (0.05%-point) in the third quarter. Decline in the financial sector, retail and construction are the main reasons for the economic contraction From a sectoral perspective, value-added fell in the financial sector (-2.6% quarter-on-quarter growth), water utilities (-2.2%), energy supply sector (-1.9%), construction (-1.1%) and trade, transport & hospitality (-0.8%). The latter includes retail, of which sales volumes declined by more than 1% in line with low consumer sentiment. Taking into account the size of sectors as well, it was the financial sector, retail and construction that provided the largest drag on total value-added. Semi-public services (-0.2%) and manufacturing (0.0%) stagnated, while value-added still expanded in mining & quarrying (i.e. oil & gas, 3.9%), agriculture & fishery (1.9%), ICT (1.1%), business services (1.1%) and real estate (0.9%). The stagnation of manufacturing stands out positively, as this is despite the fact it has reduced the use of gas strongly (-39% in 3Q22 compared to 3Q19) and some firms were shut down partially or completely, such as those in aluminium, zinc and fertilisers. Manufacturers of pharmaceuticals, cars and trailers, clothing and electrical equipment performed particularly well in terms of production growth in the third quarter. Momentum worsens, but indicators and fiscal plans suggest only a mild recession The third-quarter figure for GDP is the start of a mild technical recession that we projected for the Dutch economy. We see sentiment indicators based on surveys declining further, in line with a weakening global business cycle. Today’s quarterly business sentiment indicator as released by Statistics Netherlands also points in the direction of further worsening of momentum in the market sector, as it dropped across all main sectors. The overall economy-wide indicator fell into negative territory for the first time since 1Q21. Investment expectations for the current year and next year fell but remained net positive. Business expectations for foreign turnover over the next three months also came down but remained positive on balance. So, there is less optimism, but not total gloom about the economy. Still, the situation is one of high capacity utilisation. Staff shortages are still the key factor limiting production and sales for the majority of businesses (34%). The share of firms reporting it as the main issue is, however, falling. Although the share of businesses seeing a lack of demand as their main issue has started to rise along with the share of firms claiming financial constraints (at 5%) as the main issue, it is still quite low at 11%. This is a confirmation that the economy is at a turning point of worsening momentum from a high level, and there is no reason for us to project a long and deep recession. What’s also important going forward is the fact that the Dutch government has announced huge support for households in the form of an energy price cap in 2023 and a €190 tax cut on the energy bill of households and some small firms for November and December 2022. It is also providing financial support to energy-intensive small and medium-sized enterprises (although less so than for households) of up to €160,000 per firm. Dutch budget for 2023: a big bazooka firing at high energy inflation Read this article on THINK TagsSentiment Investment GDP Exports Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Analysis Of The Natural Gas Futures: The Downside Movement Remains

Natural gas is the third most important energy resource in the world – XTB’s report

XTB Team XTB Team 23.11.2022 13:47
Introduction Natural gas is the third most important energy resource in the world. For years, the gas market has been dependent on long-term supply contracts, which is why gas prices have been relatively stable. Everything has changed by increasing the supply of liquefied LNG gas. Russia is one of the largest players in the global gas market, using its resources as an economic and political weapon against European countries. The pandemic, the desire to further cut emissions and the war in Ukraine have made gas one of the key instruments on global financial markets. In this report, we will show what is responsible for the massive increase in gas prices in Europe and the US, and what the future of the natural gas market may look like. Why is the topic of gas popular? Gas is considered the least emitting fossil fuel in the world. What's more, unlike coal or nuclear power plants, gas-fired power plants can be turned on and off very quickly, which allows for great flexibility in building the energy mix in individual countries. That is why gas power plants became very popular in Europe and in the United States when coal power plants began to be abandoned. At the same time, gas is the most popular raw material for heating houses. The topic of gas is currently very popular - mainly due to Russia's aggression against Ukraine and the ongoing war. Due to the fact that European countries were heavily dependent on Russian gas supplies, gas prices immediately "shot up" because supporting Ukraine in this conflict could end up "turning off the tap", which eventually happened anyway. Read next: Wealthy clients are withdrawing assets from Credit Suisse accounts| FXMAG.COM However, the beginning of this situation took place much earlier. Germany's decision to build the Nord gas pipeline Stream has led to a significant drop in gas production across the European Union. Production has been reduced by up to half compared to the peak levels before the financial crisis of 2008-2009. This has led to an increase in the dependence of European Union countries on Russian gas supplies by almost 40%. Interestingly, when the EU countries reduced their production and increased gas imports from Russia, the shale revolution began in the United States, which clearly changed the energy mix in this country. Meanwhile, Germany, wanting to become even more dependent on Russian gas and be able to resell the raw material to other European countries, decided to build the second branch of the Nord system streaming . Even despite the annexation of Crimea by Russia in 2014, this project has not been suspended. The hard winter during the pandemic led to low stock levels The next stage of this story is the pandemic and the reduction of gas imports due to the decline in economic activity in Europe. What's more, the hard winter during the pandemic led to low stock levels. At the same time, Russia stopped selling gas on the spot market in Europe and limited the filling of its own warehouses in Germany, which was most likely a preparation for the possibility of blackmailing Europe at the time of aggression against Ukraine. Russia finally invaded Ukraine in February 2022, and although it initially honored its long-term supply contracts, at one point demanded payment for gas in rubles. Moscow suspended deliveries to countries that did not agree to these conditions (including Poland, the Netherlands, Denmark and Bulgaria), and then, citing technical problems, reduced and finally suspended deliveries also to Germany. In the fourth quarter of 2022, Russia maintains only limited supplies via the Ukrainian gas pipeline and the Turkish gas pipeline. At the end of September 2022, three gas pipelines were probably intentionally damaged The last act of the story is sabotage related to the Nord system streaming . At the end of September 2022, three gas pipelines were probably intentionally damaged, which was supposed to further destabilize the situation in the region. As a result of sabotage, 3 lines of the Nord Stream can be turned off even for several years. Heavy dependence on Russian gas and other raw materials such as oil and coal led to the fact that Europe faced the biggest energy crisis in history, associated with high prices and unavailability of raw materials. The level of gas in storage facilities in the European Union at the beginning of this year was below the average for the last five years. The specter of the crisis encouraged EU leaders to fully fill their warehouses before the winter. In the chart above, we can see the forecast of warehouse filling, assuming a complete suspension of supplies from Russia and the absence of new sources of supply and consumption in line with the five-year average. As you can see, in such a scenario, there will be no shortage of gas in Europe throughout the heating period. Source: Bloomberg, XTB
EUR/USD Pair May Have A Potential For The Further Rally

Eurozone: Unemployment rate decreases to 6.5%. What may it mean for ECB

ING Economics ING Economics 01.12.2022 11:27
The unemployment rate dropped from 6.6% to 6.5% in October, showing that the labour market remains resilient despite the slowing economy. This will keep the European Central Bank on high alert in its fight against inflation Unemployment in the eurozone is at a record low Another upside surprise from the labour market. Despite an economy moving into recession, unemployment continues to trend down to new records. While German unemployment seems to have bottomed, southern Europe is still experiencing declining unemployment. Spain, Greece and Italy all saw the rate drop in October. The current rate of 6.5% is a new historic low since the series began in 1998 and is consistent with rising nominal wages. From here on, the labour market is set for a slowdown given our expectations of a winter recession. Surveys indeed suggest that the pace of hiring is slowing at the moment, which is set to come with a modest runup in unemployment. Given labour shortages, however, we don’t expect unemployment to increase much. Read next: Poland: Purchasing Managers' Index reached 43.4. The coming months will see a marked slowdown in industrial production growth says ING| FXMAG.COM When we hear ECB president Christine Lagarde say that a mild recession will not be enough to sustainably bring inflation down, this is likely a large part of the mechanism she is referring to. The question is whether that is the case when many supply-side factors are turning disinflationary – but that’s another matter. Expect the ECB to remain on high alert in its fight against inflation, although we do believe that it will opt for a slower pace of rate hikes in the coming months: we're expecting a 50 basis point rise for December. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
S&P 500 ended the session 1.4% higher. This evening Japan's inflation goes public

Jing Ren talks macroeconomic indicators across the globe

Jing Ren Jing Ren 01.12.2022 09:54
Risk appetite got a bit of a boost overnight despite disappointing Chinese NBS PMI figures. Health authorities in the world's second largest economy promised to revise the way in which zero-covid policies would be enacted, and touted progress in vaccinations for the elderly. The latter is seen as a key point in finally getting China in a position where restrictions can be lifted. Chinese factory orders hit the lowest level in seven months. But that was for the larger, government-run companies that are surveyed by the National Bureau of Statistics. The private measure of smaller, more export-oriented business is carried out by Caixin, which could moderate the current outlook What could move the markets Meanwhile, focus is on the rest of the world as PMIs are expected to repeat the upbeat tone seen during the preliminary results published two weeks. Here are some of the major factors to watch out for: China: China Caixin Manufacturing PMI is forecast to come in at 48.9, down from 49.2 previously. But given the result out of the official survey, the market is likely to be not surprised if the measure is closer to 48. On the other hand, a smaller drop than expected could add to the current positive momentum and buoy commodity currencies. Europe: German flash PMI was the standout, coming in well above expectations and breaking a multi-month slide. It stayed well into contraction, but could be shining a light at the end of the tunnel. Particularly when taken in combination with the surprise drop in inflation in the largest economy in Europe. Although it doesn't appear to be enough to shake the perception that the ECB will act quite aggressively at their final meeting for the year. Eurozone PMI is expected to repeat the flash reading of 47.3, which was a substantial improvement over the 46.4 of October. But, it's still below the 50 level, which separates contraction from expansion. Europe continues to contract, but not as much as expected. This also can be seen in the context of Eurozone inflation also coming in below expectations, just like with Germany. But, it should be pointed out that core CPI stayed steady, suggesting the improvement in inflation reading is due more to easing energy prices than a structural change in the shared economy. United States The final reading for S&P Manufacturing PMI is expected to be the same as the flash reading at 47.6, which was significantly down compared to 50.4 in the prior month, and well below the technical contraction of 49.9 expected. But this could be due to methodological differences. This is because the ISM Manufacturing PMI for November came in broadly speaking within expectations, at 50.2 compared to 50.0 expected. A couple of decimal points isn't a major difference this close to the line between contraction and expansion. But, it's expected that ISM will revise their measure down to 49.8, meaning both PMI measures will move into contraction, if expectations are met.
BMW Was Fined 30,000 Pounds By CMA, Google Wants To Become More Productive

BMW Was Fined 30,000 Pounds By CMA, Google Wants To Become More Productive

Kamila Szypuła Kamila Szypuła 08.12.2022 12:57
German luxury automobile firm BMW was fined 30,000 pounds ($36,519) plus a daily penalty of 15,000 pounds by UK's anti-trust regulator. Google has taken action and believes the restructuring will reduce overlapping mapping work in Waze and Maps. BMW AG was fined The Competition and Markets Authority (CMA) is the competition regulator in United Kingdom. It is a non-ministerial government department responsible for strengthening business competition and preventing and reducing anti-competitive activities. In March this year, the CMA launched an investigation into a number of vehicle manufacturers and trade associations over suspected breaches of competition law. This investigation is to focus in particular on the use of recycled materials in cars. Read next: The Euro Benefited From The Weakening Of The US Dollar, A Potential Downside Risk For The Australian Dollar Over The Next Few Weeks| FXMAG.COM The CMA suspects that BMW AG, based in Germany, or other companies of the BMW Group based outside of the UK, have information that the CMA believes is important to its investigation. The CMA therefore formally requested information from the BMW Group. Requests for information may include a wide range of documents and information, such as copies of emails, meeting minutes, and/or information about internal roles and responsibilities. The wider BMW group did not fully comply with the CMA's legal request, and BMW UK did so. For this reason, the CMA has imposed a fine of £30,000 plus a daily penalty of £15,000, in addition, daily penalties will continue to accrue until BMW Group provides the required information. The European Commission is also running a parallel investigation into the issue. Like most companies, BMW shares also fell significantly after Russia's aggression in Ukraine. In the second and third quarters, it managed to make up for the losses. It seems that the last quarter of the year looks optimistic for BMW prices. Since the beginning of December, the traffic has been directed downwards. The last time it traded this low was November 17. Google and its plans to connecting Waze with Geo The search giant is under pressure to streamline operations and cut costs. This is why, Google CEO Sundar Pichai was looking for areas where efficiency could be improved. Google wants to become 20% more productive. There was a suggestion that the company could combine teams working on overlapping products. For this reason, Google plans to connect more than 500 Waze employees with the company's Geo organization, which oversees Maps, Earth and Street View products. Google acquired Waze in 2013 for $1.1 billion. Waze counts 151 million monthly active users for its crowdsourced mapping service, which is known for maintaining detailed traffic data. The service operated largely independently of Google Maps after the acquisition, and Google says it will stay that way. The overall situation of Alphabet Inc (GOOG) for the year is in a downward trend. The current quarter looks the weakest, so any action can be beneficial. Currently, the share price is trading around 95.00 and still falling. This could mean a drop to the November lows. Source: gov.uk, finance.yahoo.com, wsj.com
ECB cheat sheet: Wake up, this isn’t the Fed!

ING Economics call contraction in eurozone economy 'likely mild'

ING Economics ING Economics 16.12.2022 11:45
Some good news for once, with the eurozone PMI ticking up in December. Inflation pressures continue to fade due to lower demand and moderating supply chain problems. For the ECB, the latter adds to doubts about yesterday’s hawkish tone The composite PMI improved from 47.8 to 48.8 in December. This still signals contraction, but as the quarter comes to a close, we can conclude that the contraction in the eurozone economy was likely mild. The easing of contraction was noted in both the manufacturing and services survey. For manufacturing, output fell less in part because the drop in new orders also eased a bit. Very importantly though, delivery times improved for the first time since the start of the Covid-19 pandemic. This indicates that supply chain problems are quickly fading at the moment due to a combination of low demand for inputs and improvements in production. For services, new business continued to contract at a similar pace to last month but recreation saw an uptick in activity again. For price growth, the easing of supply problems is adding to disinflationary pressures. Businesses reported a significant improvement in input cost inflation as they rose at the slowest pace since May 2021. Selling prices still increased at a fast pace, but the pace has been slowing. This is related to the declining need to price through higher costs to consumers and because of discount sales related to lower demand, according to the survey. For the ECB, this must be quite a difficult survey to interpret. Yesterday, the central bank revealed a particularly hawkish take on the economic situation and ECB President Christine Lagarde noted that a mild recession is unlikely to be enough to tame inflation. While the downturn seems to be easing according to the survey, we also see that inflationary pressures continue to cool. For the doves on the governing council, the latter will likely fuel concern that the ECB could end up doing too much. Read this article on THINK TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Turkey cuts rate despite inflation threat, Japanese inflation hits 41-year high

Central bank of Turkey is expected to keep policy rate at 9%

ING Economics ING Economics 16.12.2022 12:33
A flurry of central bank meetings in Central and Eastern Europe next week mark the last major events before the festive season gets underway In this article Hungary: Central bank unlikely to deliver changes to 'whatever it takes' stance Czech Republic: Last CNB meeting of the year to confirm a dovish majority Turkey: Central bank to keep policy rate unchanged The Central Bank of Turkey is expected to keep the policy rate unchanged Hungary: Central bank unlikely to deliver changes to 'whatever it takes' stance The National Bank of Hungary (NBH) has made it clear on several occasions that the temporary and targeted measures, introduced in mid-October, will remain in place until there is a material and permanent improvement in the general risk sentiment. Although we’ve seen some progress here, we don't think enough has changed to trigger an adjustment in the monetary policy’s hawkish “whatever it takes” setup. See our preview here. Regarding the current account balance, we expect a significant deterioration compared to the second quarter. We see the deficit widening on energy items, considering the country’s energy dependency combined with significantly higher prices paid in hard currency. Czech Republic: Last CNB meeting of the year to confirm a dovish majority The Czech National Bank (CNB) will hold its last meeting of the year on Wednesday. We expect it to be a non-event, with rates and FX regimes unchanged. The new forecast will not be released until February, so it is hard to look for anything interesting at this meeting. Board members have been very open in recent days and hence there is minimal room for any surprises. The traditional dovish majority has publicly declared that interest rates are high enough and continue to choose the "wait and see" path. As always, we have heard warnings that interest rates could go up if necessary. However, the near-zero market reaction shows that the dovish view here is clear. The governor also confirmed this week that the central bank will continue to defend the koruna. At the same time, another board member confirmed that the CNB has not been active in the market for some time. So hard to look for anything new here either.   Turkey: Central bank to keep policy rate unchanged We expect the Central Bank of Turkey (CBT) to keep the policy rate unchanged at 9% in December, having confirmed last month that it had reached the end of the easing cycle by stating that the current level of the policy rate is adequate. However, there are continued expectations for some easing in the current banking sector regulations, along with targeted credit stimulus measures such as Credit Guarantee Fund (CGF) loans. Given the CBT’s signal of strengthening the macro-prudential framework, the release of the “2023 Monetary and Exchange Rate” document will also remain in focus. Key events in developed markets Source: Refinitiv, ING Key events in EMEA/LATAM next week Source: Refinitiv, ING TagsTurkey Hungary EMEA Czech Republic Read the article on ING Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
German industry rebounds in January

Germany: Ifo index increased slightly. According to ING, economy is expected to go back to average quarterly growth rates by mid-2023

ING Economics ING Economics 19.12.2022 11:04
Germany’s most prominent leading indicator, the Ifo index, staged a strong rebound, increasing to 88.6 in December, from 86.4 in November. The index is now back at a level last seen during the summer. Both the current assessment and the expectations components improved in December Shoppers in Lubeck, Germany New optimism still lacks solid fundamentals At the end of what has once again been a challenging year for the German economy, hope has returned: hope that the economy might even avoid a winter recession or at least hope that it will only be a mild one. Indeed, implemented and announced government fiscal stimulus packages and the lockdown-related backlogs have prevented the economy from falling off a cliff. At the same time, however, the cold winter spell of the last days has shown how quickly filled national gas reserves and gas consumption reductions can disappear again. In the week ending 11 December, for example, gas consumption was only some 5% below the historical average, far away from the 20% reduction that is needed to get safely, and without energy supply disruptions, through the winter. Looking ahead, the fact that the economy has avoided the worst does not automatically mean that the only way is up from here. On the contrary, the downsides still outweigh the upsides: new orders have dropped since February and inventories have started to increase again, a combination that never bodes well for future industrial production. Despite some relief in global supply chain frictions, early leading indicators from Taiwan and Korea point to a weakening of global trade in the winter. The next chapter of the pandemic in China will also weigh on trade and supply chains again. Finally, high energy prices are only gradually being passed through to consumers, a trend which will continue throughout 2023, therefore gradually weighing on private consumption.   Looking beyond the short term, the next question will be whether the economy can actually avoid a double dip in the winter of 2023/24. Currently, many official forecasts expect the German economy to return to average quarterly growth rates by mid-2023. We are more cautious and think that the series of structural changes and adjustments will keep the recovery subdued, with a high risk of a double dip. For now, the winter of 2023/24 is still far away. Today’s Ifo index gives a strange feeling of hope and comfort at a time when none of the crisis drivers and fear factors have really disappeared. So the question is whether the risks and fears were overdone previously or whether we have all just got used to these risks and fears, which subjectively make these drivers look less risky. With just a few more days to go before Christmas, we wish that the current optimism is ultimately justified. However, it would not be the first time that in the midst of a structural crisis, early optimism proved to be premature. Read this article on THINK TagsIfo index Germany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Softer New Jobs Reading Would Likely Weigh On The Canadian Dollar

According To The Economist Intelligence Unit (EIU), Cities In Europe And Canada Are The Best To Live In

Kamila Szypuła Kamila Szypuła 23.12.2022 10:24
Cities are constantly developing, whether as a result of the actions of authorities, entrepreneurs, or as a result of economic effects, e.g. urbanization. There are cities that are very attractive in every respect and are assessed annually by The Economist Intelligence Unit (EIU). They will also sort out the cities that are the least attractive. Also, before the end of the year, it is worth taking a look at your finances, as well as familiarizing yourself with tax guidelines. In this article: IMF in Argentina The list of Most Liveable Cities Partnership agreement Tips for tax bill The activities of the IMF in Argentina are bearing fruit Argenty not only has a reason to be happy because of winning the World Cup in football, but also an economic one. The macroeconomic policy tightened since July is beginning to bear fruit – inflation is falling, the trade balance is improving, and reserve coverage is gradually strengthening. The Board of the International Monetary Fund today completed the third review of Argentina's 30-month EDF agreement. Argentina's agreement for a 30-month EFF, with access of SDR 31.914 billion (equivalent to USD 44 billion, or approximately 1,000 percent of the amount), was approved on March 25, 2022. The government's programme, supported by the IMF, provides Argentina with balance-of-payments and budget support assistance, which is linked to the implementation of policies to strengthen public finances, combat persistently high inflation, improve reserve coverage and lay the foundations for sustainable and inclusive growth social. The IMF Executive Board completed today the 3rd review of 🇦🇷 #Argentina’s Extended Fund Facility arrangement, which allows for an immediate disbursement of ~US$6 billion. https://t.co/vkQ4lS9vb5 — IMF (@IMFNews) December 22, 2022 Read next: The GBP/USD Pair Is Trading Just Above 1.20, The Australian Dollar Is The Strongest Today| FXMAG.COM The list of Most Liveable Cities The Economist Intelligence Unit (EIU) released their Global Liveability Index ranking of the top 10 best and 10 worst places to live in the world in 2022. The index scored 172 cities in five categories: culture, health care, education, infrastructure, and entertainment. Access to health care, safety, infrastructure, access to culture and entertainment, as well as the opportunities offered by the city are important. According to this ranking, European and Canadian cities dominate the list of Most Liveable Cities European and Canadian cities dominate the list of best places to live, according to the Global Liveability Index released by the Economist Intelligence Unit (EIU). https://t.co/uHmyOgVDNG (via @CNBCMakeIt) pic.twitter.com/ZpLXhtabvr — CNBC (@CNBC) December 23, 2022 Credit Agricole and partnership agreement with the Italian Banco BPM In order to become more articulating, the bank undertakes various cooperation. This year there was a lot of turbulence in various banks around the world, as well as a lot of collaborations. On Friday, the French bank Credit Agricole signed a long-term bancassurance partnership agreement with the Italian Banco BPM French bank Credit Agricole strikes bancassurance deal with Italy's Banco BPM https://t.co/4dFD2Ypmkr pic.twitter.com/02kIq8yKmy — Reuters Business (@ReutersBiz) December 23, 2022 Tips for tax bill Taxes are very complicated, so it is very important to manage this bill in order not to expose yourself to bigger and unnecessary losses. Tax Day may still be a few months away, but there are many actions you can take before that date to help manage your tax bill. In fact, some jobs shouldn't - or in some cases can't - wait until next year so as not to miss important tax opportunities. Charles Schwab Corp's tips can help you manage your tax bill. The end of the year is a great time for a portfolio review—and to evaluate your overall approach to saving and investing. Consider these five tax-smart steps now. https://t.co/FSoeEaJOHl — Charles Schwab Corp (@CharlesSchwab) December 22, 2022
Italy: ING Economics expect quarter-on-quarter GDP in the fourth quarter may contract by 0.2%

Italy: ING Economics expect quarter-on-quarter GDP in the fourth quarter may contract by 0.2%

ING Economics ING Economics 23.12.2022 13:54
The last batch of confidence data for 2022 points to extra resilience in fourth quarter GDP. We are still pencilling in a small contraction, but a flat reading cannot be ruled out Source: Shutterstock The latest batch of confidence data for 2022 shows that both consumer and business sentiment has improved, with the sole exception of manufacturers. Consumers more upbeat and less concerned by future unemployment The consumer confidence index posted the second consecutive substantial improvement in December, reaching back to the level seen in May. The drivers of the four-point gain were sharp increases in the economic conditions and future climate components, reflected in a clear improvement in unemployment expectations. In our view, two factors can explain the surprisingly strong resilience of consumer spirits, irrespective of the ongoing erosion of real disposable incomes caused by the inflation spike. The first is a favourable development in the labour market, with an improving employment rate and a falling unemployment rate. Whilst a possible side effect of demand/supply mismatch and of unfavourable demographic developments, these are nonetheless positive short-term factors. The second is the fact that the Meloni government has prioritised providing continuous fiscal support to households to weather the energy inflation shock, refinancing most of the measures until the end of March 2023 in the budget. Interestingly, for the second month in a row, consumers express an increasing willingness to purchase durable goods. Manufacturers confirm they're not immune to external developments The business front looks more diversified, with manufacturers more pessimistic and builders, retailers, and, importantly, service providers, more upbeat. The fall in manufacturing confidence, more pronounced among producers of investment and consumer goods, reflects softening orders and increasing stocks of finished goods, consistently mirrored in declining production plans. Italian industry, still outperforming its big eurozone peers, is apparently not immune to recent unfavourable developments in global trade nor to growing uncertainty about the risk of renewed supply chain issues related to Covid developments in China. Services likely benefiting from stronger-than-expected reopening effects Perhaps the biggest surprise comes from the fourth consecutive confidence improvement in the service sector, notwithstanding an expected setback in the tourism component. The reopening effect seems to be lasting longer than expected, with a possible bearing on 4Q22 GDP developments.   Still pencilling in a negative 4Q22 GDP change, but a flat reading cannot be excluded All in all, the end-of-year confidence data release adds upside risks to 4Q22 GDP developments. We continue to believe that manufacturing will confirm a supply-side growth drag in the quarter, but acknowledge the risk that services might fare better than expected. The demand side counterpart might have a smaller negative correction in consumption than previously anticipated. We are currently pencilling in a 0.2% quarter-on-quarter GDP contraction in 4Q22, but a flat reading could be a distinct possibility.      Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
LNG Stocks Are Depleted And Will Need To Be Replaced From February Onwards

LNG Stocks Are Depleted And Will Need To Be Replaced From February Onwards

ING Economics ING Economics 24.12.2022 07:40
Liquidity issues still in the background The volatility of commodity prices, namely natural gas and power requires European utilities to have extra liquidity available to meet margin call requirements. The needed additional cash collaterals have created a difficult environment where most utilitie need to extend and increase credit lines or loans all at the same time. With banks having limited room to increase their available capital, finding liquidity on the market has become a challenge. While natural gas prices appear to be coming down from th eir highs, volatility might be difficult to keep under control, especially once stored LNG stocks are depleted and will need to be replaced from February onwards. We would expect the EU proposal for a new TTF gas wholesale market mechanism gover nments’ liquidity support plans to increase stability. As of today, as well as Germany has earmarked a budget of €68bn available to utilities needing extra liquidity to meet margin call requirements. The United Kingdom is willing to dedicate €46bn and Sweden €23bn. liquidity needs at €10bn. Finland and France have thus far both evaluated EU proposals to tackle the energy crisis should not be disruptive From September 2022 onwards, the European Commission has worked on different actions that could be adopted to mitig ate the impact of high energy prices Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

The Drop In German Inflation Is Welcome News, But It Is Mean That Can We Say That Inflation Has Peaked?

Kenny Fisher Kenny Fisher 04.01.2023 12:52
After a dreadful showing on Tuesday, EUR/USD has rebounded today. In the European session, the euro is trading at 1.0618, up 0.66%. Investors eye German CPI German CPI was lower than expected in December. CPI slowed to 9.6%, down sharply from 11.3% in November and below the consensus of 10.7%. This marked the first time that German inflation has fallen into single digits since the summer. Spanish inflation, released last week, also slowed in December. The next test is the release of eurozone inflation on Friday. Inflation is expected to fall to 9.7%, down from November’s 10.1%. The drop in German inflation is welcome news, but two caveats are in order. First, the German government enacted a price cap for electricity and gas in December, which meant that energy inflation slowed in December. However, services inflation, which is a more accurate gauge of price pressures, rose to 3.9% in December, up from 3.6% a month earlier. Second, inflation remains at unacceptably high levels. Germany’s annual inflation in 2022 hit 7.9%, its highest level since 1951. If eurozone inflation follows the German lead and heads lower, can we say that inflation has peaked? Some investors may think so, but I wouldn’t expect ECB policy makers to banter around the “P” word. The central bank reacted very slowly to the surge in inflation and has been playing catch-up as it tightens policy. Lagarde & Co. will therefore be very cautious before declaring victory over inflation. If eurozone inflation drops significantly in the upcoming release, it will provide some relief for the ECB in its battle with inflation. The ECB has adopted a hawkish stance, and the markets are still expecting a 50-bp hike at the February 2nd meeting. In the US, the markets are back in full swing after the holidays. Today’s key events are ISM Manufacturing PMI and the minutes from the Fed’s December meeting. In October, the PMI contracted for the first time since May 2020, with a reading of 49.0 (the 50.0 threshold separates contraction from expansion). Another weak reading is expected, with a forecast of 48.5 points. The Fed minutes will make for interesting reading, providing details about the Fed’s commitment to continue raising rates, which surprised the markets and sent the US dollar sharply higher.   EUR/USD Technical EUR/USD is putting pressure on resistance at 1.0636. Next, there is resistance at 1.0674 There is support at 1.0566 and 1.0487 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  
The Market May Continue To Buy The Pound (GBP) This Week

ISM manufacturing PMI and JOLTS job opening can, according to Craig Erlam, can mix things up

Craig Erlam Craig Erlam 04.01.2023 23:02
Equity markets are pushing higher on Wednesday, buoyed by softer yields and some promising PMI revisions in Europe. It would appear investors are increasingly coming around to the idea that central banks will be forced into cutting rates earlier than previously anticipated in order to support the economy. That would also suggest they anticipate inflation will subside faster than previously thought which would be welcome if true after a year of overshoots. I’m sure this is a position that will change a lot in the coming months just as it has in those passed but it’s seemingly boosting risk appetite in the first week of the year. You just have to wonder how much resilience economies have in the interim to weather the cost-of-living storm. This is where the other data points will become increasingly influential. The PMIs this morning, for example, were largely contractionary but only marginally so and the upward revisions for Germany, France, Italy, Spain, and the bloc as a whole will offer some encouragement. Read next: Exxon And Chevron Abandon The Global Market And Focus On The Americas| FXMAG.COM I feel we’ll have a lot more clarity by the end of the first quarter in a number of ways from the path of inflation, terminal rates, and the ability of economies to continue to withstand those pressures. It will no doubt be a whirlwind quarter but one after which the rest of the year could look more promising. Or maybe this optimism is just a hangover from all of the festivities. Fed minutes eyed There’s plenty more to come today that could potentially dampen the mood, most notably the Fed minutes from the December meeting. The central bank is determined to reinforce its hawkish stance on investors and prevent an unwanted loosening of financial conditions and the minutes could be another opportunity to do so. Whether investors will be in the mood to listen is another thing. And then there are the ISM manufacturing PMI and JOLTS job openings, both of which have the potential to shake things up during such an uncertain period. It promises to be a very interesting second half of the week. Cautiously higher There isn’t much to add on the bitcoin front. It remains in consolidation, buoyed slightly by better risk appetite in the market but still in the $16,000-$17,000 range. A move above here is possible if risk appetite remains positive but I’m not sure traders will get too carried away. Headwinds remain significant for cryptos and it may take some time for traders to get back on board. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Growing Optimism? - MarketPulseMarketPulse
The Current War Between China And The United States Over Semiconductor Chips Is Gaining Momentum

The Current War Between China And The United States Over Semiconductor Chips Is Gaining Momentum

Saxo Bank Saxo Bank 09.01.2023 13:19
Summary:  The semiconductor industry was negatively impacted last year by rising interest rates pushing down equity valuation and pricing pressures in certain segments such as memory chips. In the first week of trading the industry is off to a better start and Taiwan has just passed a law that will allow local semiconductor companies to get tax credits up to 25% of their R&D spending in an attempt to increase the industry's competitiveness against the US and European measures to set up their own supply chains. The Chip War is on and we expect more policy headwinds with tax incentives as the key driver which will end up being positive for shareholders. Semiconductors are off to a good start The recent book Chip War: The Fight for the World’s Most Critical Technology by Chris Miller is a great historical journey and perspective on the current semiconductor chip war between China and the US. The book is highly recommended and one can get a taste for the content in Chris Miller’s interview on the Top Traders Unplugged podcast. We have written extensively on semiconductors last year and highlighted that the US CHIPS Act is the biggest industrial policy since WWII paving the way for creating a domestic supply chain of semiconductors with tax credits provided to foreign chip companies if they stop engaging with Chinese firms on the most advanced chips. Europe is also building out its semiconductor supply chains. It is all about controlling the key ingredients in military equipment and all other important applications in a modern society from computers, smartphones, cars etc. Read next: Incorporating Slack And Other Apps Into The Salesforce Platform Can Actually Put Buyers Off| FXMAG.COM At the centre of this conflict sits Taiwan which is key nexus in the global supply chain of semiconductors and with China openly aiming to integrate Taiwan into China, the risks are too high for the US and Europe because China is becoming a strategic competitor that does not share the same values hence the US CHIPS Act. Taiwan is feeling the pressure and has just passed a new law that will allow local semiconductor companies to get tax credits for up to 25% of their R&D expenses in a bid to remain competitive and offset the subsidies in the US and Europe. It will boost earnings of Taiwanese semiconductor companies but also increase the competition further. Since an integrated domestic supply chain of semiconductors is existential for Europe and the US the two regions will continue to add incentives to accelerate the reconfiguration of this supply chain. If Taiwan provides incentives and subsidies, the US and Europe will just top it. There is no alternative. This has ramifications for the industry as it means a more attractive investment and tax setup which will be positive for shareholders longer term. Semiconductors are off to a good start this year up 3.7% after being down 27% last year. Taking a closer look at our theme basket we can see that the best performing stocks have been Samsung Electronics, ASML, Intel, Micron Technology, and STMicroelectronics.   Source: The Chip War kicks into gear | Saxo Group (home.saxo)
After 8 rate hikes, National Bank of Romania interest rate amounts to 7%

After 8 rate hikes, National Bank of Romania interest rate amounts to 7%

Pawel Zapolski Pawel Zapolski 11.01.2023 14:22
The main interest rate in Romania just went up by 25 bps to 7%. And just a moment ago it was at the same level as in Poland... Is this an announcement of interest rate hikes in Poland? Perhaps. A country from our region raised interest rates today. It's about Romania. The main rate went up by 25 bps to 7%. Read next: Bill Ackman's fund buys stocks of Howard Hughes, real estate developer| FXMAG.COM Is this the last price hike in Central Europe? The main interest rate in Romania is 7% from today. It went up from 6.75%. In 2022, the National Bank of Romania raised it 8 times, from 1.75%. Inflation in the country with the capital in Bucharest exceeds 16% y/y. Main interest rate in Romania Source: Trading Economics Generally, analysts polled by Reuters expected a 25 bp hike. “We believe that this is the last meeting of the central bank in the Central European region with a rate hike,” even ING group analysts stated. Fundamentals were in favor of an increase Erste Group analysts assumed that interest rates in Romania would not change. “We expect the interest rate to remain unchanged at 6.75%. It will be a difficult choice, however, given the recent inflation figures that surprised to the upside, as well as solid economic performance. Moreover, the ECB's hawkish tone, which has led to an overestimation of the eurozone's interest rate outlook, is another argument for the hawks. In our opinion, however, a hike of 25 bp . would bring little benefit and would be inconsistent with the recent easing of monetary conditions. In addition, the dovish wing of the Romanian bank will be looking at other central banks in the region, especially in Poland. On the other hand, a sizeable current account deficit should require higher real interest rates in Romania. Overall, economic fundamentals favor another rate hike, while technical considerations favor a no change decision. As you can see, "fundamental considerations" won out in Romania. Romania - inflation Source: Trading Economics Main rates in the CEE region Source: Erste Group
The Czech National Bank is sounding more hawkish

Czech Republic: CPI inflation hits 15.8%, noticeably less-than-expected

Pawel Zapolski Pawel Zapolski 11.01.2023 15:34
December brought a decline in the CPI in the Czech Republic compared to November. The reading turned out to be much lower than forecasts. CPI inflation in the Czech Republic in December 2022 amounted to 15.8% y/y, and the forecast assumed 16.4%, in November it was 16.2%. In m/m terms, the index reached 0%, while the forecast was 0.5%, and in November it amounted to 1.2%. As Bartosz Sawicki from Cinkciarz.pl pointed out, Poland will not be the only country in the CEE3 region with a decrease in inflation in December 2022. Inflation in the Czech Republic Source : Trading Economics   Czech CPI like a roller-coaster Let us remind you that in November 2022 inflation on the Vltava River was 16.2%, while in October it was 15.1%. The reading was a negative surprise as analysts' consensus assumed 15.8%. The local inflation peak was recorded in the Czech Republic in September at 18%. The behavior of the CPI index in the Czech Republic was explained by PKO Research economists . “In the last two months, inflation was fueled by energy prices. In October it fell due to government subsidies, and in November it increased due to base effects related to the 2021 VAT cut.   The Czech National Bank started to raise interest rates quite early, significantly ahead of the National Bank of Poland, but earlier it also decided to suspend the cycle of increases. Currently, the main rate in the Czech Republic is at the level of 7%. Read next: InPost delivered 44% more parcels year-on-year. Stock price increased significantly| FXMAG.COM The main rate in the Czech Republic Source: Trading Economics
The German Purchasing Managers' Index, ZEW Economic Sentiment  And More Ahead

Many European sectors will suffer from a weak economy in 2023

ING Economics ING Economics 31.01.2023 11:38
In 2023, many EU sectors will see diminishing growth due to a weak economy. Manufacturing, staffing and construction are likely to face a small decline though not all sectors will shrink. While the Technology, Media & Telecom (TMT) and transport sectors should see lower growth than last year, the outlook remains positive Robotic arms operate in a welding hall of the Suzuki manufacturing plant in Hungary Sluggish developments in many industries Development production (volume value added) EU sectors (Index 2018=100) Source: Eurostat, ING Research (2022 Estimate & 2023 Forecast) Energy prices still a drag but gas and power markets have eased Given the circumstances, European companies could not have hoped for a better situation during the first half of the heating season. Demand destruction, milder-than-usual weather and continued LNG supply have ensured that storage levels are still at record-high levels. Day-ahead TTF gas prices have fallen as much as 83% from the peak in August 2022 and APX power prices by 75%. This leaves Europe in a better-than-expected position for the remainder of this winter and the same is true for the 2023 filling season of gas storages. However, it is still vital that the region is cautious through the remainder of this winter, as Europe needs to try to end the current heating season with storage as high as possible as gas flows from Russia could still be reduced further, both in terms of pipeline flows and LNG shipments. Futures markets currently expect TTF gas prices to trade between 55 and 65 euro/MWh throughout 2023 and carbon prices to remain within their trading band of 75 to 100 euro per ton CO2. Hence, markets currently expect APX baseload power prices to trade between 140 and 175 euro/MWh throughout 2023. That is a lot lower compared to the future prices before the start of the winter, but still three to four times higher than pre-crisis levels. Hence, energy prices will continue to weigh on European sectors in 2023. European gas storage levels are at record high levels EU gas storage levels Source: ING Research based on Refinitiv and Gas Infrastructure Europe Manufacturing: Still cloudy, but gradually clearing up In recent months, the outlook for European industry has improved somewhat thanks to a mild winter and governments bolstering producer confidence by dampening the extreme energy prices. Given the fact that the sector has encountered a growing number of persistent problems, production held up well in 2022. Average growth was around 2%, but sectoral differences were large, ranging from sharp contractions in energy-sensitive basic materials such as chemicals (-5.5%) and base metals (-3.5%), to strong growth in consumer goods such as pharmaceuticals (+14%) and clothing (+5%). Production interruptions have been greatly reduced, but like the high energy prices, are not yet a thing of the past. In addition, a post-Covid consumption shift from products to services and stagnation in the US will most likely continue to weigh on demand in the first half of 2023. The reopening of the economy in China provides some counterweight on the demand side. Manufacturers’ expectations for the near future have become less pessimistic. In addition, automakers clearly continue to benefit from the more reliable supply of semiconductors and other electronic components, which is enabling them to eliminate the large production backlogs. In that respect, it is also encouraging that the Ifo index, Germany's most prominent indicator, rose for the fourth time in a row in January. Still, don’t expect a full-blown industrial upswing in 2023. The more bearish factors dominate for now, and some renewed but subdued growth in the second half of 2023 seems the most realistic scenario. Food manufacturing: Slight decline after two years of strong growth Growth in production volumes in food manufacturing has been particularly strong over the last two years, partially because of a Covid rebound. Over the past 20 years, there are three periods in which production volumes decreased in line with a general economic downturn, namely 2008-‘09, 2012-‘13 and 2020. We believe 2023 could mark a decline in the range of 0.5% to 1% for food makers as the general economy balances between contraction and stagnation. While the inflation peak seems to have passed, there are still many food manufacturers that plan to raise sales prices in the months ahead. However, since December, this group is no longer in the majority. Food inflation came in at 12.2% in 2022 which has likely caused shifts in consumer demand as more households look to save money when shopping for groceries or eating out. For food producers, this could mean that companies that primarily focus on making private-label products and supplying discounters fare a bit better in terms of sales volumes compared to branded food makers. Still, the latter have more pricing power in general and are in a better position to defend margins. Construction: Order books still well-filled In November 2022, EU construction production decreased a bit (-0.4%) compared to October but was still above the volume of a year earlier. Higher interest rates and a weaker economy are making home buyers and firms more reluctant to invest in new residential and non-residential buildings. In addition, higher building material costs have made new investments more expensive although some building materials prices have decreased in the last few months. That said, EU construction firm order books are still well filled with 9.0 months of ensured works at the beginning of 2023. The EU construction confidence indicator declined in the first half of 2022, but since then, has hovered around neutral. So, the developments are certainly not bad in every subsector. High energy prices are creating additional demand for energy-saving construction works in the installation and maintenance market. All in all, we expect only a very slight decrease (-0.5%) in total EU construction volumes in 2023. Increase in sentiment indicator retail and manufacturing sector in January 2023 European Union Sentiment indicators Source: Eurostat, ING Research Retail: Weak start to the year but some recovery expected 2023 is likely to be another interesting year for retail. Last year saw people spend more money than ever at the store and online, although volumes have been on a declining trend since late 2021. This is a clear sign that consumers are suffering from high prices. We also note that pre-pandemic preferences are now returning with consumers once again spending more on services and less on goods. Slowing volumes and easing supply chain problems have led to fast growth in inventories, which could prove problematic early in the year given that consumers are becoming more cautious about spending on goods. The big question mark is how purchasing power will recover over the course of the year as inflation is expected to drop. Wage growth is set to increase, but not to the extent that purchasing power will improve in the first half of the year. Still, with unemployment expected to remain low, there seems to be potential for recovery in sales volumes in the second half of the year. TMT: Growth will slow but remain strong We estimate that growth in the information and communication sector was 5.8% in 2022 and we forecast 3.5% growth for 2023. This is a composite figure that reflects growth above 3.5% in the sub-sector “Computer programming, consultancy, and information service activities”, while growth should be more subdued in the telecom sub-sector. Our expected growth for the information and communication sector is below the historic average, in line with the expected economic slowdown. The sector has been growing much faster than the overall economy over the years. According to European Commission survey data, managers of the largest subsectors of the information and communication sector have a neutral view about the near-term business prospects. They do not think that there are specific factors which will restrain growth, although some managers report it is a challenge to find personnel. Interestingly, the sector is experiencing a lot of price pressure, which is favourable for customers. Nominal growth will therefore be more subdued than volume growth in 2023. Read next: Samsung Demand For Semiconductors And Smartphones Remains Weak| FXMAG.COM Transport & Logistics: Rebound of passenger travel outweighs headwinds for freight The European transport and logistics sector is entering a new phase of reality after the unprecedented impact from the pandemic and the Russian invasion of Ukraine. Unlike 2022, this year starts with (nearly) all travel restrictions removed. With European interest in (leisure) travel continuing to resume, the aviation sector is set to proceed on a low double-digit recovery track. Public transport networks are also expected to see higher occupancy rates. On the dominant freight side, the outlook is bleaker, with consumers spending more on services and demand for goods faltering amidst economic weakness and sanctions. German road transport traffic on motorways – a relevant indicator - ended last year in slight negative territory. But freight logistics could pick up over the course of the year as the European manufacturing sector shows signs of improvement, and China’s Covid policy U-turn could benefit airlines as well as trade (and the ports- and shipping sector). On balance, we expect the transport and logistics sector to grow by 1.5% in 2023. Staffing: Hiring freezes seen due to EU recession fears After two years of buoyant market growth, the outlook for the European staffing sector is darkening for 2023. With economic activity in most European economies expected to slow down, market volumes in the European Union are likely to decline by 1% in 2023. A combination of lower economic growth forecasts and rising costs will likely soften demand for temporary agency workers, especially in certain energy-intensive and/or consumer-oriented industries. Although unemployment will rise slightly, the labour market remains tight in most European economies. Hence, clients are more likely to turn to temp agencies since they are better equipped to find candidates than the clients themselves. However, at the same time, the tight labour market will limit the growth potential of temporary employment agencies, as it becomes more difficult for them to recruit new employees. Read this article on THINK TagsTransport TMT Manufacturing Forecasts Food EU Construction Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
NOK (Norwegian Krone): Norges Bank Hiked The Interest Rate!

The Government Pension Fund Global Suffers Losses

Kamila Szypuła Kamila Szypuła 31.01.2023 12:53
War in Europe, high inflation and rising interest rates were behind the poor performance of The Government Pension Fund Global. In contrast, the quick service restaurant industry in India has enjoyed a strong track record. In this article: Building a budget Westlife Foodworld Ltd reported good after-tax net profit A record loss Building a budget The year 2022 brought major changes in the main macroeconomic indicators. Overall, inflation has become a sore spot and in an attempt to combat it, the central bank has tightened monetary policy by raising interest rates and restricting liquidity. Entering another fiscal year, many economies face challenges as to how best to allocate their finances. Building a budget is not easy, you should consider whether saving or spending/investing is more important. Countries face an even greater challenge as growing fears of a global recession make it difficult to assess the situation. "In this year’s India budget, government faces a delicate balancing act between expenditure priorities and fiscal prudence.” Read an article by Santanu Sengupta, our India Economist, to know more: https://t.co/YJZvmAoOeN — Goldman Sachs (@GoldmanSachs) January 31, 2023 Read next: Samsung Demand For Semiconductors And Smartphones Remains Weak| FXMAG.COM Westlife Foodworld Ltd reported good after-tax net profit Fast food restaurants as well as the entire service market have been suffering in recent times as a result of growing economic problems, inflation and interest rates, and fears of recession. The fear of low profits was justified. But despite the current economic environment, demand for fast food restaurants has remained solid, especially in India. Westlife Foodworld Ltd- The company, which franchises McDonald's Corp (MCD.N) in West and South India, reported a consolidated after-tax net profit for the December quarter of INR 363.5 million (US$4.43 million) vs. 208.2 million rupees a year earlier. According to analysts, fast food restaurants saw an increase in demand in brick-and-mortar stores and takeaways during the holiday season, especially in October and December. Such positive results are a good signal for this industry. McDonald's India franchisee Westlife's profit soars on dine-in demand https://t.co/4tx7ER9C8O pic.twitter.com/TiqExbSgPN — Reuters Business (@ReutersBiz) January 31, 2023 A record loss The Government Pension Fund Global, one of the world's largest investors, reported a record loss of NOK 1.64 trillion ($164 billion) for the entire 2022 on Tuesday. According to the general director of Norges Bank Investment Management, this situation was influenced by the economic situation, as well as by the Ukrainian state. The $1.3 trillion fund was created in the 1990s to invest excess revenues from the Norwegian oil and gas sector. To date, the fund has invested in over 9,300 companies in 70 countries around the world. The foundation of the fund's wealth is the huge reserves of oil and natural gas in the North Sea. Interestingly, the fund's previous biggest loss was 633 billion crowns in 2008 due to the global financial crisis. Norway's gigantic sovereign wealth fund loses a record $164 billion, citing 'very unusual' year https://t.co/ZotXXO9NXp — CNBC (@CNBC) January 31, 2023
The ECB Has Made It Clear That Rates Will Remain High Until There Is Evidence That Inflation Is Falling Toward The Target

Europe Will Be Forced To Run Larger Deficits Including The Fiscal Conservative Germany

Saxo Bank Saxo Bank 07.02.2023 10:51
Summary:  As the world turns increasingly bipolar, equity markets face harsh times as they transition into the new reality. Wandering into the darkness Andrew Lo’s 2017 book Adaptive Market is a compelling thesis against the prevailing efficient market hypothesis, as it borrows key concepts from biology to explain things we observe in financial markets and more generally our economic system. In nature some species are more adaptable to a given environment and will therefore have a higher survival rate, win more resources and thus reproduce more successfully. These animals have a higher fitness, but sometimes through a random mutation or external changes in the environment, other species become more successful. Phase transitions in the environment can be brutal and outside the well understood causalities in physics, as when water turns to ice or steam, and our chaotic human societies become extremely unpredictable. In the age of globalisation from 1980-2020 it seems the fittest were the multinational companies. During the late stage of the information technology age, software companies were the fittest due to fewer constraints in the physical world. Globalisation combined with cheap gas from Russia made Germany particularly fit. Low interest rates made venture capital, private equity firms and real estate very fit. What we saw in 2022 was that the fittest models and agents in our economy stumbled into the darkness because the world went into a phase transition, as globalisation as we have come to know it since 1980 has ended. What lies on the other side of this phase transition is difficult to predict, but our working idea is that what was fit during globalisation will be less fit in a world driven by geopolitics and the move to a bipolar world driven by two different value systems. In other words, all the models that have worked very well will not work well going forward. This equity outlook is about those broken models with these five implications being the biggest: Higher structural inflation because ‘geopolitical war’ is inflationary Lower corporate margins as labour is fighting back and taxes will increase in the new fiscal dominance over monetary policy Physical assets will outperform intangible and financial assets Self-reliance will drive optimisation for robust supply chains creating winners and losers in emerging markets Lower real growth rates and more macroeconomic uncertainty The physical world is roaring back Digitalisation had started already in the early 1990s with the Amazon start-up in 1994 as one of the early key events, but it was not until after the Great Financial Crisis that digitalisation began to dominate equity markets. Together with other companies dominated by intellectual property rights and intangible assets such as network effects, brands and patents etc, these intangible-driven companies vastly outperformed companies based on tangible assets such as machines, collateral value and buildings. The boom in the intangible world started around April 2008 and lasted until October 2020, the month before the news of the mRNA vaccines against Covid-19. The vaccines changed everything. They made it possible to reopen faster than imagined. It caused a time compression of the fiscal and monetary stimulus that was meant to cushion society against the base case scenario that it would take around four years to get a vaccine. This faster-than-expected reopening reverberated through the global economy causing bottlenecks in the physical world as people had massively increased their wealth and income which could finally be spent outside the digital world. This unleash of demand in the physical world was on a par with the post-WWII stimulus when Europe was rebuilt and inflation naturally kicked in. Commodities rallied hard entering what might end this decade being a commodity super cycle. The tangible-driven industries are now in their third year of outperformance against the intangible world. In our view this trend has just started. Source: Bloomberg and Saxo Two parts of the physical world did well last year. Companies in the commodity sector (agricultural, energy and mining) and the defence industry were among the only positive trends last year. Both themes seem fitter than digital companies for a world that is at ‘war’ over different value systems and where the US and Europe are in a race against time to invest in commodities supply security, infrastructure and defence, change global supply chains, and on top of it all transition their economies away from fossil fuel energy sources. The boom in intangible-driven companies delivering stellar returns for investors reduced available capital for the physical world and this phenomenon was already setting up the stage for the phase transition we are already experiencing, but the pandemic and subsequent war in Ukraine turbocharged the change. Source: Bloomberg and Saxo Inside our positive view on commodities we are significantly bullish on copper and lithium miners due to the green transformation and the enormous political capital being invested in achieving this transition. Many argue that commodities are already up a lot and therefore the risk-reward ratio is bad. If we are in a decade-long super cycle then commodities will another eight years and in the previous commodity super cycles the spot prices on commodities rose 20 percent annualised. The new geopolitical environment will mean a massive boost for the European defence industry which should see double-digit growth rates close to 20 percent per year over the next economic cycle as the European continent doubles its military spending in percentage of GDP. There are always exceptions to the rule. With a raging ‘war’ in computer chips due to the US CHIPS Act passed in 2022 we expect a massive investment boom, growth and tax incentives to help boost earnings for US and European semiconductor companies over the next decade. While semiconductors to some extent are very much in the physical world, the valuation of semiconductor stocks suggests that they are driven by strong intangible assets such as patents.  In a world driven by geopolitical upheaval and with a ‘war’ being fought in many other dimensions than the old-fashioned kinetic war, digital systems are vulnerable to attacks. Thus companies and governments will spend an enormous amount of resources on protecting digital assets and that will create a long path of growth for cybersecurity companies. US vs Europe, EM and mega caps? The strong fittest of the technology sector in the late stage of globalisation combined with low interest rates meant that the US technology sector measured by the Nasdaq Composite Index outperformed everything else. This led to a significant alpha in US equities over European equities with the latter stuck in the mud after the euro crisis. Europe basically lost the dominance in the digital world to the US. With deglobalisation kicking into gear, a war in Ukraine amplifying the energy crisis and a world in need of physical assets, Europe will stand to gain from this shift. European equity markets have many more of the companies that will thrive in this new environment across green energy technologies, mining, automation, robotics and advanced industrial components. Europe will also be forced to run larger deficits including the fiscal conservative Germany due to rising infrastructure and military spending which could lift growth significantly during this decade. When looking at equity market performance in USD total return terms, European equities actually outperformed US equities from 1969 to 2008 with several longer cycles during this period. But from mid-2008 to October 2022, US equities massively outperformed European equities in line with the rise of the intangible-driven industries driven by the digitalisation which the US won. While tangible-driven industries have begun outperforming intangible-driven industries, European equities have lagged until recently. If the new geopolitical environment plays out as we expect, European equities will stage a comeback. With the USD historically strong against EUR there is significant tailwind from the currency side if the USD weakens from here due to structurally higher inflation compared to Europe. When we look at equities valuations, Europe has an advantage with a 12-month forward P/E ratio of 11.9 vs 17.7 for US equities. This valuation discount cannot be ignored by investors and as Europe gets its energy supply fixed and the war in Ukraine comes to an end, investor flows will follow. Finally, with China reopening its economy and conducting a 2008-style fiscal expansion Europe, being China’s biggest trading partner, will benefit from this. European equities might be viewed as a good indirect way to be long China and their fiscal expansion. Source: Bloomberg and Saxo On a country-specific level, export-driven countries such as Germany, South Korea and especially China were the fittest. This is likely not going to be the case in the new geopolitical environment. India, Vietnam and Indonesia look to be the winners in Asia. Closer to central Europe, Eastern Europe and some countries in Northern Africa could win on manufacturing being reshored, while countries south of the Sahara will experience an investment boom due to Europe’s hunger for energy and materials as Russia is cut out of the equation. Closer to the US, Mexico will benefit in manufacturing and countries in South America will benefit from the commodity super cycle. Deglobalisation and self-preservation policies will also make life more difficult for the mega caps. Their combined market value peaked during the height of the pandemic setting a new record for market value concentration not seen since the 1970s. This will reverse and thus the new regime will not favour mega caps and companies with large geographical footprints, but instead smaller domestically oriented companies operating in niche industries delivering into the build up of the physical world. Source: Bloomberg and Saxo Quality and high margin are less sensitive to wage inflation The past 10 years will be remembered for the extraordinary monetary policy in the wake of the Great Financial Crisis and the euro crisis two years later. Lowering the cost of capital arguably lowered the threshold for return on invested capital (ROIC) and the environment of low interest rates reduced the cost for highly debt leveraged companies. Low interest rates also created enormous risk-taking and time value distortion most evident in the venture capital industry in which a new model beautifully melted with digitalisation and network effects. Funding loss-making businesses to ensure a market-leading position was no longer problematic because low interest rates opened the floodgates of capital streaming into ultra-high risk venture projects. These dynamics created a large forest of technology start-ups and turbocharged the biotechnology industry that had been in hibernation since the dot-com bubble. Uber is one of the most iconic examples of this with 32 rounds of financing worth around $25bn, according to TechCrunch, over the 13 years since its founding. Uber still has a negative ROIC despite $29bn in revenue. WeWork, and the whole portfolio of technology start-ups financed by SoftBank, was another poster child of this era. In the current inflation and interest rate regime this model is broken. Companies that are the most fit for higher interest rates, a reset in wages, and high inflation are those with high ROIC or a high operating margin combined with less excessive equity valuations. The least fit companies are those with low margin, high debt leverage and unprofitable.   Source: A painful phase transition | Saxo Group (home.saxo)
National Bank of Hungary Review: A new beginning without commitment

Hungary's inflation likely peaked in January

ING Economics ING Economics 10.02.2023 20:51
Inflation accelerated to new highs at the start of 2023, but it is very likely that January marked the peak. The lifting of the fuel price cap, along with food and services price increases were the main drivers Source: Shutterstock 25.7% Headline inflation (YoY) ING estimate 25.5% / Consensus 25.2% / Previous 24.5% Higher than expected Once again, the motor fuel component stole the show Inflation in Hungary accelerated further pushing both headline and core inflation to the highest level in 27 years. The market consensus was exceeded as headline inflation registered a 25.7% year-on-year (YoY) increase, which is the result of a 2.3% monthly acceleration. The upside surprise was not just fuelled by the price changes, but also by the usual start-of-the-year re-weighting of the consumer basket. Food and other goods (including motor fuel) got a bump in their share of the basket, resulting in a higher contribution of these items in the headline inflation. Main drivers of the change in headline CPI (%) Source: HCSO, ING The details The motor fuel component was the biggest contributor to this month’s acceleration in inflation. As we highlighted in our latest piece, due to methodological technicalities, the entire effect of fuel price lifting was not reflected in December’s inflation figure. In fact, part of the effect spilt over to January, explaining 1.0ppt from the 1.2ppt increase in the headline number from December to January. In the absence of external energy shocks over the coming months, the price of motor fuel should moderate – as we have already seen in prices at the pump, thus this could be a drag on inflation.  Food prices posted a surprising 44.0% YoY increase, which in fact translates to good news given the 44.8% yearly increase registered back in December. While processed food prices posted a 2.4% monthly increase, the price of unprocessed food accelerated by 3.1% month-on-month, according to NBH’s calculations. All items in the food basket posted price increases, except for eggs which are under price caps, boosting the headline number by 0.4ppt from December. We believe that the effect of intense re-pricings at the start of the year will fade in the following months. Anecdotal evidence shows that retailers are facing a demand crunch, translating into selective price cuts. However, as long as price caps are in effect on a sub-sample of foods, we might have to wait to see a significant decline in prices in general.  Services prices jumped to 11.3% YoY, which explains 0.35ppt of the acceleration in headline inflation. The higher-than-expected 2.4% monthly increase is likely a response to energy and labour cost shocks, which resulted in stronger repricing at the beginning of the year. This resonates well with the NBH’s own so-called market services inflation, which moved to 2.3% in January, putting the start-of-the-year repricing at an extreme level as history shows around a 0.3-0.6% monthly price increase in the first month of the year.  As for the fuel and power component, prices fell for the second time in a row. This item contains household energy as well. The decrease in prices is likely due to the combination of more conscious energy consumption and milder-than-expected winter weather, resulting in lower overhead costs for households. The composition of headline inflation (ppt) Source: HCSO, ING Headline inflation outstrips core inflation Core inflation accelerated to 25.4% year-on-year, remaining below the headline number for the first time since February 2022. As core inflation posted a 1.8% MoM increase, there are clear signs that the underlying price pressures remained strong. The monthly increase is largely due to an acceleration in processed food and services prices, which could not be counterbalanced by a slight decrease in durable goods prices. According to our estimates, more than 56% of the items in the consumer basket already showed at least a 20% YoY inflation figure in January. Headline and underlying inflation measures (% YoY) Source: HCSO, ING January likely marked the top In light of today’s higher-than-expected reading, we believe that it is very likely that inflation peaked in January. As the effect of lifting the fuel price cap was fully accounted for in the last two readings and prices have started to decline based on pump prices, we expect that price pressures for this component in the future will be markedly contained. Food and consumer durables prices should follow suit as the forint’s recent strength should help to tame imported inflation, while a drop in household demand is reducing the pricing power of retailers. Moreover, household energy could also prove to be a drag on inflation with a further reduction of energy consumption. The caveat, however, comes from market services. We expect further price increases in the services sector, so despite the above-mentioned drags, this could be a significant counterforce. In all, the year-on-year inflation rate will most likely show small drops (or go sideways at worst) in the coming months. A more serious deceleration is likely to take place from April onwards as base effects should also help the index to fall substantially. For this year, we expect average inflation of 18.5%, with year-end figures dipping into high single-digit territory. However, the real challenge comes in 2024 when it comes to further deceleration. Read next: Data This Morning Confirmed The UK Avoided A Recession At The End Of 2022| FXMAG.COM Upside risks still can't be ruled out The main reason for this is that the risk of persistently high inflation has not been averted. In our view, the dynamic wage growth could translate into positive real wage growth in the second half of the year, which could support the economic rebound from a technical recession. However, at the same time, companies could regain their price-setting power, which in turn can trigger further repricing as the wage-price spiral intensifies. Against this backdrop, we believe that monetary policymakers will continue to be patient, monitoring recent developments and sit on their hands during the first quarter and possibly even in the early second quarter before a dovish pivot starts. Read this article on THINK TagsMonetary Policy Inflation Hungary Forecast CPI Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
FX Daily: Upbeat China PMIs lift the mood

China was a leader in the region, buoyed by the government’s support for the economy to spur domestic demand and revive the property sector

Franklin Templeton Franklin Templeton 11.02.2023 12:04
Domestic demand in focus Emerging Market Insights Three things we ’ For illustrative purposes only and not reflective of the performance or portfolio composition of any Franklin Templeton fund. re thinking about today China’s reopening and impact on energy prices. China’s economic reopening is proceeding swiftly, despite the spike in COVID-19 cases in early January. Investor attention has recently switched to the reopening’s impact on energy prices. In contrast to Europe, China is experiencing a bitterly cold winter, with average temperatures 15ºF below average for the month of January.1 This is increasing demand for natural gas, the majority of which China imports from overseas. Liquid natural gas (LNG) prices in Asia and Europe have not yet reacted to the frigid weather in China, as Europe is experiencing temperatures on average 15ºF above average over the same period.2 However, if this were to change, LNG prices could rise, reigniting global inflation concerns and limiting China’s room for fiscal maneuvering given gas subsidies provided to households. Markets pivot toward growth. January witnessed a dramatic shift in the performance of growth stocks, with the MSCI Emerging Markets Growth Index posting double-digit returns.3 Value stocks witnessed positive performance but lagged behind. This is a reversal of the 2022 performance trend, wherein value stocks performed better than growth stocks as rising interest rates undermined the outlook for the latter. Looking ahead, the likelihood of a continuation of this January’s trend will likely be dependent on the direction of interest rates and the US dollar, among other factors. Emerging markets (EM) earnings outlook. 2023 Consensus expectations are for a recovery in emerging market earnings in , following a sharp decline last year. China’s reopening and economic recovery is expected to drive earnings, particularly in the financials and consumer discretionary sectors. High interest rates typically benefit banks, and a recovery in consumer technology business prospects looks likely to us, including ecommerce. Outlook The prospect of weaker external demand has led policymakers in EMs turn to domestic demand, in particular consumption, to shore up economic growth. For example, South Korea plans to offer large tax breaks to semiconductor and other technology companies investing within the country. The country is also planning to make investing in the local stock market easier for foreign investors and is providing subsidies for citizens to cope with increasing prices. Thailand has also approved a budget to boost tourism in the country, one of its biggest growth drivers. The longterm structural tailwind of EM consumption growth via expansion of the middle class and premiumization of buying patterns is now more significant than ever, in our view. The Chinese consumer opportunity is under the spotlight following the country’s economic reopening. Some US$2.6 trillion in Chinese bank deposits were amassed in 2022 — and middleclass households are looking to draw down these saving to spend on experiences, products and services. This is driving the premiumization trend opportunity at the heart of the EM consumption story we see. Other opportunities that look to boost EM growth besides Chinese consumption abound. For example, a surge in initial public offerings in the Middle East should help drive consumption via a trickle-down wealth effect. We believe these uncorrelated drivers of returns in EM economies present an investment opportunity which our team’s deep experience, local expertise and a bottom- up investment approach are poised to uncover. While this is a time of uncertainty, we continue to stress the importance of taking a long-term view and undertaking due diligence in making investment decisions. With over 30 years of experience in EMs, we are no strangers to market uncertainties and are experienced in investing through highly volatile periods, which we believe has helped us remain calm in the current market environment. We recognize that this period will pass, with history having shown us that markets should eventually stabilize and recover. Emerging markets key trends and developments Global equities began the year on a strong footing and nudged higher in January, with EM equities outpacing their developed market counterparts. Cooling inflation and growth in the US economy spurred sentiment, raising hopes that the economy may avoid a recession. Within EMs, analysts have raised 2023 earnings estimates for Asian companies given slowing inflationary pressures and China’s reopening.6 For the month of January, the MSCI Emerging Markets Index rose by 7.9%, while the MSCI World Index advanced by 7.1%, both in US dollars. Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM The most important moves in EMs in January 2023 Emerging Asian stocks finished the month higher, holding onto gains from the previous quarter. Once again, China was a leader in the region, buoyed by the government’s support for the economy to spur domestic demand and revive the property sector. A possible peak in COVID-19 infections, signs of normalization of China and the reopening of the China-Hong Kong border also boosted sentiment. Conversely, Indian stocks were under pressure from continued selling and higher oil prices. Latin American EM equities also swung higher in January, with all countries showing gains. Regional heavyweights Mexico and Brazil started the year on higher ground. Brazil reported a sharp drop in inflation at the end of 2022 due to fiscal measures and monetary policy tightening. Mexico saw economic activity rebound in 2022 as the tourism sector experienced a revival. Exports from the automotive sector also contributed to Mexican economic growth. EMs in Europe, Middle East and Africa also advanced as a whole but saw more moderate gains than Latin American and Asian EMs. Saudi Arabian shares ended higher amid a recovery in oil prices, and South African equities benefited from relatively cheap valuations and a slowing inflation rate. Conversely, Turkish stocks tumbled and ended a prior rally as investors shifted their risk appetite and took profits in a market which outperformed in 2022.
Both Visa And Mastercard Are Delaying The Launch Of Some Cryptocurrency-Related Products

Brazil’s Bank Allows To Pay Taxes Using Cryopto, Ford Will Cut Jobs In Europe

Kamila Szypuła Kamila Szypuła 14.02.2023 11:38
The development of cryptocurrencies gains momentum when we learn about the decision of one of the Brazilian banks allows to pay taxes with this form of payment. Car manufacturers are also switching to more modern methods. Ford plans to increase the production of electric cars, but for this purpose it is forced to reduce employment. In this article: Ford layoffs in Europe GIC continued to seek long-term investment opportunities in China Paying taxes with crypto Global supply chain Ford layoffs in Europe Ford is focused on the production of electric vehicles and is taking decisive action to this end. Ford said it intends to cut 3,800 jobs in product development and administration in Europe over the next three years. Ford will retain approximately 3,400 engineering positions in Europe, focusing on vehicle design and development, as well as developing related services. Ford to cut 3,800 jobs in Europe in shift to electric vehicle production https://t.co/t2ecTiu9Ez — CNBC (@CNBC) February 14, 2023 Read next: Walmart Plans To Close Offices, Ford Invests In Battery Factories | FXMAG.COM GIC continued to seek long-term investment opportunities in China According to research firm SWFI, GIC is the world's fifth largest sovereign investor with $690 billion in assets. It has large listed Chinese companies in its portfolio and has not announced any major sales of private Chinese companies in the last year. Over the past year, GIC has also reduced its commitments to China-focused private equity and venture capital funds. Singapore's sovereign wealth fund GIC said it continued to seek long-term investment opportunities in China. Singapore's GIC says still exploring China investment opportunities https://t.co/zk6KyfxSSI pic.twitter.com/7Oae0b0HNX — Reuters Business (@ReutersBiz) February 14, 2023 Paying taxes with crypto Countries are increasingly enabling payments with cryptocurrencies. In many countries, cryptocurrencies are becoming more and more common, and governments are working on regulations in this area. In Latin America, cryptocurrencies are more popular. An example may be the recent operation of one of the banks in Brazil. Brazil’s oldest bank allows residents to pay their taxes using cryopto. If this form works in this bank, we can expect other banks to follow this example, until it becomes one of the forms that Brazilians can pay taxes. What's more, other countries will follow this example. #cryptonews: Brazil’s oldest bank allows residents to pay their taxes using #crypto 🇧🇷 — CoinMarketCap (@CoinMarketCap) February 14, 2023 Global supply chain Multiple bottlenecks have disrupted global supply chains and the pandemic highlighted how interconnected the world is. The supply shock that started in China in February 2020 and the demand shock that followed the global economy shutdown revealed weaknesses in the production strategies and supply chains of companies almost all over the world. Last year, attention focused on the rising cost of living, but this will also affect the types and quantities of goods available and how quickly they reach store shelves. On the one hand, rising household bills and the impact of inflation may limit demand to some extent. The invasion of Ukraine is the root cause of much of the energy and food price inflation that countries are experiencing today. This has led to chaos in supply chains this year, fueling the global food crisis. Fertilizer shortages are also limiting agricultural production in many countries. What's more, international connections are now difficult, and problems with transport may generate higher costs. Economic and political events show how connected we are and how important it is for the global supply chain to remain stable. Transportation issues can lead to rising costs and worldwide disruption. Take a closer look at the global supply chain: https://t.co/BYTn9j6KYt pic.twitter.com/b1FHMle7bf — J.P. Morgan (@jpmorgan) February 13, 2023
Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Baltic Pipe Is Alternative Energy Source For Poland

Kamila Szypuła Kamila Szypuła 21.02.2023 11:46
In an interview with the IMF, Piotr Naimski explains why the Baltic Pipe is important not only for Poland but for the whole of Europe. In this article: Ant Group and NBA partnership Putin blames West The Baltic Pipe Ant Group and NBA partnership The NBA is one of the most popular cultural exports from the United States to China. Chinese fintech giant Ant Group said on Tuesday that it had entered into a strategic partnership with the NBA in China. Fans in China would be able to access NBA video content on Alipay, the hugely popular payment app owned by Ant Group. Collaboration with the Chinese business arm of the professional basketball league will also cover areas such as joint marketing campaigns and digital collectibles. NBA, Ant Group launch strategic partnership in China https://t.co/3OPNvYdBAE pic.twitter.com/jWr7LUNjRz — Reuters Business (@ReutersBiz) February 21, 2023 Read next: Amazon Will Pay Employees A Lower Salary Due To Lower Stock Prices, Declining Demand For 5G Equipment Will Result In The Loss Of 1,400 Jobs At Ericsson| FXMAG.COM Putin blames West Russia annexed Crimea in 2014 after a fraudulent referendum. The invasion was widely condemned by the international community and resulted in a series of Western sanctions against Russian officials. On February 24, it will be a year since Russia launched a large-scale invasion of Ukraine, starting a ground war in Europe that Putin still calls a "special military operation." Putin on Tuesday discussed the Donbass, saying the Kremlin saw an increase in threats in the disputed region ahead of the February 24 invasion. The US administration on Saturday formally concluded that Moscow had committed "crimes against humanity" Russian President Vladimir Putin on Tuesday used a widely watched speech to deny responsibility for the war in Ukraine and attack his opponents. In a speech lasting more than an hour, Putin stated that Russia was trying to let the citizens of the disputed region of Donbass speak their "own language" and was seeking a peaceful solution. He also cited NATO expansion and new European missile defense systems as provoking Russia 'They started the war': Russia's Putin blames West and Ukraine for provoking conflict https://t.co/deJPZ6uDji — CNBC (@CNBC) February 21, 2023 The Baltic Pipe The countries of Europe, and especially Eastern Europe, were largely dependent on Russia for energy. Russia's aggression against ukraine has caused tensions and the need for independence. Although Poland has coal deposits, they want to leave for ecological reasons and decide to import other energy resources. In order to become independent from Russia, Poland decided to supply supplies from Norway, and for this purpose, The Baltic Pipe was launched. The Baltic Pipe will have a capacity of 10 billion m3 per year. This is roughly half of the Polish demand and will replace 100 percent. Russian supplies. This action is important because Poland will be free from hostile Russian gas manoeuvres. This is especially important today, when Europe has to face the Russian armament of hydrocarbon supplies. .@PiotrNaimski, mastermind behind the Baltic Pipe, is on a mission to find alternative energy sources for Poland. Read his interview in F&D. https://t.co/DvqFkcjRyF pic.twitter.com/kVNC7490Km — IMF (@IMFNews) February 21, 2023
Poland’s economic rebound in doubt as industry slows

Poland: CPI inflation peak behind us, but disinflation will be gradual

ING Economics ING Economics 15.03.2023 15:06
CPI inflation rose to 18.4% year-on-year in February, up from 16.6% the previous month. The print came below the consensus (18.7%), largely owing to changes in the CPI basket weights. CPI most likely reached the 2023 peak in February and should decline over the next few months, mainly due to the slower growth of energy, fuel and food prices January CPI inflation data for January has been revised downward from 17.2% to 16.6% year-on-year due to updated CPI basket weights and possible revisions of price increases in core categories. Month-on-month CPI growth was revised to 2.5%, against a flash estimate of 2.6%, despite an upward revision of the monthly change in prices of energy carriers. It was revised upward to 12.6% from the 10.4% MoM preliminary estimate. At the same time, the annual rate of price growth in this category was revised down to 29.7% from 34.0% YoY in the flash estimate. The phase-out of reduced VAT rates to a standard 23% rate translated into an 18.2% MoM increase in natural gas prices in January and a 22.3% increase in electricity prices, despite measures to freeze pre-tax prices. Earlier estimates of fuel and food prices were confirmed. February In February, overall CPI slowed to 1.2% from 2.5% MoM in January, but year-on-year CPI inflation rose to 18.4% due to the low February 2022 base (-0.3% MoM), when VAT rates on energy and food were reduced. Goods prices jumped up by 20.2% YoY in January, while prices of services rose 13.3% YoY. On a year-on-year basis, the largest increases in consumer prices were due to more expensive food and housing-related costs, which contributed 5.97 percentage points and 5.19ppt to the CPI, respectively. The government's actions to freeze regulated prices (especially electricity and gas) translated into a stabilisation of electricity prices in February (0.0% MoM) and a slight decline in gas prices (-0.4%MoM) on the back of declines in unregulated liquefied petroleum gas (LPG) prices. At the same time, fuel prices declined. However, the price of solid heating fuels, water supply and central heating increased. February brought an increase in fuel prices (1.2% MoM), mainly due to more expensive gasoline and LPG, with declines in diesel prices. Read next: The year-to-date trend for green cryptos remains very bullish. ADA has propelled 32%, and DOT witnessed a 37% surge, just to name a few| FXMAG.COM The month-on-month increase in food prices in February was similar to January's (1.8% vs. 2.0%) and exceeded our expectations. However, the hikes in food prices earlier this year are no longer as significant as in the worst months of 2022. Vegetables became more expensive, boosting the monthly CPI by 0.22ppt. Meat prices rose on a similar scale to January, while dairy prices were slower. The significant increase in telecommunications prices is noteworthy, with communications prices up by 2.9% MoM, adding 0.12ppt to the monthly CPI increase. Change in CPI basket weights Alongside the publication of data for February, the Central Statistical Office of Poland updated the inflation basket weights based on changes in the structure of household spending over the past year. There was a marked increase in the prices of food and non-alcoholic beverages (up to 27.0% from 26.6%), driven by strong price growth in this category (average annual growth of 15.4%) with a limited impact from the volume of purchases. The share of expenditures related to energy use and transportation also increased. For these two categories, price increases arguably dominated the decline in purchases (savings), which translated into an increase in the share of total spending. Poles spent noticeably less (by 0.6 percentage points) on alcohol and tobacco and home furnishings (weaker demand for durable goods). Summary On the one hand, the basket revision means a technical reduction of 0.6ppt in the peak CPI in February 2023. On the other hand, the total month-on-month jump in prices as measured by the overall CPI index was higher than expected in February (1.2% vs. 0.9%). The reasons for this higher CPI growth are food and fuels which exceeded our estimates, however we can see that month-on-month food price jumps in early 2023 are not as high as they were in the worst months of 2022. Of more concern is core inflation, which continues to rise strongly in monthly terms in early 2023. The component of inflation that is growing slower than expected is energy prices, which have been frozen. The outlook for inflation and National Bank of Poland rates The coming months will be marked by disinflation due to, among other things, a high reference base (especially from March 2022), the extinction of upward pressure on energy prices (LPG, fuels), and the freezing of some regulated prices. We expect the headline inflation rate (CPI) to decline to single-digit levels by the end of the year, although the decline in core inflation will be noticeably slower. In our view, the process of passing through high costs on retail prices is ongoing and the scale of the economic slowdown is too small to limit the cost shock last year. A decline in imported goods inflation can be counted on, but prices of services more dependent on domestic wages will continue to generate high price pressures. Core inflation is also showing strong signs of persistence in the major economies. Inflationary risks remain significant, which means that the Monetary Policy Council has not yet formally ended the interest rate hike cycle, although further monetary tightening now seems unlikely. The Council will not initiate rate cuts until it is convinced that inflation will permanently decline to target. In our view, elevated core inflation will not allow for rate cuts in 2023, but we expect them in 2024. Read this article on THINK TagsPoland MPC Poland CPI Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Polish economy proves its resilience with only minor GDP contraction in the first quarter

Surprising surpluses in Poland’s current account and trade balance

ING Economics ING Economics 16.03.2023 19:29
Positive surprises in the January current account and merchandise trade balances are supportive for the zloty. Low imports growth indicates weak consumer demand and downward adjustment in inventories   The current account balance surplus in January and the first surplus in the goods balance in 1.5 years are positive surprises. The positive current account balance of €1.4bn in January was above consensus, which assumed a deficit of €0.7bn and our forecast (a deficit of €0.5bn) and a deficit of €2.5bn in December. The positive merchandise trade balance in January was €1.2m compared with a deficit of €2.7m in December. We estimate the 12-month current account deficit-to-GDP ratio narrowed to about 2.7% in January from 3.1% of GDP in December, but was 1 percentage point higher than in January 2022 (1.7% of GDP). In addition to the trade surplus, the current account recorded a surplus in services (€3.4bn), a deficit in primary income (€2.6bn) and a deficit in secondary income (€0.6bn). January brought a further decline in the trade growth year-on-year, which was associated, among other things, with slower, though still likely double-digit growth in transaction prices. Declines in commodity prices, particularly natural gas, had an impact in the direction of lower price dynamics. The value of exports expressed in euro increased by 10.8% YoY, and imports by 3.1% YoY only. The deep decline in the value of imports indicates a strong adjustment in foreign trade with weak consumer demand and a downward adjustment in inventories. Read next: Stock market: Alexandros Yfantis talks IBEX, CAC40 and EUROSTOXX50| FXMAG.COM The demand barrier is beginning to weigh heavily on foreign trade performance, with a smaller role played by improvements in the functioning of global supply chains, including the auto industry, among others. Fed data indicate that the index of pressure in global supply chains returned to normal levels in early 2023, similar to the situation in the summer of 2019, i.e. before the Covid-19 pandemic. According to the National Bank of Poland release, on the export side, sales in the automotive industry (cars, vans, buses and automotive parts) grew strongly. Exports of food and fuel expanded significantly as well. On the import side, fuel purchases continued to grow, albeit more slowly than in 2022. Low import dynamics were affected by supply goods (iron and steel and plastic intermediates) and consumer goods. The strengthening of the current account balance in relation to GDP observed in recent months is a positive factor for the zloty. We expect that in the upcoming months the relatively solid performance of exports will be accompanied by lower dynamics of imports, which in Poland are characterised by greater sensitivity to economic performance. With less unfavourable terms of trade, this should translate into a further reduction of the current account deficit to around 2% of GDP by the end of 2023. The main risks towards a larger external gap are forthcoming spending on arms purchases and possible renewed increases in commodity prices, e.g. due to higher demand from China. Growth of exports and imports, YoY, in % Source: NBP data. Read this article on THINK TagsPoland trade balance Poland current account Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Gold Trading Analysis: Technical Signals and Price Movements

Key events in developed markets next week - 17.03.2023

ING Economics ING Economics 17.03.2023 15:54
Given the turbulence in financial markets this week, central bank meetings have become a much closer call. For the Federal Reserve, we narrowly favour a 25bp hike given the tightening lending conditions. For the Bank of England, we also lean towards a 25bp increase as the impact of past hikes has yet to feed through In this article US: A close call, favouring 25bp as of now UK: Bank of England decision on a knife edge Eurozone: Little sign of a strong rebound Switzerland: Central bank will act with caution   Source: Shutterstock US: A close call, favouring 25bp as of now Next week's Federal Reserve policy meeting is a very close call. On the one hand, inflation continues to run hot, the jobs market is strong and Federal Reserve Chair Jerome Powell’s testimony, which opened the door to a 50bp hike, suggested a desire to get interest rates a fair bit higher. However, lending conditions were already tightening and the fallout from recent events surrounding Silicon Valley Bank, Signature Bank and Credit Suisse will only make banks more cautious. Regulators are also likely to recognise the need to be more proactive in this environment, which could in turn feed into more pressure on the banks and greater caution with regards to who they lend to, how much they lend and at what rate. This is a de-facto tightening of monetary and financial conditions in the US which could weigh heavily on economic activity. The Fed may be wary that a no-change response could signal that they have finished tightening and the next move will be lower rates, but they can head that off by signalling in the text that this is a temporary pause and they stand ready to tighten again should conditions warrant it. Moreover, they also have the updated forecasts this month which could continue to show their central tendency is for rates to end the year higher than their current level. Nonetheless, with the European Central Bank hiking rates by 50bp without causing too many market ructions, this is likely to embolden the Fed to move by 25bp. Read next: Fed to hike 25bp should conditions allow| FXMAG.COM UK: Bank of England decision on a knife edge Last month, the Bank of England signalled it might finally be done with tightening, or at least that it was close. It said it would be monitoring signs of “inflation persistence” and hinted the burden of proof was on seeing inflation fall back, rather than vice versa. Since then the data has been encouraging – wage growth is finally showing signs of having peaked, though it’s early days. The Bank’s own Decision Maker Survey has suggested firms’ pricing strategies are becoming less aggressive too. We’ll get one more inflation reading next week before Thursday’s meeting, but last month saw a surprise dip in core services CPI. Until the recent drama in financial markets, and on the basis of recent BoE communications, we felt this data probably wasn’t quite enough to steer the BoE away from a 25bp hike this month, but we also felt that if those encouraging trends continued, the committee could pause in May. We’re still leaning towards that outcome, though clearly a lot can change in the days leading up to the meeting. It’s clear from recent communication that the bar for pausing is much lower at the BoE than at the ECB or the Fed, with officials noting that the impact of past hikes is still largely to feed through. On the flip side, last September/October’s volatility in UK markets after the ‘mini Budget’ saw the BoE use targeted measures to address financial stability issues, which policymakers indicated would allow the Bank’s monetary policy to continue focusing on inflation. We suspect that the philosophy of (at least trying to) separate inflation fighting and financial stability, which was also adopted by ECB President Christine Lagarde this week, will again underpin next week’s decision-making. In short, the meeting is on a knife edge and to a large extent it will come down to whether stability in financial markets starts to return. Either way, expect the committee to remain heavily divided. Eurozone: Little sign of a strong rebound For the eurozone, all eyes will be on the PMI and consumer confidence data for signs about how the first quarter is shaping up. So far, sentiment data has painted a relatively positive picture of the economy in February, but hard data for the first quarter shows little sign of a strong rebound. Also interesting will be the trade balance for January, which has seen big moves in energy import volumes and prices. Switzerland: Central bank will act with caution In Switzerland, since the beginning of the year, inflation has continued to rise and exceed expectations, reaching 3.4% in February, after having fallen in the second half of 2022. As the Swiss National Bank only meets once a quarter and has only raised rates by 175 basis points since the start of the tightening cycle (compared to 350 basis points for the ECB and 475 basis points for the Fed), recent inflation developments in Switzerland argue for a 50 basis point rate hike at the March meeting. A fortnight ago, this was a fairly safe bet, but recent developments in the financial markets have clearly reduced the likelihood of this happening. As Credit Suisse is one of the two largest banks in Switzerland, which implies that the systemic risk is greater there than elsewhere, the SNB will have to act with caution. Ideally, the SNB would like to manage the risks to financial stability with other instruments than interest rates, such as providing liquidity to banks that need it, so that it can continue to use interest rates to fight inflation. For the moment, this seems feasible, but one knows that market conditions can change very quickly. A conflict between the financial stability and monetary policy objectives could emerge, forcing the SNB to act more cautiously in its rate increases. In conclusion, our baseline scenario remains a 50bp rate hike, but the probability of this has seriously diminished, and neither the status quo nor a 25bp hike can be ruled out. Unlike the ECB, the SNB has not pre-announced anything, so it is freer in its choices. Key events in developed markets Source: Refinitiv, ING TagsUS UK Switzerland Eurozone Bank of England Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
ECB's Christine Lagarde not to announce the end of rate hikes?

EU construction outlook: Two years of modest decline in the building sector

ING Economics ING Economics 20.03.2023 11:32
Material shortages are decreasing in the EU building sector but labour scarcity remains a challenge. The share of renovation is growing due to sustainability work. This makes the sector less volatile. Therefore, only a modest decline is expected in 2023 Construction volumes remain stable In December 2022, the EU's construction output was approximately at the same level as at the end of 2021. This counts for both subsectors; building and infrastructure. Despite economic headwinds, order books are still well-filled. On average, EU construction companies had exactly nine months of work in stock at the beginning of 2023. That's 0.2 months more than in the last quarter of 2022. EU construction volume keeps hovering around the pre-pandemic level Development EU construction sector volume (Index December 2019=100, SA) Source: Eurostat, ING Research Less satisfied with order books Due to the uncertain economic situation, some orders are somewhat less certain than previously thought. In addition, the increased costs of materials have made it more difficult for businesses in the building industry. As a result, profit margins are regularly lower than previously calculated. As a result, EU builders have in recent months become less satisfied with the quality of the orders they hold. On balance, they are not positive about the work they have in the pipeline. Quality of order books for EU construction companies is declining Evolution of order books in the EU construction sector (SA, latest data point February 2023) Source: European Commission, Eurostat & ING Research The prices of many building materials have been decreasing lately The prices of many building materials (eg. timber and metals) peaked during the summer of 2022 and have fallen steadily since. The reasons for this are the diminishing supply chain disruptions and weakening demand as forecasts for economic development in many countries have been lowered. The normally stable price of concrete, cement and bricks increased steadily in 2022 due to rising energy prices as the production processes of these materials are very energy intensive. Despite decreasing energy prices, prices for these energy-intensive building materials were still increasing at the beginning of 2023. We expect that it will take another one or two months before these prices gradually decline as well. Fewer contractors expect to increase their sales prices Fewer contractors have to increase their sales prices due to the lower costs of some building materials. This has been especially the case in Austria and The Netherlands. In May 2022, a record percentage of approximately 75% of the companies in these countries replied in a survey that they were scheduling a sales price increase. This percentage decreased to almost 50% in February 2023. In Germany, there was an even larger decline from 54% to 17% over the same period. In addition, decreasing demand for construction works due to higher interest rates and the uncertain economic situation can also result in fewer companies expecting to increase their sales prices due to increasing competition. Diminshing price increases for construction companies Balance of construction companies that expect to increase -/- decrease output prices (over the next three months) Source: European Commission, Eurostat & ING Research Diminishing material shortages In February 2023, a fifth of all EU contractors indicated lower production due to a lack, or delayed delivery, of building materials. The shortages are abating due to the easing of supply chain problems in the economy. Shortages are still the highest in Poland and France, although they are decreasing in these countries as well, while there are almost no construction firms that mention a shortage of building materials in Spain. One of the main reasons for this is the decreasing construction output levels in the country which limits the demand for building materials. Shortage of labour is a structural problem. Shortage of materials is temporary % of EU construction firms that have to limit production because of (cumulative): Source: European Commission, Eurostat & ING Research Structurally not enough staff Another factor limiting production, but with a more structural nature, is the availability of sufficient labour. In the European Commission survey, a quarter of the EU contractors cite this as problematic, particularly firms in Austria, France and Germany. Companies can do several things to try to solve this problem. For instance by increasing labour productivity through industrialisation and digitalisation, attracting skilled workers from abroad, or investing in education for younger employees and trying to commit them to the company for a longer period. Share of R&M increases The renovation and maintenance market (R&M) is often overlooked in the construction sector. It is composed of small, fragmented firms and often lacks (reliable) data. It is also deemed less glamorous than new construction. However, the share of the R&M market has slowly increased in the last 15 years. In 2008, 48% of EU production volume consisted of R&M works. This has gradually increased to more than 54% in 2022. We expect that this share will increase further as the need for energy efficiency measures (eg. insulation, [hybrid] heat pumps and solar panels) increases due to high energy prices and sustainability measures and legislation, such as the upcoming Energy Performance of Buildings Directive (EPBD) that aims to ensure a higher sustainability rate. Share of renovation increases slowly in the building sector Renovation share of total building production Source: Euroconstruct, ING Research R&M market is less volatile Although there is a strong demand in many countries for more houses, new building projects are often complicated due to land shortages and complex and long (juridical) procedures. In addition, the market for new buildings is volatile and very dependent on the economic cycle. the need for R&M is, however, an ongoing process and is therefore less susceptible to fluctuations in the economy. Furthermore, the demand for R&M may even increase during an economic crisis. For instance, during an economic downturn, homeowners may not be able to sell their homes and may choose to improve their current living spaces to accommodate their needs. This results in an increase or at least sustains the demand for R&M. Construction sector in more gradual territory Development production (volume value added) EU, Index 2005=100 Source: Eurostat, ING Research Construction less volatile than in the past An increasing share of R&M in the construction sector could make the total construction sector less volatile as the share of the choppy new building subsector decreases. During the financial crisis, EU construction decreased by almost 20% (2007-15). Since then we have only seen a gradual increase, except for the temporary dip during the first wave of the Covid-19 crisis. Construction volumes have also increased at a slower pace than EU GDP. Therefore, it doesn’t look like there is a new bubble (as during the financial crisis) in the construction market. That being said, the construction sector is often hit late in the economic cycle due to long lead times. Modest decline expected in the EU construction sector Taking everything into account, higher interest rates and a weaker economy are currently causing home buyers and firms to be more hesitant to invest in new residential and non-residential buildings. Moreover, although some building material prices have decreased in recent months, the increased costs of new investments have made new buildings more expensive. Nonetheless, EU construction firms still have a healthy backlog of work, with nine months of guaranteed projects as of the beginning of 2023. While the EU construction confidence indicator declined in the first half of 2022, it has since stabilised around a neutral level. We therefore stick to our previous forecast (from January 2023) and expect only a very slight decrease (-0.5%) in total EU construction volumes in 2023. We expect the same modest decline in 2024. A quick overview of the various EU construction markets Germany: two consecutive years of contracting building volumes and a third to come In 2022, German construction output declined by 1.5%, after a 1.6% decrease in 2021. This is the first time since 2008-10 we have seen two consecutive years of contraction. While order books in the first quarter improved a bit, they are lower than a year ago. The building industry suffers from the weak German economy. German contractors are still facing significant challenges due to labour shortages. Material shortages are decreasing but the current water levels have hit a new low for this time of year, posing a risk of causing new supply chain disruptions as many heavy building materials (such as sand and gravel) are transported by barges. In January, construction activity bounced back (+13% month-on-month) after a strong (perhaps mainly technical) fall in November and December 2023. Nevertheless, for the whole of 2023, we forecast a moderate contraction of the largest construction market in the EU. EU Construction Forecast Volume output construction sector, % YoY Source: Eurostat & ING Research; *Estimates and Forecasts   Spain: construction sector faces its fifth consecutive year of contraction Our projections indicate that Spain's construction volumes will continue to decline this year, marking the fifth consecutive year of contraction for the sector. At the end of 2022, the production level was almost 25% lower compared to the end of 2019. Unlike contractors in other EU countries, who are still mainly experiencing material and labour shortages, Spanish building firms are grappling with insufficient demand. In fact, more than half of all Spanish builders noted in February that inadequate demand is the primary factor limiting their production. Despite this, order books are improving and the EU recovery funds' investments in the Spanish construction sector will generate some positive outcomes. Consequently, we foresee a stabilisation of volumes in 2024. The Netherlands: slight contraction in the construction sector in 2023/24 Growth in Dutch construction output has been declining steadily in recent years. However, in the last quarter of 2022, Dutch construction volumes increased (surprisingly) by 2.3% compared to the previous period. Yet we don’t expect this will last. A decreasing number of building permits in the residential sector, the increase in construction costs and a reluctant consumer will reduce new residential construction in 2023 and 2024. At the beginning of November 2022, the Council of State also decided that the exemption for construction works for nitrogen emissions was no longer valid. This is a setback for construction companies although it doesn’t make new housing projects impossible. High energy prices create additional demand for energy-saving construction works in the installation and maintenance market. We therefore only expect a modest contraction in the Dutch building volume this year and next. Belgium: low growth for the construction sector in 2023 The Belgian construction confidence index has been hovering around a neutral level for several months, despite an increase in building production volumes in 2022. However, the issuance of building permits for both residential and non-residential buildings has decreased over the same period. Belgian contractors are facing greater wage hikes than their counterparts in neighbouring countries, in addition to the higher cost of building materials. This has led to an increase in salaries by approximately 10% over the past year, due to automatic wage indexation. Although Belgian house prices are expected to decline slightly, they are anticipated to rise again in 2024, potentially allowing for some price increases for new buildings in the same year. The government's stimulus plans include funding to improve the energy efficiency of existing buildings, a reduction in the VAT rate for demolition and reconstruction, and funds to rebuild 38,000 homes damaged by the floods in 2021. Overall, we predict that the Belgian construction sector will experience a growth rate of around 0.5% in 2023 and 1% in 2024. Poland: promising building start in 2023 but contraction ahead Polish contractors started 2022 with an impressive growth rate of 7% (month-on-month) in January. The relatively mild weather could be one of the reasons. The outbreak of war in Ukraine caused heightened tensions in the construction labour market due to shortages. This is because some Ukrainian males who had been previously employed left Poland to fight for their homeland, while the refugees who arrived mostly consisted of women and children who are unlikely to be able to fill the vacancies. The Polish civil engineering sector can receive a boost from an ambitious investment programme, including the EU Recovery Fund (which is still frozen due to a judiciary dispute with the EU). However, demand for new houses has deteriorated strongly, due to the high increase in interest rates and the general deterioration in household sentiment. Building permits for residential buildings have decreased by almost 13% in 2022. Therefore, we anticipate that Polish construction output will contract in 2023. France: contractors facing enormous labour shortages Construction output in France experienced growth of 1.7% quarter-on-quarter in the final quarter of 2022, after declines in the second and third quarters. The building sector in France is still facing significant challenges due to shortages of materials and labour, as well as price increases. In February, more than half of French contractors mentioned shortages of staff as a limiting production factor. Shortages of materials are declining but are still high. The construction of new houses is under pressure. In 2022, the number of building permits for new residential buildings contracted by more than 10%. On the other hand, government measures such as MaPrimRénov support renovation and sustainability activity. The French construction confidence index (EC Survey) is dwindling but remained positive in February (+2), and order books are still well filled with a stable eight months of work in the first quarter. Overall, a minor decline of -0.5% is expected in the French construction sector for the whole of 2022, which means that construction output in France will still fall short of its pre-Covid level. Turkey: uncertainty in the construction sector Due to persistently high inflation, the devastating earthquake and the presidential elections, Turkey's prospects are uncertain. The issuing of building permits for new residential buildings decreased in 2022. In February, the Turkish construction confidence indicator (EC survey) showed a negative reading of -10. Order books sharply decreased in the first quarter of 2023. Contractors are affected by high building material costs and a lack of demand due to the resulting high prices. We now forecast a continued decline in Turkish construction output in 2023, marking six consecutive years of declining building output in Turkey. The expectation is that reconstruction efforts in the form of higher public investment should generate growth in the construction sector in the longer term. Read this article on THINK TagsConstruction Building materials Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Orbex analyst on the EU inflation: This leads me to believe that the lower-than-expected CPI figure is heavily attributed to the decline in energy costs

Orbex analyst on the EU inflation: This leads me to believe that the lower-than-expected CPI figure is heavily attributed to the decline in energy costs

David Kindley David Kindley 04.04.2023 10:07
FXMAG.COM asked David Kindley to comment on the March Eurozone CPI. The print showed a noticeable decline of 1.6% coming in at 6.9%. David Kindley (Orbex): Europe’s latest Consumer Price Index (CPI) figures pointed to a considerable slowdown in inflation to its lowest level for more than a year, after a decline in energy costs. Specifically, consumer prices rose 6.9% in the year to March, down from 8.5% the previous month. The drop was sharper than consensus, resulting in an EU stock market rally on Friday, March 31st. It should be noted however, that core inflation, which excludes energy and food costs, hit a new Eurozone high of 5.7% in March, up from 5.6% the previous month. Food price inflation also rose, from 15% to 15.4%, while services inflation was up from 4.8% to 5%. This leads me to believe that the lower-than-expected CPI figure is heavily attributed to the decline in energy costs. As demand for heating slows over the summer months, reining in on inflation will come down to the ECB’s next monetary steps and whether the Russia-Ukraine conflict is finally resolved by next winter. Food price inflation also rose, from 15% to 15.4%, while services inflation was up from 4.8% to 5% Read next: The UK's economic output remains 0.6% below its late 2019 level, making it the only G7 nation yet to recover from the pandemic| FXMAG.COM
Hungarian budget posts biggest April deficit on record

This year’s Hungarian budget is manageable, but 2024 looks bleaker

ING Economics ING Economics 12.04.2023 13:05
The budgetary situation in the first quarter of 2023 is eerily similar to last year’s developments. The biggest challenge remains the rising debt service cost and the foggy future of EU funds   When it comes to budgetary developments in Hungary, this year is proving to be very similar to 2022. The March monthly deficit is pretty much in the range of what we have seen in previous years. The monthly deficit generated in the budget amounts to HUF 564.6bn, pushing the year-to-date shortfall to close to HUF 2,900bn. This equals 61% of the full-year deficit target. Budget performance (year-to-date, HUFbn) Source: Ministry of Finance, ING   The deficit accumulation used to be frontloaded, which makes this year's picture bleaker as the Hungarian economy probably hit the bottom in the current mini-crisis at the beginning of 2023. This makes revenue generation more challenging, although high inflation does compensate somewhat. Moreover, as the Ministry of Finance pointed out in its press release, expenditures increased by 12% year-on-year during the first three months of this year. This is a result of the fact that the budget used to compensate energy suppliers during the heating season, and the 2023 heating season was more costly than last year’s. On top of this, the significant (15%) increase in pensions complemented by the extra (13th month) pension payments was an added burden to the budget during the first quarter. The 12-month rolling budget deficit in Hungary The first quarter deficit-to-GDP ratio is based on our GDP forecast. Source: Ministry of Finance, ING   With the heating season over, we see some improvement in the budget situation in the coming months. The government has maintained the freeze on public investment activity as well, which could also help in meeting this year’s deficit target. The biggest challenge remains the debt service cost. According to the official 2023 budget plan, the government expected HUF 2,500bn of net interest payments. In contrast, the latest EDP Report contains an updated calculation by the Central Statistical Office regarding the 2023 debt service cost. It is now up to HUF 3,000bn, which means an extra HUF 500bn burden on the expenditure side. Read next: Rates Spark: Reverse goldilocks for bonds| FXMAG.COM This is clearly reducing the room for manoeuvre for the government when it comes to supporting the economy. With everything else unchanged, such a huge interest payment would mean that if the government wants to meet the 3.9% deficit-to-GDP target (accrual-based, Maastricht deficit), it needs to tailor a zero primary budget balance (so the deficit except for interest payments). This would result in a significant tightening of the fiscal policy. However, the expected inflow of EU funds could alleviate a lot of the risk. Our base case scenario is that the government will settle the dispute and money will start flowing during the second half of this year. With that in mind, we think the deficit target will be met. The Ministry of Finance has underscored this as well; that the government will make every necessary step to meet this year’s deficit target.   So, this year’s deficit situation looks manageable. But what about next year? The debt service cost could increase further, while the 2024 preliminary budget plan (based on last year’s Convergence Programme) contains a 2.5% of GDP deficit target, so sees further tightening. In this regard, next year looks more than challenging from a fiscal point of view. We would not be shocked if next year’s official budget deficit plan contains a higher target. But even with that, we see a significant risk that the government won’t have the opportunity to phase out the windfall taxes from a fiscal point of view. This would be good news from a fiscal consciousness perspective, but bad news for businesses and consumers who face yet another round of pass-through of the unexpected tax burden on consumer prices. Read this article on THINK TagsHungary Government Fiscal policy Deficit Budget Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Czech National Bank is sounding more hawkish

Monitoring Czech Republic: The inflationary tide is slowly receding

ING Economics ING Economics 26.04.2023 11:01
We present our latest views on the Czech economic performance and outlook. Headline inflation seems to be on a descending path but continues to weigh on consumer spending. In the first quarter, the Czech economy experienced a shallow recession which should mark the trough, but the recovery will be anaemic Source: Shutterstock Czech Republic: At a glance The Czech economy entered a mild recession and will likely remain in contraction mode in the first half of 2023. The recovery will be anaemic, given the previous hit to the export sector from high energy prices and soft recovery in the eurozone.  Household demand remains subdued due to a decrease in purchasing power. However, rising car sales could bring a boost to the retail sector and also to the automotive industry.  Inflation is slowly edging lower. And not only headline inflation but core inflation, too (for four consecutive months).  A gradual decline of inflation will likely continue, which will support the stabilisation of household purchasing power and gradual recovery of depressed private consumption, hence retail sales.    The Czech koruna rebounded from 24.00 EUR/CZK in the post-Silcon Valley Bank period to record strong levels as we expected. For a more significant move below 23.00 EUR/CZK, however, we would need to see a big push from the global story, which is not in our outlook for now in the coming months.  Quarterly forecasts Source: Source: national data, ING estimates Czech GDP slipped into recession in second half 2022 Czech economic growth softened in the last quarter of 2022 to a still positive 0.3% year-on-year. The two consecutive quarterly declines in a row, however, confirmed that the Czech economy slipped into a technical recession. The main negative contribution came from household consumption, which contracted more than 5% YoY in the second half of 2022. Consumer spending has been on a descending path since the last quarter of 2021 when household purchasing power was seriously hit by rising energy prices and accelerating headline inflation. Additionally, the eurozone slowdown and the input supply problems of Czech car producers resulted in a significant slowdown of exports in the fourth quarter of the last year. GDP components Source: Source: CZSO, ING estimates   We expect the annual growth of GDP to turn negative in the first half of 2023 due to still declining household consumption, investment demand, and only soft growth of government spending. During the remainder of 2023, however, the economy will likely show signs of a recovery, as gradually receding inflation will weigh less on the real purchasing power of households and the gradually improving external environment will support a gradual acceleration of exports. Yet investment demand will likely remain weak due to persistently high interest rates. Negative annual growth in the first half of 2023 and only a gradual recovery will result in an annual decline in 2023 of around -0.3%.   GDP growth Source: Source: CZSO, ING estimates Industry depressed by expensive sources, wages and supply problems While the energy industry sector has been largely benefiting from the increase in energy prices, most industrial sectors are feeling the pain from the high cost of inputs and relatively robust growth of wages. In addition, Czech automotive producers have also been facing supply input problems, which have resulted in temporary outages of production at several car plants during February. While supply problems and pressure from expensive inputs are gradually fading, the stagnation of external demand will likely slow the recovery of car exports during the first half of 2023. Therefore, the growth of overall industrial output likely remained close to stagnation in the first quarter of 2023. (For example, the Industrial Production basic index was lower in February 2023 by 2.6% versus December 2022). Industrial production Car sales prevent retail sales from deeper fall Retail trade sales decreased in real terms by 6.4% YoY in February as households were still cutting their expenditures on food. Yet sales increased in stores with products which were not so hit by a price increase, such as clothing, leather goods, and footwear. The main engine supporting retail sales has been car sales, which actually rose 4.2% YoY. It is worth mentioning that this cannot be fully attributed to rising demand but rather postponed deliveries of cars ordered earlier but held back by input supply problems. At least the good news is that demand for cars has not been affected by the adverse economic situation so far. And rising consumer sentiment looks promising for the retail sector.  Retail sales Source: Source: CZSO Improving sentiment of industrial producers signals better times From the second quarter onward we expect a gradual recovery of industrial output driven by improving export opportunities, a decline in energy prices, as well as fading input supply problems. The first sign of such an improvement could come with the release of the March industrial production confidence data. IP confidence Inflation slowly moderates It is clear the moderation of Czech headline inflation continues. In March, Czech CPI increased by 0.1% month-on-month and headline inflation moderated from 16.7% to 15%. This is the lowest YoY inflation reading since last April. The main contribution to the March decline came from base effects. Fuel prices declined 1.8% MoM which resulted in a YoY decline of almost 20%. The additional contribution to the decline of headline inflation came from gas prices, which fell 1.4% MoM, and YoY growth moderated from 74% to 60%. The positive signal is the fact that core inflation has been gradually declining for four consecutive months, while in some other EU economies, core inflation is still picking up. This suggests that domestic inflationary pressures are slightly softening, which can be partly attributed to the relatively early start of hefty rate hikes from the Czech National Bank beginning in June 2021, when the Czech economy was only emerging from the Covid lockdown. The latest inflation outlook of the Czech Finance Ministry sees headline inflation falling gradually below 10% YoY in July and further declining to 8% YoY by year-end. ING's view is a bit less optimistic, expecting headline inflation to remain a touch above 9% by the year-end. Nevertheless, this is still unlikely to open debate about CNB rate cuts anytime soon. On the contrary, the growth of wages in industry above 10% YoY in the beginning of the year is above the CNB's comfort level. Inflation outlook Source: Source: CZSO, CNB, ING estimates Weak economy leads to lower tax revenues The state budget ended March with a deficit of CZK166.2bn, the worst March result in history. The Ministry of Finance's plan for this year is a deficit of CZK295bn. The expenditure side is only slightly above plan and can be explained by frontloading some planned expenditures such as transfers to municipalities and subsidies to the private sector, as well as record strong investment activity. The main problem is on the revenue side, where roughly CZK80bn is missing. Roughly CZK50bn can be attributed to weak tax revenues and CZK30bn to non-tax revenues such as EU transfers. While we can assume that the balance of EU money inflows will improve during the year, tax revenues are not so clear. The economy is probably slowing more than MinFin expected, and tax revenues are suffering. We see a large VAT backlog for example, as well as in the case of the newly introduced windfall tax. MinFin argues that although the collection of the windfall tax will be lower than expected this year, it will also save money on the expenditure side given the lower costs of the energy compensation programme. Moreover, in the second half of the year, MinFin will receive at least CZK40bn in dividends from the state-owned energy company. On the other hand, because of the old-age pension indexation story, there is a real risk that MinFin will have to increase spending by another CZK20bn. So overall, the whole situation is very unclear. For now, we are revising the state budget deficit forecast to CZK320bn, which translates into a general government deficit of 3.8% of GDP. General government balance (% of GDP) Source: MinFin, ING estimates Softer inflation welcome, but high wages concern the CNB The gradual decline of both headline and core inflation must make the central bank board feel more comfortable as it signals that domestic inflationary pressures are softening. What may worry the CNB board, however, is the still hefty growth of industry wages at the beginning of the year. This exceeded 10% YoY and hence remained above the critical threshold mentioned for example by Vice Governor Eva Zamrazilova. The lingering tightness of the labour market was also confirmed by the recently published decline in the unemployment rate of 0.2bp to 3.7% in March. The growth of nominal wages in the overall economy, however, remained below the 10% critical threshold (7.9% YoY in 4Q22) hence wage growth should not represent a significant risk for a rate hike debate. What will be worth following is the next labour market report for the first quarter (released 5 June), which could signal abating or rising risk for a possible rate hike.  In our view a hike is unlikely. On the contrary, we assume the CNB's current 7.00% policy rate marks the peak in the hiking cycle. Still, we see the CNB only starting the debate about the possible normalisation of monetary policy when inflation moderates close to the current levels of the policy rate. The first possibility for such a debate about a symbolic 25bp interest rate reduction could come in August when the new summer inflation outlook will be discussed. But given the prevailing risks from tightness in the Czech labour market, we do not expect more than a total of 50bp in rate cuts by the year-end. And assuming EUR/CZK has only limited scope for a possible upward correction, CNB monetary conditions should remain relatively tight for an extended period.  CNB interest rate and FX forecast Source: Source: CNB, ING estimates What to expect in FX and rates markets  The Czech koruna rebounded from 24.00 EUR/CZK in the post-SVB period to record strong levels as we expected. We have seen weaker levels again in recent days, but we think the market is taking some profits given the long positioning and we remain bullish on the CZK. The most hawkish central bank within the CEE region and a relatively clean risk profile compared to the forint and zloty should ensure that markets continue to support the koruna. Thus, we expect any EUR/CZK movement higher to be used to rebuild long CZK positions by the market and the koruna to remain a safe haven within the region with the best risk/reward. On the other hand, for a more significant move below 23.00 EUR/CZK, we would need to see a big push from the global story, which is not in our outlook for now in the coming months.  In the rates space, the market has reassessed its dovish expectations in recent weeks and the whole curve has moved up again. But even so, the market still remains on the dovish side with pricing of roughly 75bp of rate cuts by year-end and 165bps in the 1y horizon. The hawkish CNB meeting next week will again support paying flow, especially at the short end of the curve in our view and hence we see a case for a re-flattening of the curve. In the Czech government bond (CZGBs) space, by our calculations, MinFin has secured about 30.7% of projected CZGBs since the beginning of the year. Bonds have benefited from high demand for a long time, however, we see a slight underperformance compared to regional peers in recent weeks, which may be due to long market positioning or signs of negative sentiment stemming from the fiscal situation. For now, we do not expect a significant deterioration in the outlook for CZGBs, but we see the risk of higher supply in the coming months, which could weigh on the market's more cautious approach. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hungarian budget posts biggest April deficit on record

Monitoring Hungary: Gloom with some silver linings

ING Economics ING Economics 02.05.2023 13:22
In our latest update, we reassess our Hungarian economic and market forecasts, as we downgrade the full-year growth outlook. Economic activity has been disappointing lately, while inflation has proven stickier than expected. As market stability improves, we see rate cuts ahead Hungary: At a glance Economic activity has markedly slowed down, while the rebound from the technical recession will not be as robust as previously expected, hence our 2023 growth outlook downgrade. Both retail sales and industry underperformed throughout the first quarter, and we expect continued weakness in the first half of 2023. Inflation has proven stickier than expected with core inflation hitting a new peak in March, while pending price increases in services could slow disinflation.  As inflation will gradually decline throughout the year, real wage growth will flip back into positive territory at the end of 3Q, which in our view will boost household savings.   The central bank’s dovish pivot has started by cutting the top-end of its rate corridor by 450bp, and we see effective rate cuts starting either in May or June.  Lower energy prices will continue to improve the country’s external balances in the coming months as reflected in the latest trade balance data.  We still see the 3.9% deficit-to-GDP target as roughly realistic, as expenditures are always front-loaded, while revenues are back-loaded.  The labour market has been gradually weakening, but it is nowhere near a crisis scenario, and we see a turnaround in late summer.  We expect EUR/HUF to oscillate in the current range of 370–380, depending on the progress in the EU story and the NBH’s boldness in the coming months.  In our view, HGBs can benefit the most from the combination of funding under control, monetary policy normalisation and positive news regarding EU funds. Quarterly forecasts Source: National sources, ING estimates *1Q23 GDP is forecast Full-year growth outlook worsens Hungary has been in a technical recession for three quarters (3Q22-1Q23) due to sky-high inflation suffocating economic activity. First quarter GDP data is not due until 16 May but we see a contraction both annually and quarterly. Economic activity in the first quarter was widely disappointing, whether looking at retail sales, industrial or construction data. Going forward, we anticipate a modest economic rebound in the second half of 2023 as inflationary pressures are alleviated, but domestic demand will remain weak throughout the year. In our view, the positive real wage growth in the fourth quarter will more likely boost households’ savings rather than fuel consumption. As a result, we're downgrading our full-year growth outlook from 0.7% to 0.2% due to the combined effect of subdued consumption and investment activity. Real GDP (% YoY) and contributions (ppt) Source: HCSO, ING Industry shows broad-based weakness Industrial performance continued to disappoint in February as production fell by 4.6% year-on-year, with most manufacturing subsections contributing to the decline. This points to broad-based weakness amid the ongoing technical recession, with only industrial output related to the automotive sector showing any sign of life. Nevertheless, this is not enough to keep the yearly figure above water, and we expect continued underperformance in the coming months. In this regard, the full-year industrial outlook is getting gloomier by the day, as both internal and external demand for manufactured goods continues to deteriorate. The latter is a major drag on net exports, which is expected to be the only silver lining supporting the full-year growth profile. The freefall of Hungary’s industry continues Industrial production (IP) and Purchasing Manager Index (PMI) Source: HALPIM, HCSO, ING Contracting retail sales point towards subdued consumption The retail sector continues to suffer amid the cost-of-living crisis as the volume of sales in February fell by 10.1% YoY. Regarding food and fuel retailing, the yearly drops are almost entirely due to base effects, but non-food retailing displays weakness on a monthly basis too (-2.8%) with manufactured goods registering a 6.5% month-on-month plunge. In our view, this is indicative of the lack of domestic demand towards manufactured goods, which can explain the industry’s weakness. Recent data shows negative momentum as February was the third month in a row in which the volume of retail sales has been contracting both on a yearly and monthly basis. Therefore, it is evident that the loss in household purchasing power is constraining overall consumption, which in our view will continue in the coming months. Hungarian retail sales fall off a cliff Retail sales (RS) and consumer confidence Source: Eurostat, HCSO, ING Inflation proves stickier than previously expected Although January’s 25.7% YoY inflation reading marked the top for headline inflation, the underlying price dynamics look worrying. Core inflation accelerated to new highs (25.7%) in March, which we think was the top. Food inflation has continued to moderate for a third month, while both fuel and household energy prices retreated. As the services sector is trying to pass last year’s cost burden onto consumers with a lag, we expect this component to remain elevated. In this regard, the pre-announced price increases by telecom companies and financial services providers, along with seasonal repricing in holiday packages underscores our thinking. Going forward, we expect a gradual deceleration in both headline and core inflation in the coming months widely driven by base effects. We continue to expect full-year average inflation to come in around 19% in 2023, with December’s figure dipping into the high single-digit area. Hungarian inflation proves stickier than expected Inflation and policy rate Source: NBH, ING The central bank's dovish pivot has started with a symbolic step The National Bank of Hungary (NBH) cut the overnight collateralised lending rate (top-end of rate corridor) by 450bp to 20.5% sending a clear signal that the dovish pivot is here. The central bank continues to distinguish between the issues of price and market stability, as the former will be resolved by the 13% base rate, while the latter is managed by the overnight tools (mainly by the 18% quick deposit rate). Due to the convincing improvement in market stability, the NBH was able to make the first move in preparing the effective rate cut cycle, but their approach echoes caution and patience. In this regard, the central bank will constantly monitor a range of risk indicators, along with market expectations. In the coming weeks, we expect continued improvement in risk perceptions that are closely followed by the NBH. Therefore, we expect the central bank to start effective rate cuts in the quick depo rate either in May or June, depending on FX stability and market perception. National Bank of Hungary Review: A new beginning without commitment Real rates (%) Source: ECB, NBH, ING After 19 months of deficits the trade balance is back in surplus The marked retreat of global energy prices alleviated the pressure on the country’s external balances. This is clearly reflected in the latest trade balance data, which showed a surplus of EUR 513m in February. Energy import prices in Hungary follow the Dutch TTF gas prices largely by a two-month lag, therefore December’s 116 EUR/MWh average price was reflected in February’s trade balance result. In this regard, as TTF gas prices currently hover around 40 EUR/MWh we expect continued improvement on this front. Ailing domestic demand and the continuing reduction in the energy-related trade deficit will help to narrow the current account deficit. After the 8.1% of GDP shortfall in 2022, we see a 4.5% of GDP deficit this year. Read next: German headline inflation continues gradual downward trend in April| FXMAG.COM Trade balance (3-month moving average) Source: HCSO, ING The budget trajectory of 2023 follows in last years' footsteps Hungary's budget posted a HUF 564.6bn deficit in March, bringing the year-to-date cash-flow base to 61% of the full-year target. According to the Ministry of Finance, expenditures increased by 12% YoY during the first quarter of this year mainly due to costlier heating-related expenditures and significant pension increases. As expenditures are always front-loaded, while revenues are back-loaded, we see some improvement in the coming months, especially with the heating season behind us. Furthermore, we expect automatic stabilisers to kick in during the economic rebound in the second half of 2023. The biggest challenges remain the debt service cost, planned at net HUF 2,074bn, along with inflation. The latter is important because the government calculated a 15% full-year reading, whereas it increasingly looks like this will be around 19%. This in turn will trigger an additional HUF 200-300bn adjustment need in pensions as the government must preserve the real purchasing power of pensions by law. This year’s Hungarian budget is manageable, but 2024 looks bleaker Budget performance (year-to-date, HUFbn) Source: Ministry of Finance, ING Real wages have dropped for the sixth month in a row The Hungarian labour market remains resilient amid a technical recession, although it shows a mild and gradual weakening. The three-month unemployment rate was at 4.1% in the first quarter of 2023. We expect the unemployment rate to rise further, albeit at a slow pace, peaking around 4.5% in the summer. As some sectors still face labour shortages, average wage growth remains strong with a 15.6% YoY increase in February, after excluding last year’s ‘service premium’ for the armed forces. Nevertheless, after adjusting for inflation and for this one-off effect, real earnings dropped by 7.8% in February, marking the sixth month in a row in which real wage growth was negative. Going forward, we expect real earnings growth to flip back to positive territory at the end of the third quarter in line with retreating inflation. In our view, this will likely trigger households to replenish their depleted savings, which in turn might have negative effects on growth prospects. Hungary’s unemployment does not budge  Base effects distort Hungarian wages data Growth of real wages in Hungary (% YoY) Source: HCSO, ING HUF can remain strong despite the start of the rate-cutting cycle At the global level, conditions for the region remain generally positive, with the forint benefiting the most among its Central and Eastern European peers, along with positive news on the EU story. At the local level, FX carry in Hungary remains by far the highest in the CEE region and nothing will change in the coming months on this front. Thus, overall, we believe the right conditions persist for the forint to continue to retain market interest. On the other hand, the market’s position is probably already long despite last week’s sell-off and the direction of monetary policy is clear after the last central bank meeting. Thus, given the NBH’s cautious approach, we can remain positive on the HUF, but we cannot expect a continuation of the rally as in recent weeks but rather a sideways move in the current range of 370 and 380 EUR/HUF depending on the progress in the EU story and the NBH’s boldness in the coming months. CEE FX performance vs EUR (30 December 2022 = 100%) Source: NBH, ING Hungarian Government Bonds can benefit a lot in the coming months In the aftermath of the latest NBH meeting, the IRS curve moved up slightly after the press conference, indicating that the market was expecting more. However, even so, it appears the market may be disappointed again later that monetary policy normalisation is not proceeding as quickly as priced in, just as we saw in the first quarter. The direction at the moment is clear - a lower and steeper curve, but market volatility and liquidity may be tricky again in this case. Hungarian sovereign yield curve Source: GDMA, ING   On the Hungarian government bond (HGBs) side, although we see some fiscal risks, funding is safely under control. Nevertheless, in case any slippage might occur regarding the flow of EU money, the debt agency (ÁKK) might resort to FX debt issuance. According to our calculations, ÁKK has secured about 29.4% of the planned HGBs issuance since the beginning of the year. However, if we take into account the strong activity in retail and FX bonds, ÁKK has roughly secured about half of its total borrowing needs for this year. Thus, the combination of funding under control, monetary policy normalisation and a positive EU story can be expected to generate more interest from real money investors and HGBs can benefit the most from this situation. Read this article on THINK TagsQuarterly forecasts Outlook Monitoring Hungary HUF Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Czech National Bank is sounding more hawkish

The Czech National Bank is sounding more hawkish

ING Economics ING Economics 04.05.2023 10:55
The CNB kept interest rates unchanged at 7%. However, the bank stresses the risks are skewed to the upside Unsurprisingly, the Czech central bank decided to keep interest rates unchanged As expected, the CNB kept rates unchanged but there is a clear shift in the CNB's approach to the inflation environment. It is worth mentioning that the CNB improved its economic outlook for this year, expecting GDP to increase by 0.5%, compared with a -0.3% decline anticipated in its February forecast. Unlike in previous cases, this time three board members voted for a 25bp hike. In our view this can be assumed rather as support for the currency than a willingness to increase interest rates.  In a new forecast, the CNB raised its inflation forecast for this year upwards (from 10.8% to 11.2%) and remains unchanged at 2.1% on average for next year. GDP was raised from -0.3% to +0.5% for this year and from 2.2% to 3.0% for next year. Pribor's new interest rate forecast no longer assumes a rate hike but otherwise the path remains unchanged. However, the Governor mentioned that the Board is not looking to follow the rate forecast. The EUR/CZK forecast has been adjusted to the current stronger levels but otherwise, as in February, the CNB expects a return to 24.50. At the same time, however, the CNB also raised its estimate of full-year inflation to an average of 11%. The central bank also improved its forecast for the average exchange rate of the Czech koruna to EUR/CZK 23.70 this year, compared with EUR/CZK 24.5 in January. Next year, the koruna should weaken to an average of 24.30/EUR, according to the CNB's forecast.  The key element to follow will be wage development. Industrial wages grew more than 10% year-on-year in the beginning of the year. In addition, the CNB is concerned with a widening public deficit, which represents an imminent threat to inflation development. We assume the CNB will keep rates unchanged until August. A swift decline of core inflation can play a crucial role in the decision to cut interest rates in the summer. In our view, it is unlikely that a majority of the CNB board will vote for a rate hike. On the contrary, rate cuts are out of question until August, when the new summer forecast will be published and discussed. What to expect in FX and rates markets The Czech koruna reacted with a slight strengthening after the end of the press conference. However, we expect the dust to take a while to settle and expect further strengthening of the koruna in the coming days. The interest rate differential has fallen by around 30bp at the short end of the curve versus eur rates and global conditions with a higher EUR/USD also supporting a further rally in the koruna. For now, we expect the koruna to settle in the 23.30-40 EUR/CZK band with the possibility of a further rally if global conditions allow. Read next: ECB cheat sheet: Difficult to pull away from the Fed| FXMAG.COM Interest rates jumped up across the curve after the strong hawkish report from the CNB, but especially at the short end, resulting in bear flattening. As with FX, we expect the dust to take a while to settle. Tomorrow the full CNB forecast will be released and we will see the central bank meeting with analysts. Overall, we could see even a higher curve in the coming days. On the other hand, April inflation will be released next week on Thursday, which could again bring a dovish tone to the market and push back the current rates paying flow. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hungarian budget posts biggest April deficit on record

Hungarian budget posts biggest April deficit on record

ING Economics ING Economics 10.05.2023 13:45
Hungary’s budget follows last year’s trajectory as deteriorating economic activity puts pressure on the revenue side. The expenditure side also looks challenging with sky-high inflation at the forefront   With the monthly deficit generated in April equaling to HUF 620bn, a new record has been made. In terms of overall budgetary trajectory, this year looks very similar to 2022, with the year-to-date deficit accumulation being pushed to HUF 2,709.7bn. We believe that despite 80% of the full-year deficit target having been met by April, the budget situation looks manageable, although it provides some challenges down the road for policymakers. Budget performance (year-to-date, HUFbn) Source: Ministry of Finance, ING   Inflation is a double-edged sword, which at this point of the cycle is rather wounding the budget by boosting expenditures, rather than propping up the revenue side. Towards the end of last year, as domestic demand was still strong, significant sums flowed into the general budget via VAT and excise duty, which boosted the revenue side. But the volume of retail sales was down by 13.1% year-on-year in March, which points to less inflow via indirect taxes. As far as fuel retailing is concerned, the yearly-based drop equals almost 30%, which suggests that revenues through excise duty have taken a big hit. However, the subdued consumption dynamics should not surprise anyone given real wages have been dropping for the last six consecutive months. In our view, domestic demand will not rebound in the coming months, which will put further pressure on the revenue side. We expect a turnaround in consumption dynamics only in the second half of the year, which in turn will help generate more revenue via indirect taxes. As for the expenditure side, costs have been relentlessly rising compared to previous years, with key challenges still remaining ahead of us. The Ministry of Finance pointed out in its press release that the regulated utility price scheme for households cost the budget HUF 848.5bn by the end of April. In our view, this year the government changed its approach regarding the recapitalisation of state-owned firms. While in the past the recapitalisation was settled towards the end of the year, this year we believe that recapitalisation costs are spread out monthly in smaller chunks, hence putting more pressure on the budget in the first half of the year. At the same time, this likely means that we won’t see a large deficit accumulation at the end of the year. Nevertheless, on the expenditure side, the regulated utility scheme was not the only costly element. In fact, on the backdrop of inflation, both pension outflows and debt servicing costs are markedly elevated compared to last year. Even though the National Bank of Hungary is preparing for the start of the rate-cutting cycle, from a debt servicing cost perspective the picture will remain broadly unchanged. For this year the budget will be weighed down by the burden of high interest rates. The Ministry of Finance noted that HUF 2,136.2bn was spent on pension payments year-to-date, with the government still calculating with 15% average inflation for 2023. In our view, the full-year average inflation will more likely come in around 19%, which by law will trigger a total HUF 200-300bn adjustment need in pensions. When it comes to challenges on the revenue side, we believe that we might be nearing the bottom from an indirect tax inflow perspective. However, as real wages will likely recover only in the fourth quarter of this year, the tax boost from the rebound in consumption might be a little late. On the expenditure side, with the heating season officially over, we expect the regulated utility scheme-related spending to significantly shrink, but from an efficiency and sustainability standpoint, more work has to be done. In this regard, the modernisation of the water supply network is a good step to alleviate some of the financing costs related to the government scheme. Read next: European utilities commitment to investment remains high| FXMAG.COM Besides all of these internal challenges, one external challenge stands out, namely the fate of the EU funds. For this year, the government is calculating a 2,245bn HUF (€6bn) inflow from EU programmes, where the vast majority is related to the Common Agriculture Policy and the 2014-20 Multiannual Financial Framework related transfer. Here, we calculate a HUF 500-600bn risk tied to the 2021-27 programming period, should the government fail to secure the deal with the EU. However, this is not our base case. On 3 May, the Hungarian Parliament adopted the judicial reform, which is the first step in unlocking a part of the EU funds, namely €13bn from the Cohesion Fund, where the remaining €9bn will remain blocked until the government no longer ticks all the boxes related to other milestones. As soon as the European Commission investigates and approves the judicial reforms (review starts on 1 June with a 90-day review period), advance payments of the unblocked funds could start to flow. Read this article on THINK TagsHungary Government Fiscal policy Deficit Budget Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bulls Stumble as GBP/JPY Nears Key Resistance at 187.30

European Markets React to US Debt Ceiling Deal! A Mixed Open Expected. US Dollar Dominates CEE Markets: Concerns Over Economic Recovery Linger

Michael Hewson Michael Hewson 30.05.2023 09:11
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
Shell's H1 2023 Performance and CEO's Bold Stance on Renewable Energy

Market Sentiment and Fed's Decision: Impact of Upcoming Economic Data and Central Bank Meetings

InstaForex Analysis InstaForex Analysis 05.06.2023 14:18
Market sentiment could change depending on the Fed's final decision at its June monetary policy meeting. This decision, however, could be affected by upcoming economic data from the US. Ahead lies key manufacturing indicators from both the US and Europe, followed by reports on China's export volume, import volume, and trade balance. Equally important will be the meetings of other central banks, where key parameters of monetary policy will remain unchanged. Markets will likely establish equilibrium, as investors expect a 0.25% increase in the Fed's interest rates. However, the recently-released strong US labor market data for May changed the sentiment, pushing market players to opt for a pause. Now, only 19.6% expect a 0.25% increase in rates. Resolving the debt problem, as well as very positive employment data, allow investors to believe that the US will no longer face recession.   As such, the Fed may opt not to raise rates, primarily because they do not want to shake the markets and stimulate another sell-off in the government bond market, given the government's high need for new loans at relatively low interest rates. Most likely, until June 14, consolidation in broad ranges will be observed in the forex market. Similar expectations can be set for stock and commodity markets.   Forecasts for today:     EUR/USD The pair trades above 1.0685. A neutral or weakly positive market sentiment will push the quote between 1.0685 and 1.0825. However, a decline below 1.0685 mark could lead to a `further fall to 1.0540.   XAU/USD Gold trades within the range of 1933.75-1983.75. A pause in the fed's rate hike cycle will push the quote towards 1983.75. Pati Gani Analytical expert of InstaForex © 2007-2023 Back to the list  
Weak Economic Outlook for China: Challenges in Debt Restructuring and Growth Prospects

Central Bank Jury: Inflation Concerns Delay Dollar's Decline

ING Economics ING Economics 13.06.2023 13:03
The central bank jury is most certainly still out on whether policymakers have done enough to tame inflation. The implications for FX markets are that the Fed may need to stay hawkish a little longer and our forecast cyclical dollar decline may get delayed. For now, however, we maintain the view that the dollar will be much lower by year-end   Executive Summary: Burden of proof Despite all the talk of economic slowdown and the turn in the inflation cycle, it seems that policymakers still lack sufficient evidence that inflation is under control. Swiss National Bank President Thomas Jordan recently warned of 'second and third round effects' in this inflation cycle. Central bankers as far apart as Australia and Canada have recently had to restart tightening cycles after brief pauses. Investors are now increasingly questioning their own convictions that rates have peaked.   Nowhere is this challenge greater than in the US where tight labour markets and core inflation stubbornly above 4% are keeping the Fed vigilant. And there is a chance that the Fed has to hike one last time this summer. Yet our house view remains that US disinflation becomes much more obvious in the third quarter and that hard will follow soft activity data lower. We still look for substantial Fed cuts in the fourth quarter.   This means we are still looking for the start of a cyclical multi-year dollar bear trend – probably starting in the third quarter. This should carry EUR/USD above 1.15 and USD/JPY well below 130. The tide of a softening dollar should lift most currencies around the world – especially higher-yielding currencies enjoying the benefits of the carry trade.   Within Europe, we forecast most currencies to hold recent gains against the euro – although sterling looks most at risk to Bank of England re-pricing. Modest CEE FX appreciation can continue – despite looming easing cycles. Latin FX looks constructive on the back of high yields and pockets of Asia can appreciate – especially the Korean won.
Weak Economic Outlook for China: Challenges in Debt Restructuring and Growth Prospects

Central Bank Jury: Inflation Concerns Delay Dollar's Decline - 13.06.2023

ING Economics ING Economics 13.06.2023 13:03
The central bank jury is most certainly still out on whether policymakers have done enough to tame inflation. The implications for FX markets are that the Fed may need to stay hawkish a little longer and our forecast cyclical dollar decline may get delayed. For now, however, we maintain the view that the dollar will be much lower by year-end   Executive Summary: Burden of proof Despite all the talk of economic slowdown and the turn in the inflation cycle, it seems that policymakers still lack sufficient evidence that inflation is under control. Swiss National Bank President Thomas Jordan recently warned of 'second and third round effects' in this inflation cycle. Central bankers as far apart as Australia and Canada have recently had to restart tightening cycles after brief pauses. Investors are now increasingly questioning their own convictions that rates have peaked.   Nowhere is this challenge greater than in the US where tight labour markets and core inflation stubbornly above 4% are keeping the Fed vigilant. And there is a chance that the Fed has to hike one last time this summer. Yet our house view remains that US disinflation becomes much more obvious in the third quarter and that hard will follow soft activity data lower. We still look for substantial Fed cuts in the fourth quarter.   This means we are still looking for the start of a cyclical multi-year dollar bear trend – probably starting in the third quarter. This should carry EUR/USD above 1.15 and USD/JPY well below 130. The tide of a softening dollar should lift most currencies around the world – especially higher-yielding currencies enjoying the benefits of the carry trade.   Within Europe, we forecast most currencies to hold recent gains against the euro – although sterling looks most at risk to Bank of England re-pricing. Modest CEE FX appreciation can continue – despite looming easing cycles. Latin FX looks constructive on the back of high yields and pockets of Asia can appreciate – especially the Korean won.
Navigating Changing Trade Dynamics: Can CEE Seize the Opportunity?

Navigating Changing Trade Dynamics: Can CEE Seize the Opportunity?

ING Economics ING Economics 14.06.2023 08:05
World trade is changing – can the CEE profit? Since September 2022, world trade has fallen by around 4%. The pandemic shock to global consumption has played a large role in trade trends in recent years. The initial phase of the pandemic resulted in lopsided consumption towards goods, which has now reversed towards services demand. Businesses also increased inventories early last year as supply chain problems persisted, which is now reversing.   While the ‘bullwhip effect’ of stockpiling across the supply chain added to trade volumes earlier, the process of stock reduction now creates extra slack in the figures. Although this process was not finished yet in the first quarter of 2023, we expect trade to recover mildly over the course of this year on the back of the reopening of China and further easing of supply chain problems, starting at the end of the first quarter. All in all, we expect total trade to grow at just 1% compared to last year, with 2024 offering a 2% gain in trade volume. This means trade will drop below global GDP growth and is expected to continue in the slow lane compared to long-term averages.   The upside risks to this outlook relate to our sluggish growth outlook for advanced markets. If a faster growth pace was to be maintained, this would clearly increase our expectations for global trade growth. Also, the current consumption mix is still favouring services compared to goods as consumers are catching up on leisure activities that were restricted during lockdowns. If that were to switch back more quickly, this would be a boon for global trade.   Recent years have been characterised by wake up calls for global trade. From lockdownled supply-chain disruptions to the US-China trade war, and from the Suez blockage to war and sanctions, the very globalised production model has been challenged a fair bit. In response, deglobalisation has become a key theme in economics, but the question is how that is really going to play out. It looks like diversification of sourcing products is the most dominant response to the supply chain problems seen in recent years.   Since 2016, we have seen steady increases in diversification of imports from advanced economies. Interestingly, we do see notable differences between Europe and the US. In the EU, we note relatively little diversification so far outside of the pandemic shock.   The US is the main diversification force at the moment. American imports are now a lot more diversified than they were in 2016 and this is mainly driven by a clear trend towards a lower dependency on China for imports.   Still, we expect diversification of imports to also increase further when looking at Europe; think of the swift move away from imports from Russia. ‘Friendshoring’, or closer trade ties with geopolitical allies, is likely to be a theme of the coming years and the big question is whether CEE can gain from this development. With world trade growing moderately, there are still opportunities to accelerate export growth if positioned well towards the right markets.
ECB's Decision and its Implications for European Financial Markets: A Conversation with Petr Ševčík from BITMarkets

ECB's Decision and its Implications for European Financial Markets: A Conversation with Petr Ševčík from BITMarkets

FXMAG Team FXMAG Team 16.06.2023 09:02
The European Central Bank (ECB) has recently made a surprising shift in its approach towards financial stability, signaling a departure from its historically dovish stance. This decision, prompted by the challenges posed by inflation, has significant implications for both the performance of individual economies and the overall prosperity of the European Union.   In this article, we had the opportunity to discuss the ECB's decision with Petr Ševčík, an analyst from BITMarkets, who shared valuable insights into the repercussions of this move. BITMarkets, a platform that has been closely monitoring the rise of cryptocurrency trading in Europe, has observed increased trading activity in this sector since the beginning of the year. Cryptocurrencies, known for their volatility, have gained attention as a potential refuge in times of economic uncertainty and hardship. As inflationary pressures continue to burden traditional industries such as housing and banking, some investors are turning to alternative assets like cryptocurrencies.   The impact of the ECB's decision is already being felt across various sectors, with construction and materials stocks experiencing a 0.8% drop and bank stocks dwindling by 0.7%. These developments are a natural consequence of higher borrowing costs, leading to a slowdown in loan growth. However, amidst these challenges, there are signs of resilience in certain areas. Media stocks, for instance, enjoyed a 0.7% upside following the news, indicating that the markets may begin to respond more favorably to individual performance rather than being solely influenced by widespread conditions.    FXMAG.COM: Could you please comment on the ECB decision?   It's crystal clear that the reluctant ECB is that of the past. Historically known for adopting a very dovish approach towards financial stability of the bloc by avoiding sharp interest hikes, its decision to bump rates again highlights the struggles caused by inflation which are burdening the performance of individual economies and corporations and the livelihood of individuals; on a macro scale, this has been hindering the prosperity of the European Union for a daunting lengthy period. BITmarkets has witnessed the rise of crypto trading since the start of the year, and a notable portion of increased trading activity has stemmed from Europe. Cryptocurrency assets are volatile and always have been, but they have been regarded as refuge by some in times of economic uncertainty and hardship. What's apparent is that the housing industry and the banking sector are among the industries which are being damaged the most, with construction and materials stocks dropping 0.8% and bank stocks dwindling 0.7% following the news. From a wider perspective, this is only natural as borrowing costs increased which attributes the slowdown of growth in loans.  While the news was not taken very lightly as the continent's most popular indices shed their prices, I don't project much more dismay for Europe with regards to economic stability. Media stocks enjoyed a 0.7% upside and that speaks a thousand words. Inflation is cooling down and markets may begin to behave based on performance rather than being continuously-succumbed to widespread conditions. The European financial market has been a victim of calamitous market conditions for years, but the latest ECB move is one that can ultimately bring the EU out of its shell.
Rising Chances of a Sharp Repricing in Hungarian Markets

Hawkish ECB Raises Rates Amidst Slowing Eurozone Growth and Surging Inflation Forecasts

Ipek Ozkardeskaya Ipek Ozkardeskaya 16.06.2023 09:34
It was mostly a good day for the global markets, except for Europe, which saw the European Central Bank (ECB) expectedly raise interest rates by 25bp, but unexpectedly raised inflation forecast, as well.   European policymakers now expect core inflation to average past the 5% mark, while in March projection this forecast was only at around 4.6%. This could sound a bit counterintuitive, because we have been seeing slower inflation and slower activity across the Eurozone countries, with the latest growth numbers even pointing at a mild recession. Yet the strength of the jobs market, and the stickiness of services and housing prices keep ECB officials alert and prepared for a further rate hike in July... and maybe another one in September.       Euro rallies  At the wake of the ECB meeting, the implied probability of a July hike jumped from 50% to 80%, sending the EURUSD rallying. The pair rallied well past its 50-DMA and hit 1.0950, and is up by more than 3% since the beginning of this month. The medium-term outlook remains bullish for the EURUSD due to divergence between a decidedly hawkish ECB, and exhausting Federal Reserve (Fed). The next bullish target stands at 1.12.  The US dollar sank below its 50-DMA, impacted by softening retail sales, rising jobless claims, slowing industrial production and perhaps by a broadly stronger euro following the ECB's higher inflation forecasts, as well.   Elsewhere, rally in EURJPY gained momentum above the 150 mark, as the Bank of Japan (BoJ) decided to do nothing about its abnormally low interest rates today, which seem even more anomalous when you think that the rest of the major central banks are either hiking, or say they will hike. The dollar yen is back above the 140 mark, as traders see little reason to buy the yen when the BoJ outlook remains blurred. Note that some investors expected at least a wider YCC policy to 1% mark, but the BoJ didn't even bother to make a change on that front.       Japanese stocks overbought near 33-year highs  Good news is, Japanese stocks benefit from softer yen and ample BoJ policy, and consolidate gains near 33-year highs. The overbought market conditions, and the idea that Japan will, one day in our lifetime, normalize rates could lead to some profit taking, but it's also true that companies in geopolitically sensitive sectors like defense and semiconductors have been major drivers of the rally this year, and there is no reason for that appetite to change when the geopolitical landscape remains this tense. The former US Secretary of State just said he believes that a conflict between China and Taiwan is likely if tensions continue their current course.   By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    
BOJ Verbal Intervention Sparks Market Reactions and Sets Stage for Eventful Week

Bank of England Rate Decision: Another Rate Hike Expected Amid Rising Inflation and Policy Concerns

Michael Hewson Michael Hewson 19.06.2023 07:51
Bank of England rate decision – 22/06 – this week's central bank rate decision is likely to see the implementation of at least another rate 25bps rate hike from Bank of England policymakers, with the usual suspects of Tenreyro and Dhingra expected to dissent once more, despite UK core inflation surging in April to 6.8% and its highest level since the early 1990's.    With this being Tenreyro's last meeting, she is being replaced by Megan Greene next month, the dissent on the MPC is likely to be much less over the coming months. With average wages surging by 7.2% in the 3-months to April, we saw yet another blow to the central bank's tattered credibility, prompting concern that the MPC might have a lot more to do on the rate front in the coming months.   The current terminal rate being priced by markets is for the UK base rate to top out at 5.75%, 125bps higher from where we are now, after the April wages and unemployment data. While that is probably overpriced, the fact we are at these levels is further evidence of the Bank of England's failure on the policy front. The day before this week's decision we will be getting the latest inflation numbers for May which are expected to show headline inflation decline further from the 8.7% we saw in the April numbers. While this was the lowest level since March last year, it remains painfully high when compared to the likes of the US and in Europe.   Core prices are also higher, as wages continue to exert upward pressure on service cost inflation. For months now Bank of England policymakers have consistently underestimated the persistence of current inflationary trends, consistently hiding behind the Russian invasion of Ukraine, even as commodity prices have fallen well below the levels they rose to in the aftermath of that invasion.   While they are not completely to blame, they have made any number of mistakes, which they seem incapable of acknowledging. Offering mea-culpas appears to be beyond them, with officials showing little indication that they would have done anything different. This is especially worrying given that an acceptance that they might have got things wrong might require some introspection with a view to making changes to ensure a better outcome the next time. If a central bank can't acknowledge its mistakes, how can it learn from them and do things better the next time. 
Pound Slides as Market Reacts Dovishly to Wage Developments

Mixed Markets as UK Gilt Yields Surge and China Cuts Lending Rates

Michael Hewson Michael Hewson 20.06.2023 07:44
With US markets closed, markets in Europe underwent a weak and subdued session at the start of the new week with yesterday's declines predominantly on the back of the late Friday sell-off in the US, which saw markets there close off their highs of the week. The lack of any further details on a China stimulus plan, along with additional upward pressure on interest rates over uncertainty about further rate rises, and a slowing global economy, saw European investors engage with some modest profit taking.     Asia markets were mixed this morning, even as the People's Bank of China cut its 1 and 5 year lending rates by a modest 10 bps.     The UK gilt market was the main source of movement in the bond market, with 2-year yields pushing up to their highest level in 15 years, while 5- and 10-year yields came close to the highs we saw at the end of September last year, after the Kwarteng budget.       There is growing anxiety about the effect the recent rise in UK gilt yields is already having on the mortgage market, a concern that was played out in the form of weakness in house building and real estate shares yesterday, as 2-year mortgage deals pushed above 6%.     It is also feeding into a wider concern that economic activity in the second half of the year will be constrained by increased mortgage costs, which in turn will push up rents as well as shrinking disposable income.     All eyes will be on tomorrow's inflation numbers with Bank of England policymakers praying that we start to see rapid slowdowns in how fast prices are rising before the end of the summer.     While prices have been slowing here in the UK they have been slowing more rapidly in the US as well as in Europe, although in Europe they also fell from much higher levels.     Today we get the latest Germany PPI numbers for May which have been slowing sharply from peaks of 45.8% back in August, and had come down to 17.6% by January this year. In today's numbers for May it is expected to see annualised price growth slow further to 1.7%, while seeing a -0.7% decline month on month.     Another monthly decline in today's numbers would be the 7th monthly decline in the last 8 months, in a sign that disinflation is working its way through the system, and could also manifest itself in this week's UK PPI numbers as well.     The puzzle is why it is taking so long to bleed into the headline CPI and core CPI numbers, though it could start to by the beginning of Q3. The Bank of England will certainly be praying it does. As we look towards today's European open its likely to be a modestly higher one.          EUR/USD – have slipped back from the 1.0970 area having broken above the 50-day SMA at 1.0880 which now acts as support. We still remain on course for a move towards the April highs at the 1.1095 area.     GBP/USD – slipped back from 1.2845/50 area with support now at 1.2750 which was the 61.8% retracement of the 1.4250/1.0344 down move. If we slip below 1.2750, we could see further weakness towards 1.2680. Still on course for a move towards the 1.3000 area.      EUR/GBP – remains under pressure and on course for further losses toward the 0.8470/80 area. Currently have resistance at 0.8580 area and behind that at 0.8620.     USD/JPY – still on course for a move towards the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30      FTSE100 is expected to open unchanged at 7,588     DAX is expected to open unchanged at 16,201     CAC40 is expected to open 7 points lower at 7,307
Market Highlights: US CPI, ECB Meeting, and Oil Prices

UK CPI Data Sets the Stage for Bank of England Rate Decision

Michael Hewson Michael Hewson 21.06.2023 08:32
UK CPI set to tee up tomorrow's Bank of England rate decision    We've seen a lacklustre start to the week for markets in Europe, as well as the US as disappointment over a weak China stimulus plan, gave investors the excuse to start taking some profits after the gains of recent weeks. Weakness in energy prices also reinforced doubts about the sustainability of the global economy as we head towards the second half of this year.   As we look towards today's European open the main focus is on the latest UK inflation numbers for May ahead of tomorrow's Bank of England rate decision.   Today's UK CPI numbers could make tomorrow's rate decision a much less complicated decision than it might be, especially if the numbers show a clear direction of travel when it comes to a slowing of price pressures. Nonetheless, whatever today's inflation numbers are, we still expect to see a 25bps rate hike tomorrow, however what we won't want to see is another upside surprise given recent volatility in short term gilt yields.   When the April inflation numbers were released, there was a widespread expectation that headline inflation would fall back sharply below 10% and to the lowest levels since March last year. That did indeed happen, although not by as much as markets had expected, falling to 8.7%.       It was also encouraging to see PPI input and output prices slow more than expected in April on an annual basis, to 3.9% and 5.4% respectively.   Unfortunately, this is where the good news ended as while we saw inflation fall back in April it wasn't as deep a fall as expected with many hoping that we'd see headline inflation slow to 8.2%. The month-on-month figure was much hotter than expected at 1.2% and core prices surged from 6.2% to 6.8%, and the highest level since 1990.   The areas where inflation is still looking hot is around grocery prices which saw an annual rise of 19.1%, only modestly lower than the 19.2% in March, while services inflation in hotels and restaurants slowed from 11.3% to 10.2%. Since then, food price inflation has slowed to levels of around 16.5%, still very high, while today's headline number is forecast to slow to 8.5%. More worryingly core prices aren't expected to change at all, remaining at 6.8%, however if we are to look for crumbs of comfort then we should be looking at PPI where in China and Germany we are in deflation.   Given that this tends to be more forward-looking we could find that by Q3 headline CPI could fall quite sharply. Both PPI input and output prices are expected to both decline on a month-on-month basis, while year on year input prices are expected to rise by 1.1%.   In the afternoon, market attention will shift to Washington DC and today's testimony by Fed chair Jerome Powell to US lawmakers in the wake of last week's decision to hold rates at their current levels, while issuing rather hawkish guidance that they expect to hike rates by another 50bps by year end.   This was a little surprising given that inflation appears to be a problem that could be subsiding. Powell is likely to also face further questions from his nemesis Democrat Senator Elizabeth Warren who is likely to further press the Federal Reserve Chairman on the costs that further rate hikes might have in terms of higher unemployment.   Her dislike for Powell is well documented calling him a "dangerous man", however despite these comments her fears of higher unemployment haven't materialised despite 500bps of rate hikes in the past 15 months.   We could also get further insights into last week's discussions with a raft of Fed speakers from the likes of Christopher Waller, Michelle Bowman, James Bullard and Loretta Mester this week.          EUR/USD – currently holding above the 50-day SMA at 1.0870/80 which should act as support. We still remain on course for a move towards the April highs at the 1.1095 area, while above 1.0850.     GBP/USD – slipped back from 1.2845/50 area sliding below 1.2750 with the next support at the 1.2680 area. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510.      EUR/GBP – found support at the 0.8515/20 area with resistance at the 0.8580 level. While below the 0.8620 area bias remains for a move toward the 0.8470/80 area.     USD/JPY – slipped back from just below the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30.      FTSE100 is expected to open 4 points higher at 7,573     DAX is expected to open 42 points higher at 16,153     CAC40 is expected to open 3 points higher at 7,297     By Michael Hewson (Chief Market Analyst at CMC Markets UK)
The cost of green steel production compared to conventional steel

Market Reaction and Potential Implications: Wagner Group's Rebellion, Inflation Reports, and Central Bank Policies

Ipek Ozkardeskaya Ipek Ozkardeskaya 26.06.2023 08:06
Slow start following an eventful weekend.    The weekend was eventful with the unexpected rebellion of the Wagner Group against the Kremlin. Yevgeny Prigozhin's men, who fight for Putin in the deadliest battles in Ukraine walked towards Moscow this weekend as Prigozhin accused the Kremlin of not providing enough arms to his troops. But suddenly, Prigozhin called off the attack following an agreement brokered by Belarus and agreed to go into exile. The Kremlin took back control of the situation, but we haven't seen Vladimit Putin, or Prigozhin talk since then. The Wagner incident may have exposed Putin's weakness, and was the most serious threat to his rule in two decades. It could be a turning point in the war in Ukraine. But nothing is more unsure. According to Volodymyr Zelensky, there are no indications that Wagner fighters are retreating from the battlefield.  The first reaction of the financial markets to Wagner's mini coup was relatively calm. Gold for example, which is a good indication of market stress at this kind of moment, remained flat, and even sold into the $1930 level. The dollar-swissy moved little near the 90 cents level. Crude oil was offered into the $70pb level, as nat gas futures jumped more than 2% at the weekly open, and specific stocks like United Co. Rusal International, a Russian aluminum producer that trades in Hong Kong, gapped lower at the open but recovered losses.  Equities in Asia were mostly under pressure from last week's selloff in the US, while US futures ticked higher and are slightly positive at the time of writing.    The Wagner incident will likely remain broadly ignored by investors, unless there are fresh developments that could change the course of the war in Ukraine. Until then, markets will be back to business as usual. There is nothing much on today's economic calendar, but the rest of the week will be busy with a series of inflation reports from Canada, Australia, Europe, the US, and Japan.     Except for Japan, where the Bank of Japan (BoJ) doesn't seem urged to hike the rates, higher-than-expected inflation figures could further fuel the hawkish central bank expectations and add to the weakening appetite in risk assets.     The Federal Reserve (Fed) will carry its annual bank stress test this week, to see how many more rate hikes the baking sector could take in and the potential for changes in capital requirements down the road. The big banks are likely not very vulnerable to higher capital requirements, yet the profitability of the US regional banks could be at jeopardy and that could cause investors to remain skeptical regarding the US banking stocks altogether. Invesco's KBW bank ETF slipped below its 50-DMA, following recovery in May on the back of decidedly aggressive Fed to continue hiking rates, and stricter requirements could further weigh on appetite.    Zooming out, the S&P500 is down by more than 2% since this month's peak, Nasdaq 100 lost more than 3% while Europe's Stoxx 600 dipped 3.70% between mid-June and now on the back of growing signs that the aggressive central bank rate hikes are finally slowing economic activity around the world. A series of PMI data released last Friday showed that activity in euro area's biggest economies fell to a 5-month low as manufacturing contracted faster and services grew slower than expected. The EURUSD tipped a toe below its 50-DMA last Friday but found buyers below this level. Weak data weakens the European Central Bank (ECB) expectations, but that could easily reverse with a strong inflation read given that the ECB is ready to induce more pain on the Eurozone economy to fight inflation.     Across the Channel, the picture isn't necessarily better. Both services and manufacturing came in softer than expected. And despite the positive surprise on the retail sales front, retail sales in Britain slumped more than 2% in May, due to the rising cost of living that led the Brits back from loosening their purse string. One thing though. UK's largest lenders agreed to give borrowers a 12-month grace period if they missed their mortgage payments as a result of whopping costs of keeping their mortgages due to the aggressively rising interest rates. Unless an accident – in real estate for example, the Bank of England (BoE) will continue hiking the rates and reach a peak rate of 6.25% by December.   The only way to slow down the pace of hikes is to find a solution to the sticky inflation problem. And because the BoE has limited influence on prices, Jeremy Hunt will meet industry regulatory this week to discuss how they could prevent companies from taking advantage of inflation and raising prices more than needed, which adds to inflationary pressures through what we call 'greeflation'. But until he finds a solution, the BoE has no choice but to keep hiking and the UK's 2-year gilt yield has further to run higher, whereas the widening gap between the 2 and 10-year yield hints at growing odds of recession in the UK, which should also prevent the pound from gaining strength on the back of hawkish BoE. Cable will more likely end up going back to 1.25, than extending gains to 1.30.       By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
Navigating the European Landscape: Assessing the Significance and Variations of Non-Bank Financial Institutions

Global Economic Outlook: US, Eurozone, UK, and Russia Face Economic Challenges

Ed Moya Ed Moya 26.06.2023 08:09
US While Europe appears at great risk for a recession as traders bet on aggressive rate rises by all the European central banks, the Fed is still expected to be nearing the end of their respective rate hiking campaign.  The focus in the US will fall on the PCE readings. If inflation comes down as expected, the swap futures might grow even more confident that the Fed will only deliver one more rate hike.  Wall Street will also pay close attention to the Conference Board’s consumer confidence reading, which is expected to show a modest rebound.  Friday’s Personal income and spending data will also be closely watched as incomes continue to grow, while spending softens. Fed’s Williams speaks at the Bank for International Settlements on Sunday.  Fed Chair Powell heads to Europe and speaks at the ECB’s global banking forum in Portugal.  The Fed will also release the results of their annual banking stress tests.   Eurozone There’ll be a lot of attention on ECB President Christine Lagarde’s appearances early in the week, particularly in light of what we’ve seen recently with central banks continuing to raise interest rates amid stubborn inflation. But it’s the flash HICP data on Friday that investors will be most interested in. The ECB recently warned that it will take a significant improvement in the data to avoid another rate hike next month and another repeat performance of the May report could be just that. Instead, we’re expected to see a small move in the other direction as base effects become less favourable for a couple of months, enabling the ECB to hike again in July before reassessing the situation in September. Inflation data from individual countries earlier in the week may offer some insight into what we can expect on Friday.   UK In light of the Bank of England decision to hike interest rates by 50 basis points last week, focus will be on what MPC members have to say. There’s been a lack of unity for months but that was increasingly evident at the June meeting. Going forward, the decisions aren’t going to get easier which means there’s likely to be less unity, rather than more. It won’t take many votes to pause the tightening cycle and so, despite the clear inflation problem, comments from MPC members will become increasingly scrutinized.   Russia A few data releases on the agenda next week including unemployment, retail sales, industrial output and monthly GDP.  
Stocks Rebound Amid Rising Volatility: Analysis and Outlook

Global Stocks Slide on Fears of Recession Triggered by Monetary Tightening

Ed Moya Ed Moya 26.06.2023 08:13
Stocks tumble on fears monetary tightening will trigger a recession Fed rate hike bets still only pricing in one last rate increase European bond yields plunge on downbeat global sentiment   US stocks are sliding as the global growth outlook continues to deteriorate following soft global PMI readings.  The risk of a sharper economic downturn is greater for Europe than it is for the US, so that could keep the dollar supported over the short-term.  This has been an ugly week for stocks and that is starting to unravel a lot of the mega-cap tech trades. The Nasdaq is getting pummeled as the AI trade is seeing significant profit taking.      Europe Brief: European stocks got rattled after France posted a surprise contraction with their Services PMI.  Almost all the European PMI readings disappointed and that is bursting the euro trade. Stubborn UK inflation is forcing the BOE to become a lot more aggressive with their rate hiking campaign, which will pile on significantly more pain on people with mortgages. UK Chancellor Hunt needed to do something for homeowners and this year-long break before repossessions is a step in the right direction. Over 2 million UK mortgage holders are going to see skyrocketing monthly mortgage bills and right now it seems it will steadily get worse.     Bostic The Fed’s Bostic delivered a dovish message today after favoring no more rate hikes for the rest of the year. Bostic is optimistic that the Fed will bring down inflation without tanking the job market.  Bostic is in the minority as other members will need to see a significant deterioration in the data.  Today, the service sector PMI declined not as much as expected and is still trading near pre-pandemic levels. The June preliminary Services PMI fell from 54.9 to 54.1, a tick higher that 54.0 consensus estimate. The economic resilience for the US will likely keep the majority of Fed officials with a hawkish stance.       
Market Focus: US Rate Hikes, Eurozone Inflation, and UK Monetary Policy Uncertainty

Market Focus: US Rate Hikes, Eurozone Inflation, and UK Monetary Policy Uncertainty

Kenny Fisher Kenny Fisher 27.06.2023 10:33
US While Europe appears at great risk for a recession as traders bet on aggressive rate rises by all the European central banks, the Fed is still expected to be nearing the end of their respective rate hiking campaign.  The focus in the US will fall on the PCE readings. If inflation comes down as expected, the swap futures might grow even more confident that the Fed will only deliver one more rate hike.  Wall Street will also pay close attention to the Conference Board’s consumer confidence reading, which is expected to show a modest rebound.  Friday’s Personal income and spending data will also be closely watched as incomes continue to grow, while spending softens. Fed’s Williams speaks at the Bank for International Settlements on Sunday.  Fed Chair Powell heads to Europe and speaks at the ECB’s global banking forum in Portugal.  The Fed will also release the results of their annual banking stress tests.   Eurozone There’ll be a lot of attention on ECB President Christine Lagarde’s appearances early in the week, particularly in light of what we’ve seen recently with central banks continuing to raise interest rates amid stubborn inflation. But it’s the flash HICP data on Friday that investors will be most interested in. The ECB recently warned that it will take a significant improvement in the data to avoid another rate hike next month and another repeat performance of the May report could be just that. Instead, we’re expected to see a small move in the other direction as base effects become less favourable for a couple of months, enabling the ECB to hike again in July before reassessing the situation in September. Inflation data from individual countries earlier in the week may offer some insight into what we can expect on Friday.   UK In light of the Bank of England decision to hike interest rates by 50 basis points last week, focus will be on what MPC members have to say. There’s been a lack of unity for months but that was increasingly evident at the June meeting. Going forward, the decisions aren’t going to get easier which means there’s likely to be less unity, rather than more. It won’t take many votes to pause the tightening cycle and so, despite the clear inflation problem, comments from MPC members will become increasingly scrutinized.
Navigating Quarter End: Europe Aims for a Higher Start as Markets Show Resilience amid Geopolitical Concerns

Navigating Quarter End: Europe Aims for a Higher Start as Markets Show Resilience amid Geopolitical Concerns

Michael Hewson Michael Hewson 27.06.2023 10:43
Higher start expected for Europe as we drift towards quarter end    Despite weekend events in Russia, European markets proved to themselves to be reasonably resilient yesterday, finishing the day mixed even as the DAX and FTSE100 sank to multi week lows before recovering.     US markets didn't fare much better with the Nasdaq 100 sliding sharply, while the Russell 2000 finished the day higher. While equity markets struggled to make gains there wasn't any sign of an obvious move into traditional haven assets which would indicate that investors had significant concerns about what might come next.     If anything, given how events have played out over the last few years, and the challenges that have faced global investors, the view appears to be let's worry about what comes next when and if it happens, rather than worrying about what might happen in what is becoming an increasingly fluid geopolitical situation.   Bond markets appeared sanguine, as did bullion markets with gold finishing modestly higher, while the US dollar finished the day slightly lower, ahead of the start of this week's ECB central bank forum in Sintra, Portugal which starts today.     Oil prices found themselves edging higher yesterday, largely due to uncertainty over the weekend events in Russia given its position as a key oil and gas producer.   The prospect that we might see supply disruptions if the geopolitical situation deteriorates further may have prompted some precautionary buying. While the crisis appears to have passed quickly the fact that it happened at all has been a bit of a wakeup call and raised some concerns about future long term political stability inside Russia.     One other reason for the so far muted reaction to recent events is that we are coming to the end of the month as well as the first half of the year, with investors indulging in portfolio tweaking rather than any significant shift in asset allocation.   With H2 fast approaching the key decisions are likely to involve determining how many more rate rise decisions are likely to come our way, and whether we can avoid the prospect of a recession in the US.   As far as the UK is concerned it's going to be difficult to see how we can avoid one, having just about avoided the prospect at the end of last year, while the EU is already in one. The US continues to stand out, although even here there is evidence that the economy is starting to slow.     On the data front there isn't much in the way of numbers before the back end of the week and various inflation numbers from Germany, France and the EU, as well as the US. Today we have the latest US durable goods numbers for May, as well as housing data for April and May, which are expected to show signs of softening, and consumer confidence numbers for June. Consumer confidence has been one area which has proved to be the most resilient edging up in May to 102.3. This is expected to continue in June to 103.90, in a trend that appears to be matching the resilience of the labour market.     EUR/USD – not much in the way of price movement yesterday, with resistance back at last week's high just above the 1.1000 level, with the main resistance at the April highs at 1.1095. This remains the next target while above the 50-day SMA at 1.0870/80 which is acting as support. Below 1.0850 signals a move towards 1.0780.     GBP/USD – quiet session yesterday but still holding above the lows of last week, and support at the 1.2680/90 area. Below 1.2670 could see a move towards the 50-day SMA. Still on course for a move towards the 1.3000 area but needs to clear 1.2850.      EUR/GBP – struggling for momentum currently having failed at the 0.8630/40 area last week. The main support is at last week's low at the 0.8515/20 area. A move through 0.8640 could see a move towards 0.8680. While below the 0.8630 area the bias remains for a return to the recent lows.     USD/JPY – while above the 142.50 area, the risk is for a move towards 145.00. This support area which was the 61.8% retracement of the 151.95/127.20 down move, needs to hold or risk a return to the 140.20/30 area. as it looks to close in on the 145.00 area. This now becomes support, with further support at 140.20/30.      FTSE100 is expected to open 22 points higher at 7,475     DAX is expected to open 30 points higher at 15,843     CAC40 is expected to open 20 points higher at 7,204
Rates Diverge: Flattening Yield Curves in US and Europe

Rates Diverge: Flattening Yield Curves in US and Europe

ING Economics ING Economics 28.06.2023 08:25
Rates Spark: Different causes, same effect The US and European economic trajectories are diverging. Yields have followed, albeit more modestly. In both cases the result is ever flatter curves, helped by seasonal factors.   Yield differentials widen, but all curves flatten It is hard to completely dismiss technical factors when finding an explanation for the continued flattening of yield curves heading into the summer market lull. Expectations of calmer market conditions in the summer don’t always come true but worse liquidity make investors wary of keeping positions that carry negatively, for fear of being unable to exit them should markets move against them. We think this is an important factor adding a tailwind to the curve flattening. We think steepeners have been a popular trade in recent months as investors foresee the end of central banks’ hiking cycles. The problem is, these are costly to hold. For instance, a euro swap 2s10s steepener costs over 6bp per quarter in carry. Its US dollar equivalent cost over 17bp.   Of course, it helps that curve flattening is the rational reaction to a world where the economic outlook is worsening, look for instance at Europe or at the disappointing recovery in China. Add to that central banks adding another layer of hawkish paint at the European Central Bank‘s (ECB) Sintra conference which continues today, and you have the perfect recipe for a flatter curve. This thesis get an important reality check over the coming days in the eurozone, in the form of the June inflation data. Italy is the only country to publish its own today, but markets may well be tempted to extrapolate its finding to other countries until they publish their own.   One country that seems impervious to the overall gloom is the US. Perhaps due to its lower reliance on global demand for growth, or perhaps due to the resilience of its domestic job market. The result is the same. Markets increasingly believe the Fed will hike at least once more in this cycle. If US curve developments are highly correlated to its foreign peers, albeit for slightly more upbeat reasons, its curve has shifted upwards relative to its European peers. Despite arguably encouraging progress relative to Europe on the inflation front, euro-dollar yield differentials have widened. This yield divergence coincides with the divergence in economic surprise indices, albeit to a less spectacular extent.   EU gloom and US glee both result in flatter curves, helped by carry   Today's events and market view Italy is the first Eurozone member state to release its June inflation today. It will be followed by Germany and Spain tomorrow, and France and the eurozone on Friday. ECB monthly monetary aggregate data, including M3 growth, and Italian industrial production complete the list. US data is relatively thin today, with only mortgage applications and inventories to look out for. This will leave plenty of time for investors to scrutinise central banker comments with an all-star line-up comprising Fed, ECB, Bank of Japan and Bank of England governors. TLTRO and eurozone financial system nerds will also look at the 3m LTRO allotment which settles tomorrow, a day after today's June TLTRO repayments. Yesterday, settling with the repayments, the central bank allotted €18bn at the weekly main refinancing operations facility, the most since 2017. Presumably, some lenders find its 4% interest rate the most attractive option, or maybe the only available, to finance the repayment of TLTRO funds. Italy accounts for today’s euro sovereign bond supply with 2Y debt, followed in the afternoon by the US Treasury selling 2Y FRN and 7Y T-notes.
Australia Retail Sales Rebound with 0.5% Gain; AUD/USD Sees Volatility - 28.08.2023

Bitcoin's Momentum and Potential for Surge Amidst Recent Developments. Market Watch: Fed, ECB, BoE, and BoJ Heads Awaited for Panel Discussion

Craig Erlam Craig Erlam 29.06.2023 08:34
Equity markets are cautiously higher in Europe while the US is poised to open relatively flat as we await appearances from the heads of the Fed, ECB, BoE and BoJ.   Fed Chair Jerome Powell, ECB President Christine Lagarde, BoE Governor Andrew Bailey, and BoJ Governor Kazuo Ueda are due to take part in a panel discussion at the ECB Forum on Central Banking around the opening bell in the US and their comments could set the tone for the rest of the day. Often in these situations, policymakers will stick to the script, preferring to leave big announcements for meetings and certain high-profile events. But with so many heads appearing at the same time, there’s every chance at least one says something that will either rattle or stimulate the markets. To make this event more intriguing, they’re all contending with very similar issues and yet their individual situations are quite different, which could make the discussion all the more interesting. The Fed is arguably closest to the end of its tightening cycle and will probably be the first to cut rates, the ECB appears to be making some progress but is also more pessimistic than many on how much more is needed, the BoE is in a mess, frankly, and the BoJ may simply watch as the whole thing passes it by.   It really is quite fascinating and it will be interesting to hear what each has to say about the current environment. Especially with the Fed and ECB until now adopting a more hawkish stance than most, the BoE coming across less hawkish but recently being forced to pivot back to larger hikes, and the BoJ pushing back against any hawkish expectation in the markets.   Is bitcoin going to take off from here? Bitcoin has steadied between $30,000 and $31,000 in recent days after surging on the back of encouraging ETF filings. The SEC lawsuits against Binance and Coinbase have not been forgotten but they’ve certainly drifted into the background and been overtaken by far more promising news flow. It would appear the cryptocurrency has good momentum once more and the community may well be wondering if this could be the kind of development that sees enthusiasm for cryptos surge again. It’s obviously been a fantastic year for bitcoin so far but the sell-off since mid-April was another reminder that it doesn’t come without major setbacks.  
Navigating the European Landscape: Assessing the Significance and Variations of Non-Bank Financial Institutions

Navigating the European Landscape: Assessing the Significance and Variations of Non-Bank Financial Institutions

ING Economics ING Economics 29.06.2023 13:38
Relative to the banking sector, NBFIs remain less important: The European Central Bank noted that the sector had reached about 80% of the size of the banking sector in the eurozone in 2022. This is significant but remains much smaller when considering the size of the sector globally.   In both geographies, the sector has developed significantly after taking a hit during the global financial crisis, benefiting from the stricter regulations on banks and the search for higher returns. In its 2023 financial stability report, the IMF highlighted that the previous low interest rate environment had prompted NBFIs to shift their investments to riskier assets in the hope of finding higher returns. But with rising yields and a worsening outlook for credit risk, NBFIs have started to sell their riskier assets. With this development comes recent concerns over increasing NBFI vulnerabilities.   The share of both banks and non-banks in relation to total domestic financial assets differs significantly between countries.   Luxemburg, Ireland and the Netherlands have very important NBFI sectors, the first two because they host many investment funds as the latter has a large pension fund sector. On the other hand, in France and Spain, total domestic financial assets remain mostly dominated by traditional banks. Variations in the NBFI sector size and type between Europe and the rest of the world, and also between European countries, indicate that Europe not equally exposed to the NBFI sector’s vulnerabilities.   NBFI share of total domestic financial assets varies significantly between countries In Europe, the share of NBFIs of total domestic financial assets is the highest in Luxemburg      
US Inflation Rises but Core Inflation Falls to Two-Year Low, All Eyes on ECB Rate Decision on Thursday

European Markets Await RBA Decision as US Observes Independence Day

Michael Hewson Michael Hewson 04.07.2023 08:55
Europe set for flat open, as RBA stays on hold         Yesterday saw a snoozy start to July for European markets with an initially positive open giving way to a mixed session, with US markets only opening for a short time ahead of the US Independence Day holiday today.     US markets finished their shortened trading session making some modest gains, but interest was relatively low-key with the latest ISM manufacturing numbers for June pointing to continued weakness in that part of the US economy.     On a more positive note, if you can call it that, the weak prices paid component of the data showed that inflationary pressure has continued to ease and as such might offer the hope that a July rate hike from the Fed could well be the last one before a lengthy pause.     European manufacturing PMIs also exhibited similar weakness in their respective components, with varying degrees of contraction, however there was a common theme running through them, which was declining output, as well as falls in new orders.     In the UK numbers we also saw reports of falling input costs due to lower fuel costs, commodity price decreases, and improvements in supply chains. Average output prices also fell for the first time since April 2016. These trends would appear to suggest that for all the hawkish narrative coming from central bankers that a wave of disinflation is working its way through the global economy, and that if they aren't careful, they could end up over tightening at a time when inflation is already on a downward path.     That said, central banks biggest problem is that they are so wedded to their 2% inflation target that rather than accepting the fact it may take years to fall back to that level, they risk breaking something in order to get it back there quicker.     Earlier this morning the Reserve Bank of Australia took the decision to follow up its surprise 25bps rate hike of last month, by deciding to keep rates on hold, albeit with the same hawkish bias as last month. The central bank statement went on to say that inflation was still too high and that more tightening may well be required.     With meetings occurring on a monthly basis the bank appears to have decided to wait and see the effects recent rate hikes have had on the wider economy, as well as waiting to see what other central banks do later this month, even though we pretty much know that further rate hikes are coming from the likes of the Federal Reserve and ECB.     With the labour market looking strong, services inflation still looking sticky it remains unlikely that we've seen the terminal rate yet for the Australian dollar, with markets pricing at least another 38bps of hikes by year end, although this number could come down.     Today's European session looks set to be a quiet one with the US off for the 4th July holiday, and little in the way of economic data ahead of tomorrow's services PMI numbers for June which are likely to make for better reading from an economic resilience point of view.           EUR/USD – continues to find support in and around the 1.0830/40 area and 50-day SMA, with resistance remaining at the 1.1000 area. A break below the lows last week opens the way for a potential move towards 1.0780.     GBP/USD – while above the 50-day SMA at 1.2540, as well as trend line support from the March lows, bias remains higher for a move back to the 1.3000 area. Currently have resistance at 1.2770.       EUR/GBP – finding support between 0.8570/80 area, with resistance at the 50-day SMA which is now at 0.8663. Behind that we have 0.8720. Below 0.8560 targets 0.8520.     USD/JPY – slipped back to the 144.00 area yesterday before rebounding but has so far held below 145.00. The key reversal day remains intact while below 145.20.  A break below 143.80 targets a move back to the 142.50 area. Above 145.20 opens up 147.50.      FTSE100 is expected to open unchanged at 7,527     DAX is expected to open 19 points higher at 16,100     CAC40 is expected to open unchanged at 7,386     By Michael Hewson (Chief Market Analyst at CMC Markets UK)
Long-Term Rates Diverge Amid Policy Divergence and Economic Signals

Long-Term Rates Diverge Amid Policy Divergence and Economic Signals

ING Economics ING Economics 05.07.2023 08:54
Rates Spark: Long end rates are also diverging Like other central banks, the Fed should reinforce its higher for longer message in today’s minutes. We’re not sure longer-dated rates should care, but even 5Y5Y rates trade like policy divergence is here to stay.   All eyes on Europe's service sector The heavy focus currently placed on service inflation from both markets and central banks means today’s PMI services should prove an interesting addition to the economic debate. The only problem is, the reports are second releases and so it is doubtful whether they will provide a lot of new information. Still, the fear of slower but more deeply entrenched price rises in that sector makes qualitative indicators all the more useful. The value of their employment component also stems from the lack of timely labour market indicators, especially with the European Central Bank (ECB) intent on making policy decisions on backward-looking indicators such as wages. Despite relative resilience in Europe’s service sector – which is perhaps still riding the post-Covid wave of optimism – the deterioration of the outlook in other sectors has driven the outperformance of euro-denominated government bonds relative to their dollar-denominated peers. At the long-end, the euro outperformance has in part reverted a hard to justify convergence of forward rates; for instance, the 5Y swap rate in five years’ time (5Y5Y). This is not the most spectacular case of rates divergence within the developed market interest rates complex, however. Torn between contradictory signals of economic slowdown but sticky inflation, sterling rates have risen well past the value of their US dollar equivalents. Despite the significant flattening of the UK curve over the past month, sterling rates are the only ones displaying a clear upward momentum. The fact is that this cycle’s inflation fight will require a more aggressive tightening campaign on the Bank of England’s part, and will probably be more protracted. This doesn’t mean indicators of long-term rates (such as 5Y5Y swaps) should meaningfully rise above that of the US, however.   Divergence in long-term forwards reflects near-term developments
EUR Under Pressure as July PMIs Signal Economic Contraction

Unlikely Vote of Confidence: Examining Curve Inversion and Central Banks' Stewardship Amidst Resilient Economies

ING Economics ING Economics 11.07.2023 08:39
An unlikely vote of confidence on the economy and central banks' stewardship Curve inversion is a very natural phenomenon when the front end rises. It reflects the fact that the market collectively forecasts rates to subsequently fall back towards their long-term average. There are a lot of assumptions in this reasoning. One is what is the correct long-term level for rates, another one is how long it takes for them to drop back to, or below, this level. For the curve to steepen near the peak of a hiking cycle, which we think will be reached in July and September for the US and eurozone respectively, markets need to assume that no cut will follow, or indeed that there could be more hikes down the line. This, in other words, is a massive vote of confidence in both the economy’s strength, and on central banks’ ability to find exactly the right level of rates that slows inflation but not the economy, assuming such a thing exists.   The recent resilience of the US economy makes this narrative slightly less unlikely than thought earlier this year, but it remains a stretch. More likely, by pushing the expected start date of the Fed’s cutting cycle further out in time, it makes bets on falling long-end rates less attractive for investors with a shorter investing horizon, especially into this week’s long-end US Treasury auctions. Today’s Zew survey should, if consensus is any guide, confirm that no such optimism exists in Europe. To us, the risk of a protracted fight against inflation is real, but we doubt this is what has steepened yield curves since the start of the month. More likely, lower rates bets are losing in popularity and the very inverted yield curve levels a week ago made a snap back more likely. We reserve our judgement on a more macro-related bear-steepening, but we’re sceptical that the necessary optimism exists.     Today's events and market view The main economic releases of note this morning are Italy’s industrial production and Germany’s Zew sentiment survey. Regarding the latter, both the current conditions and expectations components are forecast to decline, in line with the general gloom in the eurozone, if Bloomberg consensus is any guide. The National Federation of Independent Business small business optimism in the US completes the list. There will be plenty of 7Y core bonds on offer, with the Netherlands and Germany both issuing today. Greece has also mandated banks for the launch of a 15Y benchmark via syndication. This will coincide with a tender offer for 2Y and 3Y bonds. In the US, the treasury will begin this week’s supply slate with a 3Y T-note auction.
Sygnity Stock Faces Headwinds Despite New Government Contracts

Photovoltaic Market: Growth and Potential in Poland and Worldwide

GPW’s Analytical Coverage Support Programme 3.0 GPW’s Analytical Coverage Support Programme 3.0 19.07.2023 08:40
Photovoltaic market in Poland and around world According to the Institute of Renewable Energy, Poland had a cumulative PV capacity of more than 13 GW at the end of 1Q23, ranking sixth in the EU in terms of installed capacity. According to the Energy Regulatory Office, the cumulative installed PV capacity in 2022 has grown by more than 4.7 GW (practically the highest growth in the EU). As of the end of 1Q23, the share of prosumers in PV power generation was 74%, the share of small installations (50-1000 kW) was 21%, and large PV farms was 5%. The share of PV energy in RES electricity increased from 3% in 2019 to more than 23.3% in 2023. According to the Institute of Renewable Energy, in 2022 the world's PV capacity exceeded 1,000 GW, in the EU it reached 200 GW.     The current Institute of Renewable Energy forecast indicates that installed capacity in Poland will double in just three consecutive years. By the end of 2025, there will already be 26.8 GW of PV installations in the power system, which means that Poland will enter the top three EU countries in terms of total installed capacity.   It will become the fourth biggest producer of electricity from the sun in Europe. Wacker Chemie, one of the largest producers of polysilicon, used in panel production, projects a 50-60GW (25-30% y/y) increase in PV farm capacity in Europe in 2023. Globally, growth will be in the range of 300- 350GW (30-35% y/y). China will see the largest increase for another year        
Rising Star: Investing in Turkey

Rising Star: Investing in Turkey

FXMAG Team FXMAG Team 24.07.2023 07:58
Globally, the real estate market is undergoing a profound transformation. Investors are flocking to a country that straddles two continents, drawing interest from both Europe and Asia. That country is Turkey, which has quickly become a global powerhouse in the construction sector. Turkey provides a richness that very few other countries can equal, from the historic grandeur of Istanbul to the magnificent Mediterranean beauty of Antalya.   Globally, the real estate market is undergoing a profound transformation. Investors are flocking to a country that straddles two continents, drawing interest from both Europe and Asia. That country is Turkey, which has quickly become a global powerhouse in the construction sector. Turkey provides a richness that very few other countries can equal, from the historic grandeur of Istanbul to the magnificent Mediterranean beauty of Antalya. Turkey's development benefits greatly from the dynamic interplay between its ancient and modern aspects. There are both old and new high-end homes in the area. Property for sale in Turkey reveals the country's unique blend of ancient and contemporary cultures. Luxurious beachfront mansions sit alongside hip urban apartments, demonstrating the breadth of the country's real estate market and its ability to meet the needs of investors. Property Turkey also provides enticing financial advantages. The Turkish government has made a number of moves to lure international investors. Attractive tax breaks and a path to citizenship are offered to entice foreign investors to put money into the country. Turkey's welcoming investment climate sets it apart from many other countries, making it more appealing to investors. Åžerif Nadi Varlı's Vartur Real Estate has been instrumental in promoting Turkey's real estate opportunities abroad. The company provides a full suite of services to help foreign investors navigate the complex Turkish real estate market. Comparatively, property prices in Turkey are much more affordable than they are in Western Europe or North America. Combined with the prospect of high rental returns and a rise in value, investing in Turkey is a tempting option. For example, the country's main metropolis, Istanbul (a desirable place to own property because of its flourishing economy, diverse culture, and long history), is a prime location for investors. Meanwhile, seaside areas like Antalya and Bodrum are trendy, particularly for second homes and retirement communities, thanks to their laid-back lifestyle and stunning natural beauty. Property for sale in Turkey is an enticing prospect, but savvy investors would not be foolish to overlook the country's warm Mediterranean climate, friendly locals, and fascinating history and culture. As a result of its rare combination of cultural wealth, state-of-the-art infrastructure, business-friendly environment, and abundance of available properties, Turkey is quickly becoming a global real estate powerhouse. The Turkish market is appealing to both seasoned investors and those thinking about investing in real estate for the first time. By working with experts like those at Vartur Real Estate, you can make smart investments in Turkish real estate that could bring about significant financial gains and an entirely new and exciting way of life. For many reasons, Turkey's real estate market is a shining example of success. The country's remarkable development in infrastructure stands out as one of its most distinctive features. The Turkish government has repeatedly shown its dedication to encouraging progress in vital areas like transportation, healthcare, and social infrastructure. By strategically investing in these areas, Turkey has strengthened its appeal and become an increasingly enticing destination for domestic and international investors. Improvements to the quality of life and property values brought forth by these projects are mutually beneficial. Turkey's strategic location is an additional positive factor. Because of its attractive location and special flavor that combines Eastern mysticism and Western modernity, property in Turkey is experiencing a surge in popularity. From an economic standpoint, Turkey is an exciting emerging market with robust domestic demand and a rapidly expanding middle class. Home prices have followed the general inflation trend by rising steadily over the past decade, reflecting the real estate market's response to the improving economy. Vartur Real Estate, led by the visionary Varlı family, has consistently shown the way in highlighting these exceptional benefits to investors worldwide. The skilled personnel at Vartur can help investors with everything from finding the right property to managing the necessary legal processes. Turkey is truly a rising star in the global real estate market, thanks to its exceptional blend of cultural opulence, cutting-edge infrastructure, and alluring property choices. Discover the enticing world of property investment with Vartur Real Estate, your trusted partner in navigating the thriving Turkish real estate market. Whether you're just starting out or a seasoned investor, our expert guide will ease the way for your successful venture into this lucrative industry. Take the leap and explore the endless possibilities that await you in the Turkish real estate market. With its many benefits, purchasing property in Turkey isn't the only thing you're getting; you're also getting a piece of a dynamic, developing globe that's brimming with opportunity. //
EUR Under Pressure as July PMIs Signal Economic Contraction

Fed Meeting and Microsoft Earnings: Economic Concerns and Market Expectations

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.07.2023 08:23
Fed meeting, Microsoft earnings  There was nothing in the list of flash PMI data released yesterday morning to make investors think that economic activity in Europe is doing fine. All numbers were in the red, they all missed expectations. German and French manufacturing plunged further in the contraction zone and German manufacturing PMI even plunged below 39, a number we have not seen since summer 2020, which was the heart of the pandemic. The war, the energy prices, and/or the European Central Bank (ECB) tightening are taking a toll on the German manufacturing. And even the German car sector is struggling. Tesla for example sold more cars in H1 than Volkswagen, BMW, Mercedes and Porsche combined. Cherry on top of the bad news, the Spanish PPI showed an 8% contraction versus -10% penciled in by analysts. The EURUSD plunged below the 1.11, the trend and momentum indicators turned negative hinting that the selloff in the runoff to Thursday's ECB meeting could extend toward the 1.10 mark, as the soft economic data brought forward the expectation that the ECB is certainly approaching the end the most aggressive tightening cycle of its relatively short history. But the softer-than-expected fall in Spanish PPI still keeps some hawks defending the idea that the ECB won't stop fighting inflation if inflation doesn't cool enough.     Don't look now, but across the Channel, the PMI numbers didn't look better. The UK manufacturing PMI fell to 45, while the composite PMI avoided the contraction territory by just a few points. Cable sold off to the lowest level in two weeks and is now testing the May to now ascending channel's base, as traders put more weight on the damage that the rising Bank of England (BoE) rates will do to the British economy, than on the good they might do to sterling holders.   Across the Atlantic Ocean, the picture was a little but more mixed. US manufacturing remained in the contraction zone but contracted much slower than expected by analysts, but services and overall activity grew more slowly than expected, still. The US dollar index gained for the 5th consecutive session and is consolidating above the 101 level at the time of writing, as investors continue positioning for the Fed meeting that starts today.   The Fed starts its two-day policy meeting in just a couple of hours from now, and will highly likely announce a 25bp hike on Wednesday. But what Fed officials will also do is to remind investors that the tightening cycle is probably not over and that there will probably be another rate hike on the US' horizon. So yes, there is a great chance that the Fed will spoil your mood if you are among those thinking that this week's rate hike will be the last for this tightening cycle in the US.     Markets  US stocks traded higher yesterday with the S&P500 adding 0.40% and Nasdaq 0.14% after its special rebalancing. The US 2-year yield advanced past 4.90% and fell this morning. While the VIX index shows no sign of a particular stress from equity traders, BoFA's MOVE index is close to 110 level, versus around the 60 level prior to the Q3 of 2021: bond traders remain very much uncertain about the number of additional rate hikes that the Fed could deliver. And there is no line in the sand, the Fed will continue hiking if the US jobs market, consumption and housing market remain resilient to interest rate hikes.    Microsoft earnings  Today, Microsoft is due to announce its Q2 earnings after the bell. Focus is on whether, and by how much Microsoft benefited from the AI craze and how much AI boosted growth for Azure – which was under pressure since a couple of quarters due to macro factors. On Friday, a Goldman Sachs analyst reiterated his buy rating for MSFT and revised his price target from $350 to $400 a share. But because  there is too much optimism in the market, it may be gently time to take profit, wait for the next bullish wave and rotate toward where the next action is expected to happen.  The Magnificent Seven thrived so far this year and the un-magnificent 493 other stocks remained mostly on the sidelines. What we see these days is that the un-magnificent other stocks are also catching up with the rally. Today, 70% of the S&P500 stocks trade above their 200-DMA. Morgan Stanley's Mike Wilson said that 'they were wrong' regarding their bearish stock market expectation this year, while JP Morgan's Kolanovic insists that a selloff is coming. And one day, he will be right!    By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank 
Riksbank's Role in Shaping the Swedish Krona's Future Amid Economic Challenges

Rates Spark: Fed Set to Keep Pressure on Amid Consumers' Confidence and Upward Yield Trend

ING Economics ING Economics 26.07.2023 08:30
Rates Spark: The Fed set to keep the pressure on A key driver of market rates of late has not been the projection for the July FOMC meeting, but rather the projection for where the Fed gets to at the end of the rate cutting cycle to come. The market has been busy pricing out future rate cuts as a reflection of residual macro robustness. That's helping to elevate long dated rates, and we expect that to continue.   Consumers show confidence and yields head higher In the US, a lot of the macro oomph that was seen through much of the June data is continuing to show up in the July readings. A case in point was yesterday's consumer confidence number. It had been slipping through to May, and looked at that point that it could easily lurch lower. But from around 102 (vs a reference of 100), it popped up to 110 for June, and then to 117 for July. That's now running at 17% above average, which is remarkable for an economy that is being (apparently) battered by higher interest rates, high inflation and a weak international backdrop.   These types of data keep the pressure on the Federal Reserve to maintain a hawkish tilt to policy. Yes, the manufacturing PMI and other survey evidence points to a recessionary tendency in the US ahead. But at the same time such warning flags have been flying for over a year now, and here we are with the consumer seemingly getting more optimistic. We doubt very much that this lasts, as the headwinds of tighter financial conditions should ultimately bite harder than currently being seen. Similarly, the tightening in financial conditions seen in Europe is having a significant dampening effect on the takedown of credit, as the latest ECB survey shows.   That said, we continue to identify net upward pressure on market rates in the immediate few weeks ahead. We note that the Jan 2025 fed funds implied rate is only just under 4%. This was closer to 3% when Silicon Valley Bank went down. That paved a route, at the time, for the 10yr Treasury yield to trend in the same direction – towards 3%. But not, that route is being obstructed by a markedly lower rate cut discount for the Federal Reserve through 2024 and into 2025. For that reason, and despite the macro headwinds ahead, we continue to remain positive for the US 10yr Treasury yield to head back up to a 4% handle.   Auctions have been heavy as interest has been drying up in Treasuries Yesterday's 5yr auction in the US tailed, meaning that the yield at auction was higher than the market yield at the point of issue. And this was at a point where market yields were on the rise. Typically tailed auctions happen when yields are falling, or when there is underwhelming demand. The latter was applicable to yesterday's auction. The bond was well covered and had a reasonable indirect bid (often representing players like central banks). But it just was not that firm in terms of overall tone. The 2yr auction on the previous day was also well covered, but it took the highest yield since 2007 at auction to get the paper away. Flows in previous week had been high on long duration and quite impressive. But flows in the past week or two have been less impressive. If this continues, market yields will likely continue their drift higher. We have a 7yr auction today. The good thing is its not in as rich a spot of the curve as the 5yr is. But it's still below the 2yr yield, and requires a bit of an appetite for duration.   Today's events and market views The big event today is the Federal Open Market Committee outcome, from which a 25bp hike looks to be virtually guaranteed (as a zero or 50bp hike is quite unlikely). A 25bp hike is 97% priced in, so that is what the Federal Reserve is likely to deliver. The question is what Chair Powell will say, and ahead of that, the tone from the FOMC statement. In all probability that tone and Chair Powell's phraseology will be hawkish. He has little to gain from showing even a smidgen of reduced hawkishness. The Fed will feel they need to keep the pressure on, and especially during a period that has been as risk-on as we've seen of late. In the eurozone we have to wait till Thursday for the European Central Bank decision (should be a 25bp hike), while no change is expected from the Bank of Japan at this juncture. More on that tomorrow.
Securing Battery Metal Supply Chains: Challenges and Opportunities Amid the Global Energy Transition

Securing Battery Metal Supply Chains: Challenges and Opportunities Amid the Global Energy Transition

ING Economics ING Economics 26.07.2023 14:28
Countries and companies are increasingly wary of possible shortages of raw materials going forward and seek to secure supply. Battery metal demand is also evolving as demand shifts between chemistries. Current interdependence is significant and actors seek to reduce supply risk in light of the energy transition.   China dominates downstream EV battery supply chains China has massively pushed electric vehicle (EV) sales in recent years which has helped to further develop the battery supply chain. China’s dominant role in battery metals supply chains, as well as export restrictions in other countries, risk slowing down the pace of EV adoption. EV supply chains are expanding, but for manufacturing, China remains the key player in the battery and EV component trade. In 2022, 35% of exported electric cars came from China, compared with 25% in 2021, according to the International Energy Agency (IEA). The rapid increase in EV sales during the Covid-19 pandemic and increased geopolitical tensions have exacerbated concerns about China’s dominance of lithium battery supply chains. The risks associated with the concentration of production are in many cases heightened by low substitution and low recycling rates. For example, in EV batteries, there is no substitute for lithium. More than 80% of the world’s lithium is mined in Australia, Chile and China, the latter of which also controls more than half of the world’s processing and refining. Chinese companies (including BYD and CATL) have also made significant investments in projects overseas; in Australia, Chile, the Democratic Republic of the Congo (DRC) and Indonesia. In Chile, the second-biggest lithium producer after Australia, only two companies produce lithium – US-based Albermarle Corp. and local firm SQM, in which China’s Tianqi Lithium Corp. has more than 20% stake. They mainly make lithium carbonate – 90% of which goes to Asia. China dominates many elements of the downstream EV battery supply chain, from material processing to the construction of cell and battery components. China only accounted for about 15% of global lithium raw material in 2022 but around 60% of the battery metal is refined there into specialist battery chemicals. China also produces three-quarters of all lithium-ion batteries. This is a result of Beijing’s early push towards electrification, particularly through subsidising EVs. Meanwhile, Europe is responsible for more than one-quarter of global EV assembly, but it is home to very little of the supply chain apart from cobalt processing at 20%. Like the US, Europe is currently pushing hard to develop its battery supply chain, but this takes time and sourcing dependencies remain. China is the least expensive place to process lithium because of lower construction costs and an already large, processed chemistry engineering base. In 2022, 35% of exported EVs came from China, compared with 25% in 2021, according to the IEA.   Battery cell manufacturing is concentrated in China (2022)   Rising trend of vertical integration of EV and battery production With uncertainties from metal supply chains, some automakers – which have set EV sales targets – have been looking into expanding their businesses into mining in the hope of securing a long-term supply of raw materials. In January, General Motors (GM) announced that it had formed a joint venture with mining company Lithium Americas, which would give GM exclusive access to lithium from a mining site in Nevada, US. Ford, through its joint venture with battery company SK Innovations, will receive a $9.2bn loan from the US Department of Energy (DoE), the largest single loan in the DoE Loan Programs Office history, to develop battery plants in Tennessee and Kentucky. Stellantis has entered separate joint ventures with Samsung SDI and LG Energy Solution to build battery plants in the US and Canada, respectively. Other firms such as Tesla, BMW, VW, Hyundai, and Honda are similarly investing in building battery manufacturing capacity. In the coming few years, we are going to see more partnerships – not just trade partnerships, but strategic partnerships – made along the EV battery supply chain. The future of the EV industry is vertical, ‘mine-to-wheel’ collaboration. This means that early efforts of long-term planning and relationship building will become increasingly important.   Energy transition at risk as resource nationalism gains momentum The energy transition has become a pillar of policy for many governments while global trade and political tensions have prompted a reconsideration of global supply lines. The global incidence of export restrictions on critical raw materials has increased more than five-fold in the last decade. In recent years, about 10% of the global value of exports of critical raw materials faced at least one export restriction measure, according to a report by the Organisation for Economic Cooperation and Development (OECD). The rise in resource nationalism could slow down the pace and increase the cost of the energy transition, impacting the scale of investments, supply and prices. Export restrictions on ores and minerals, the raw materials located upstream in critical raw material supply chains, have grown faster than restrictions in the other segments of the critical raw materials supply chain, correlating with the increasing levels of production, import and export, as well as the concentration in a small number of countries, the OECD report found.
Upcoming Corporate Earnings Reports: Ashtead, GameStop, and DocuSign - September 5-7, 2023

FX Daily: Carry Trade Remains Popular Amidst Global Monetary Policy Changes

ING Economics ING Economics 31.07.2023 15:51
FX Daily: Carry trade en vogue despite monetary hikes, pauses and cuts Monetary policy tightening cycles are close to their peak in the G10 space, although this week should see a 25bp hike in the UK and possibly Australia too. Policy changes are more advanced in parts of the EM world, where Chile cut rates 100bp on Friday and Brazil should start easing this week too. However, low volatility looks set to remain a key driver of FX.   USD: Overnight rates at 5.30% make the dollar an expensive sell The dollar is proving quite resilient. Overnight USD rates at 5.30% are probably playing a role here. Also, evidence of a 'Goldilocks' scenario in the US is helping too, where there are further signs of disinflation even though US consumption is holding up quite well. This compares to Europe and China where business surveys remain soft and the concern is that stagnation deteriorates into contraction. Testing the US soft-landing thesis this week will be the release of ISM surveys and Friday's nonfarm jobs report. Later today we will also see the Federal Reserve's Senior Loan Officer Survey, where we'll receive insights on lending volumes and how much credit conditions have tightened. Recall that the equivalent survey from the European Central Bank last week undermined the euro. Some last vestiges of tightening cycles in G10 economies can be offset against developments in emerging markets. Here, Latin America saw some of the earliest and most aggressive tightening cycles during the pandemic and, on Friday, Chile kicked off easing cycles with a 100bp rate cut. Money markets seem to imply expectations of a 700bp rate cut over the next 12 months. And Brazil is expected to start easing on Wednesday with a 25bp cut. In theory, this should be good for emerging market growth prospects (and EM portfolio flows) and a slight dollar negative. The risk, however, is that rates are cut too far too fast - let's see. Also, look out today at 0900CET for any new measures from China's State Council to boost consumption (and EM growth prospects). Despite this diverging global growth and monetary policy story, cross-market volatility remains low - perhaps as investors are now expecting prolonged pauses in core interest rate markets. This remains a negative for the Japanese yen and a positive for the high yielders including the Mexican peso and the Hungarian forint. The dollar is probably trapped somewhere in the middle here and unless we see some sharp deterioration in US activity that would favour the Fed not just pausing, but easing - the dollar can probably trade out ranges over coming weeks. DXY to trade 101.00-102.00 near term.
Turbulent FX Markets: Peso Strength, Renminbi Weakness, and Dollar's Delicate Balance

Polish Manufacturing PMI Declines in July Amid Falling New Orders

ING Economics ING Economics 01.08.2023 13:16
Polish PMI dips in July on falling new orders Poland's manufacturing PMI fell to 43.5pts in July, down from 45.1pts in June, the lowest level since mid-2022, when the domestic economy struggled with the effects of rising energy prices, among other factors. The assessment of current production, orders, employment and purchases all worsened in July from the previous month.   The most significant thing to note from this data release is the deteriorating assessment of the acquisition of new orders (the worst ratings in eight months), especially for exports (the weakest performance since May 2020). This was followed by a decline in current production, the fastest since November 2022 and the fifteenth consecutive month of decline. We are most likely seeing the effects of economic weakness in the eurozone, especially in Germany (the industrial PMI there is below 40pts). Around 50% of Polish industry products go to foreign markets, and Germany is Poland's main trading partner. Planned employment decreased for the fourteenth month in a row. This can be seen in the CSO's employment data, where manufacturing accounts for much of the decline. In June, for example, the business sector lost about 5,000 full-time jobs, of which 3,000 were in manufacturing. Companies also reduced purchasing activity and sought to reduce inventories. In our view, this will translate into relatively weak imports. In addition to energy commodity prices, this should sustain Poland's trade surplus despite the weak export outlook.   Manufacturing PMI in Poland and Germany External demand affects the Polish industry   The bright spot is rapidly decreasing price pressure. The lack of demand has again pushed prices down. Input costs have fallen at the strongest rate since the survey began more than 25 years ago. This was helped by declines in raw material prices and/or the strengthening of the zloty. Selling prices also fell at the fastest pace ever. More than 27% of respondents reduced their prices during the month. While there are signs of stabilisation in domestic industrial production data, recent PMI reports suggest a cautious approach to expectations of a marked improvement in the sector's condition in the second half of the year. Manufacturing is seeing a marginal rebound in the US, Asia, and sluggishly in China, but not in Europe. We think the PMIs for Poland (and elsewhere) are much more pessimistic than real trends in activity (see graph), but other anecdotal evidence we collect has not provided positive signals so far.
Escalating Russia-Ukraine Tensions Amplify Oil Supply Risks: The Commodities Feed

Escalating Russia-Ukraine Tensions Amplify Oil Supply Risks: The Commodities Feed

ING Economics ING Economics 07.08.2023 14:01
The Commodities Feed: Russia-Ukraine tensions add to oil supply risks The Ukrainian drone attacks on Russian oil tankers in the Black Sea region have added to supply risks for the crude oil market. Meanwhile, the Joint Ministerial Monitoring Committee (JMMC) meeting of OPEC+ countries ended without any recommendation to change oil output levels for now.   Energy – Ukrainian drone attacks on Russian oil tankers ICE Brent settled above US$86/bbl on Friday as tensions in the Black Sea region increased further after Ukraine declared Russian ports in the Black Sea as ‘war risk’ areas and cautioned ships against using them. Ukrainian drones also attacked a Russian oil tanker over the weekend reflecting heightened tension within the region. The Black Sea route accounts for nearly 15-20% of the oil that Russia sells daily on global markets and is also a major transit corridor for Kazakh crude. In the recent JMMC meeting, the OPEC+ group noted its satisfaction regarding the compliance with the output levels by member countries and made no recommendation for any change in production strategy at this stage. The committee recognised the additional voluntary cuts from Saudi Arabia and Russia to balance the oil market. The group has changed the frequency of meetings from once a month to once every two months, with the next meeting scheduled for the first week of October. Saudi Arabia increased its official selling price for Asia and Europe for September deliveries following its decision to also extend the output cuts for the month. Saudi Aramco has increased the premium of Arab Light crude for Asian buyers by US$0.30/bbl to US$3.5/bbl for September deliveries. The increment was much steeper for European buyers with the new premium set at US$5.8/bbl compared to US$3.8/bbl for August deliveries. The premium for US buyers was left unchanged at US$7.25/bbl. The latest data from Baker Hughes shows that the US oil rig count declined by four for an eighth consecutive week to 525 over the last week. This is the lowest number of active rigs seen since 18 March 2022. The recent strength in oil prices should have seen higher capital expenditure and increasing rig count in the country, however, the oil exploration companies appear to still be assessing the stability of the current market strength. Lastly, the latest positioning data from CFTC show that speculators increased their net long position in NYMEX WTI for a fifth consecutive week by 13,855 lots over the last week, leaving them with net longs of 205,959 lots as of 1 August 2023, the highest since the week ending on 18 April 2023. Meanwhile, money managers increased their net longs in ICE Brent by 18,728 lots over the last week for a second consecutive week, leaving them with 215,368 lots as of last Tuesday.    
Manning the Renminbi Barricade: Navigating FX Markets Amid Chinese Defenses

Europe Braces for Lower Open After Strong US Session; China Trade Data Disappoints

Michael Hewson Michael Hewson 08.08.2023 08:43
Europe set for lower open after strong US session, China trade disappoints   By Michael Hewson (Chief Market Analyst at CMC Markets UK)   It was a rather subdued start to the trading week in Europe yesterday with little in the way of positive drivers although we managed to hold on most of the rebound that we saw on Friday in the wake of the July jobs report out of the US. US markets on the other hand enjoyed a much more robust start to the week, ending a 4-day decline and reversing the losses of the previous two sessions, as bargain hunters returned.   The focus this week is on Thursday's inflation numbers from the US, which could show that prices edged up in July, however it is the numbers out of China tomorrow which might be more instructive in respect of longer-term trends for prices, if headline CPI follows the PPI numbers into deflation.       Earlier this morning the latest China trade numbers for July continued to point to weak economic activity and subdued domestic demand. The last 2 months of Q2 saw sharp declines in exports, with a -12.4% fall in June. There was little let-up in this morning's July numbers with a bigger than expected decline of -14.5%, the worst performance since February 2020, with global demand remaining weak. Imports have been little better, with negative numbers every month this year, and July has been no different with a decline of -12.4%, an even worse performance from June's -6.8%, with all sectors of the economy showing weakness. With numbers this poor it surely can't be too long before Chinese policymakers take further steps to support their economy with further easing measures, however, there appears to be some reluctance to do so at any scale for the moment, due to concerns over capital outflows.     Today's European market open was set to be a modestly positive one, until the release of the China trade numbers, however we now look set for a slightly lower open, with the only data of note the final German CPI numbers for July which are set to show that headline inflation slowed modestly to 6.5% from 6.8% in June.   It's also set to be another important week for the pound ahead of Q2 GDP numberswhich are due on Friday. Before that we got a decent insight into UK retail sales spending earlier this morning with the release of two important insights into consumer behaviour in July.   The BRC retail sales numbers for July showed that like for like sales slowed during the month, rising 1.8%, well below the 3-month average of 3.3%. Food sales performed particularly well, but at the expense of online sales of non-food items like clothes which showed a sharp slowdown.     It is clear that consumers are spending their money much more carefully and spending only when necessary, as Bank of England rate hikes continue to bite on incomes. With some consumers approaching a cliff edge as their fixed rate terms come up for expiry, they may well be saving more in order to mitigate the impact of an impending sharp rise in mortgage costs. That said in a separate survey from Barclaycard, spending on entertainment saw a big boost of 15.8% even as clothing sales declined.     Bars, pubs, and clubs saw a pickup in spending as did the entertainment sector as Taylor Swift did for July, what Beyonce did for May. The release of a big slate of summer films may also have offered a boost with the latest Indiana Jones film, along with Mission Impossible Dead Reckoning, Barbie and Oppenheimer prompting people to venture out given the wetter weather during the month.       EUR/USD – not much in the way of price action yesterday although the euro managed to hold onto most of the rally off last week's lows just above the 1.0900 area. We currently have resistance at the 1.1050 area which we need to break to have any chance of revisiting the July peaks at 1.1150.     GBP/USD – another solid day yesterday after the rebound off the 1.2620 area last week. We need to see a move back above the 1.2800 area to ensure this rally has legs. Below 1.2600 targets 1.2400. Resistance at the 1.2830 area as well as 1.3000.         EUR/GBP – struggling to rally beyond the 0.8650 area but we need to see a move below the 0.8580 area to signal a short-term top might be in and see a return to the 0.8530 area. Also have resistance at the 100-day SMA at 0.8680.     USD/JPY – failed just below the 144.00 area last week but has rebounded from the 141.50 area. While below the 144.00 area the risk is for a move towards the 140.70 area. Main resistance remains at the previous peaks at 145.00.       FTSE100 is expected to open 8 points lower at 7,546     DAX is expected to open 16 points lower at 15,936     CAC40 is expected to open unchanged at 7,319      
China's Ninth Straight Month of Gold Holdings Increase; Oil Resilient Despite Russian Tanker Incident; Dollar Supported by Bond Supply Concerns

China's Ninth Straight Month of Gold Holdings Increase; Oil Resilient Despite Russian Tanker Incident; Dollar Supported by Bond Supply Concerns

Kenny Fisher Kenny Fisher 08.08.2023 08:48
China increased gold holdings for a ninth straight month in July Oil unfazed as Ukraine sea attack Russian oil tanker didn’t lead to a major disruption Dollar supported amidst bond supply concerns; 10-year Treasury yield rises 3.8bps to 4.074%   Oil Crude prices are lower following a surge in the US dollar and as Saudi Arabia anticipates a bumpy road for the crude demand.  The Saudis are raising prices across most of Asia and Europe, with the Arab light crude only being boosted by 30 cents, which was less than the 50-cent rise expected by traders. The initial rally from news that a Russian oil tanker was damaged  only provided a brief rally on Sunday night.  Unless we see a meaningful disruption to crude supplies, prices will remain  Also dragging oil prices down is the rising expectations that the US will see a recession by the end of 2024.  A Bloomberg investor poll showed two-thirds of 410 respondents expect a recession by the end of next year and 20% see one by the end of this year.    Gold Gold prices are struggling here on a strong dollar and as global bond yields rise and after an early round of Fed speak are still supporting the case for one more hike by the Fed. Wall Street is playing close attention to fixed income at the start of the trading week, which saw the bond market selloff cool at the end of last week after a mixed nonfarm payrolls report. If Treasury yields rally above last week’s high, that could trigger some technical buying and that could be very negative for gold prices.  For many traders, this week is all about inflation data and any hot surprises could prove to be short-term bearish for gold.  As earnings season wraps up, stocks have mostly posted better-than-expected results (excluding Apple) and that has hurt the gold’s safe-haven appeal.  At some point over the next few weeks, if the stock market rally can’t recapture the summer highs, a decent pullback could help trigger a big move back into gold.     
Industrial Metals Monthly Report: Challenging Global Economic Growth Clouds Metals Outlook

Industrial Metals Monthly Report: Challenging Global Economic Growth Clouds Metals Outlook

ING Economics ING Economics 10.08.2023 08:51
Industrial Metals Monthly: Dim global economic growth clouds metals outlook Our new monthly report looks at the performance of iron ore, copper, aluminium and other industrial metals, and their outlook for the rest of the year.   Industrial metals struggle in the first half of the year as China demand disappoints   China's economic activity loses more steam in July Prices for industrial metals remained mostly volatile in the first half of the year amid an uneven economic recovery in China.  Beijing has set a cautious growth target of 5% this year, the lowest in decades. In the second quarter, the economy added 6.3% compared with the same period last year, when Shanghai and other big cities were in strict lockdown, but growth was just 0.8% in quarter-on-quarter terms. Last month’s data releases offered new evidence that China’s overall economic momentum was weak at the start of the second half of the year, but have also raised hopes of more government stimulus measures as the top metal-consuming country slides into deflation. China’s consumer and producer prices both declined in July from a year ago as demand has continued to weaken. The consumer price index dropped by 0.3% last month from a year earlier, while producer prices, which are heavily driven by the cost of commodities and raw materials, fell for a tenth consecutive month, contracting by 4.4% in July from a year earlier. This marks the first time since November 2020 that both consumer and producer prices registered contractions. Meanwhile, the manufacturing and property sectors, which are crucial for industrial metals demand, are struggling to turn around. Manufacturing activity in China contracted again in July, proving that the economy’s recovery remains under pressure. China’s official manufacturing PMI climbed to 49.3 in July, from 49.0 in June. The sector has been in contraction since April. The Caixin manufacturing PMI fell back into contraction, dropping to 49.2 in July, from 50.5 in June, reflecting flagging demand for Chinese exports. Similarly, China’s property sector continues to struggle. In June, home sales dropped by 18% from a year earlier, while residential construction fell by 10%. Overall, China’s post-reopening recovery has disappointed so far this year. Chinese government continues to promise more support, including for the beleaguered property sector, but measures have lacked detail so far. At last month's Political Bureau of the Communist Party of China's Central Committee meeting, the announcement of continued stimulus for China's economy lifted metals prices toward the end of July. However, the optimism quickly subsided as the scale of the stimulus promised was somewhat disappointing and details are yet to emerge of specific policy steps that would benefit industrial metals. We believe metals will stay under pressure in the second half of the year as the sluggish recovery in China will likely continue to weigh on demand, with most industrial metals remaining dependent on economic stimulus from the world’s biggest consumer of metals. However, if China introduces stimulus measures, in particular for the property sector, this will boost metals demand and support higher prices. We believe that any improvements in metals prices will depend on the eventual implementation of China’s stimulus measures and actual demand improvement.   China's recovery is showing fatigue   Weak trade data highlight struggling recovery Plunging trade in July fuelled more concerns about China's growth prospects. Exports fell by 14.5% in dollar terms last month from a year earlier, the worst decline since the start of the Covid-19 pandemic in February 2020. Imports contracted by 12.4%, reflecting weak domestic demand, leaving a trade surplus of $80.6bn for the month. Flagging industrial activity also capped China’s metals imports. Iron ore imports fell by 2.1% in July to 93.5 million tonnes, a three-month low, as steel output declined over the month.   Copper ore imports slide to nine-month low   Imports of unwrought copper and products fell by 3% on a daily basis in July to 451,000 tonnes. They are now down 11% year-to-date. Meanwhile, copper ore imports slid to a nine-month low. The premium paid for refined metal at the port of Yangshan, which acts as a measure of import demand, has been on a downtrend too. It recently stood at $31.50/t, down from its record highs of $152.50/t in October last year.   Weak external demand remains a challenge for China's recovery   Global economic outlook remains dim World manufacturing PMIs also continued to struggle in July, mostly staying below the expansion level. This ongoing weakness, especially in the US and Europe, continues to be a drag on demand for industrial metals. Although China dictates most of the industrial metals prices, weak external demand also caps gains. In the US, while economic data releases in July indicated that the consumer price index dipped to its lowest in June since March 2021, the US Federal Reserve proceeded with a 25 basis-point interest rate increase at its July meeting. And at the start of August, Fed policymaker Michelle Bowman said more rises may be needed in the inflation battle after a mixed jobs report, further dampening demand for industrial metals.   Manufacturing PMIs stagnate globally    
Soft US Jobs Data and Further China Stimulus Boost Risk Appetite

Market Insights: Fed's September Decision Hinges on Thursday's Inflation Report Amid Strong Demand for Treasury Notes and China's Deflation Concerns

ING Economics ING Economics 10.08.2023 09:27
Thursday’s inflation report to seal the deal for a Fed hold in September Treasury sells 10-year notes with strong demand as yields drop China deflation raises prospects of more stimulus USD/JPY rose after a strong auction signaled that Wall Street is very confident that inflation will continue to fall. It looks like investors will gladly be eating all the extra issuance that comes from the Treasury. After tomorrow, we will see if traders are nervous that inflation is proving to be a little sticky or overwhelming confident that inflation will fall to the Fed’s 2% target by year end.   Price action is tentatively breaking out above key trendline resistance that has been in place since the end of June.  Further upside for dollar yen could target the 145.00 level, which would be accompanied by some jawboning from Japan.  To the downside, 141.50 remains key support.   Risk appetite should remain healthy as deflation in China is also providing limited optimism that the more stimulus is coming and that disinflation pressures will steadily ease across Europe and North America.  Markets should see some lackluster moves until tomorrow’s US inflation report.       Oil Crude prices are rallying on expectations China will be forced to deliver more stimulus and after the EIA report showed an impressive rebound with diesel and gasoline demand.  The US is also refilling the Strategic Petroleum Reserve (SPR), so that should provide some underlying support. The SPR rose by almost 1 million barrels and should be poised to receive another 2 million before the end of summer. The EIA report was not all bullish as US production rose to the highest levels since March 2020 and crude exports fell to the weakest levels in four weeks. The oil prices should remain supported going forward as OPEC+ remains committed to keeping the market tight and as the Russia – Ukraine war could threaten Russian crude exports.   Gold Gold prices are weakening ahead of a pivotal inflation report that is expected to solidify a Fed hold in September.  Gold’s weakness occurs as Treasury yields edge lower, while European yields rise.  With a softer dollar, gold shouldn’t be weakening this much ahead of a key inflation report. Some big traders must be profit-taking over fears Wall Street will not react kindly to a slight rise with the headline annual inflation reading.      
Turbulent Q2'23 Results for [Company Name]: Strong Exports Offset Domestic Challenges

SecoWarwick Group: Leading the Way in High-Tech Industrial Furnaces and Solutions

GPW’s Analytical Coverage Support Programme 3.0 GPW’s Analytical Coverage Support Programme 3.0 16.08.2023 14:06
SecoWarwick group - business model SecoWarwick is a customer solution provider for high-tech industrial furnaces for the thermal processing of metals. Solutions are dedicated to customers in the automotive, aircraft, energy, medical, tooling, powder metallurgy or defense industries, among others. SecoWarwick specializes in energy-efficient and environmentally friendly equipment. The company provides access to defining technologies and new solutions, provides state-of-the-art control and data analysis systems, as well as professional services available in the world's most important metallurgical markets. The offer includes standard and dedicated solutions, delivery of equipment including technology and associated equipment, installation and commissioning, service support, technical and technological training, tests and research in industrial and laboratory conditions, analyses and simulations. SecoWarwick's solutions also include industrial furnaces for fire testing, vacuum equipment, precision test chambers, thermal processing systems, windscreen heating and molding production lines. A wide range of technologies, highly qualified engineers and customized solutions give the customer a competitive edge. Geographical presence Currently, SecoWarwick's largest sales market is the US (37% of sales) served by two local production facilities. Next is Europe (30% of sales), which is mainly supplied by plants in Poland. Asia is the third market (28% of sales), served by plants in China. In the future, the opening of production in India (currently sales & service; planned production later this year) and an increase in deliveries from China to Europe cannot be ruled out due to the appreciation of the PLN to the USD and generally rising operating costs (manufacturing costs, transport costs), especially in Europe. Geographical diversification is a considerable asset for SecoWarwick in mitigating performance volatility in response to business cycles. In 2022, exposure to Russia, Belarus and Ukraine was less than 5%. With the start of the war in Ukraine, SecoWarwick ceased contracting new orders in the Russian market      
The Japanese Yen Retreats as USD/JPY Gains Momentum

Signs of Weakness in Polish Labour Market: Slower Wage Growth and Employment Challenges

ING Economics ING Economics 21.08.2023 12:14
Further signs of weakness in the Polish labour market Average wages in the corporate sector increased by 10.4% year-on-year in July, weaker than in June (11.9%) and slightly below expectations (10.9%). While this largely reflects base effects, employment remains lacklustre, suggesting mounting pressures in the labour market. The slower growth in wages mostly reflects the high base from July 2022, when a number of industries (particularly mining) paid high bonuses. This July, the difference between total salaries and without-profit payments is small (more than twice as small as a year ago). According to press reports, mining paid high bonuses again, suggesting that other industries must have performed poorly. However, the effects of the weakening labour market can be seen in employment. In the corporate sector, it grew by just 0.1% year-on-year in July (in line with the consensus), compared with 0.2% the month before. This represents an increase of around 1,000 jobs compared with June, and in comparison to around 3,000 and 11,000 jobs during the previous two years. The weaker situation continues to be seen particularly in manufacturing, which is probably linked to the generally weak condition of these industries in Europe (especially Germany). Since February (this year's peak in manufacturing employment in Poland), the sector has cut 9,000 jobs out of 13,000 in the corporate sector over this period. However, low employment growth is largely the result of worsening labour supply. This is due to both an ageing population and a potential outflow of refugees from Ukraine. We, therefore, expect the registered unemployment rate to remain low (5% in July) and wages to maintain double-digit growth in the coming months. This, combined with falling inflation, will support a gradual rebound in domestic consumer spending and, consequently, in overall GDP after a weak first half of the year.
"Global Steel Output Rises as Chinese Production Surges, Copper Market Remains in Deficit

"Global Steel Output Rises as Chinese Production Surges, Copper Market Remains in Deficit

ING Economics ING Economics 23.08.2023 10:01
Metals – Global steel output rises The latest data from the World Steel Association (WSA) show that global steel production rose 6.6% YoY to 158.5mt in July, as rising output in China, India and Russia offset lower production from Europe. However, cumulative global steel output remained almost flat at 1,103mt in the first seven months of the year. Meanwhile, Chinese steel production reported a significant rise of 11.5% YoY to 90.8mt in July, while output in India and Russia also rose 14.3% YoY and 5.8% YoY respectively. In contrast, monthly crude steel output in the EU fell 7.1% YoY to 10.3mt last month. The International Copper Study Group’s (ICSG) latest update shows that the global copper market remained in a supply deficit of 90kt in June. However, the ICSG estimates an apparent surplus of 213kt in the first half of the year following higher output from China and the DRC, compared to a deficit of 196kt during the same period last year. Global mine and refined copper production increased by 2% YoY and 7% YoY, respectively, while overall apparent refined demand increased by 4% YoY in 1H of 2023. In aluminium, recent LME data shows that on-warrant stocks for aluminium witnessed inflows for a second day. On warrant stocks increased by 38,000 tonnes to 246,575 tonnes yesterday, the largest increase since April. Meanwhile, total exchange inventories rose by 38,725 tonnes to 529,775 tonnes yesterday, the highest since 13 July.    
Italian Inflation Continues to Decelerate in August, Reaffirming 6.4% Forecast for 2023

Navigating Energy Prices: Analyzing Trends, Risks, and Impacts on Inflation

ING Economics ING Economics 30.08.2023 13:16
Energy prices Energy must be the starting point when thinking about a second wave. Our base case sees oil edging higher this year, and the risk is that we continue to see a lack of investment in upstream production while demand continues to move higher. That would point to an increasingly tight oil balance in the years ahead. Stricter legislation on new US oil/gas drilling, though unlikely, would be a key source of upside risk given America has been a major driver of supply growth over the last decade. That aside though, the US is largely energy-independent and that makes it far less exposed to 1970s-style shocks. Europe is more vulnerable, though the situation is evolving. National gas reserves are currently well filled and the eurozone looks better prepared to enter the winter heating season. Russian gas exports to Europe are marginal now, so any further supply cuts would be unlikely to take us back to 2022 highs. We’d also argue that natural gas demand has peaked and suspect it will be gradually lower over the next decade. RePowerEU, the bloc’s flagship energy strategy, puts emphasis on moving aggressively towards renewables. At the same time, last winter’s price spike appears to have resulted in a permanent demand loss in energy-intensive industries.   Still, in the short to medium term, the continent is more reliant on liquefied natural gas (LNG). The combination of strike action at Australian producers and a colder-than-usual European winter could prompt a significant price response. So, too, would any disruption to Norwegian natural gas supply.   For inflation though, remember that in Europe electricity/gas prices are still more than 50% higher than they were in 2021 in Germany, and roughly double in the UK, according to CPI data. Even if we got another 2022-style shock to wholesale prices, arithmetically, the scope for a similar shock to inflation at this point is more limited.
Fed's Watchful Eye on Inflation Expectations Amid Rising Energy Prices

Worker Power and Unionisation: A Shift in Dynamics The Influence of Trade Unions in the 1970s and Today's Changing Landscape

ING Economics ING Economics 30.08.2023 13:21
Worker power and unionisation Trade unions were a powerful force in the 1970s, a sharp contrast to what we see today. The share of employees who are members of trade unions has decreased markedly, a trend that’s gone hand-in-hand with the decline of manufacturing across the West.   Trade union density and collective bargaining coverage   But we need to make a distinction between trade union membership (which is generally low in Europe, at least according to official data) and collective bargaining coverage. The latter is the proportion of employees whose wages are centrally negotiated, and in Europe, that’s often in excess of 90% and has typically changed much less since the 1980s. Negotiated wage growth is the highest in 30 years, albeit it has tracked well below headline inflation, and this looks more like a "catch-up" than any kind of wage-price spiral. Even in countries where collective bargaining is unusual (the US and UK), there are hints that worker power is growing. On a one-year rolling basis, the number of strike days is at its highest level since at least the early 2000s in the UK and US. That doesn’t mean union membership is increasing per se, not least because the power of trade unions under law in the likes of the US and UK has reduced over time. But it does suggest workers feel they can push for inflation-busting pay rises.     Strike days in the US/UK are at multi-year highs
Copper Prices Slump as LME Stocks Surge: Weakening Demand and Economic Uncertainty

Navigating the Fluctuating Landscape of Food Inflation: A Comprehensive Analysis of European Consumer Trends and Market Dynamics

ING Economics ING Economics 31.08.2023 10:42
Food inflation finally cools in Europe after a long hot summer Food price rises are finally subsiding in Europe. We saw the first Month-on-Month decline in almost two years in July. Many branded food manufacturers, however, are reporting lower sales as shoppers turn to more affordable goods. And a combination of high food prices and sluggish growth means those volumes won't be returning anytime soon.   Extraordinary rally in consumer food prices comes to an end Food inflation rates have been cooling for the past couple of months, and July’s inflation figures even showed a small Month-on-Month decrease in the European Union. That said, food prices remain at high levels. A typical EU consumer currently pays almost 30% more for groceries compared to the start of 2021, with some considerable differences across the continent. In Hungary, prices have gone up by more than 60% since January 2021, while food prices in Ireland went up by ‘only’ 19%. Across Europe, consumers reacted by buying less, shopping more at discount supermarkets and favouring private label products over brands. The trend in the US looks fairly similar. The main difference is that 'cooling down' set in a little earlier, and the relative increase was lower compared to Europe. That's partly explained by the fact that US food makers are less exposed to the energy price shock compared to their peers in Europe. American food prices started to move sideways in the first quarter of this year; a typical American consumer currently pays 20% more for groceries compared to the start of 2021.   Food inflation reaches a plateau in the EU and the US Consumer price index for food, 2020 = 100   Is Germany really leading the way on prices? Within the eurozone, Germany has been the only country seeing consumer food prices drop for several months in a row. According to Eurostat data, prices of food and non-alcoholic beverages in Germany were 1.4% lower in July compared to their peak in March this year. This is largely the result of lower prices for dairy products, fresh vegetables, margarine and sunflower oil.   What distinguishes the German food retail market from most other European countries is that discounters have a relatively large market share. Schwarz Group (Lidl) and Aldi have a combined market share of around 30%, and other major retailers such as Edeka and Rewe also own discount subsidiaries. Given the large and competitive German market, food retailers seem to have negotiated more strongly with suppliers than their counterparts in other European countries, even at the risk of losing those suppliers. As a result, retail food prices started to drop earlier. Also, the highly competitive market delivered special sales offers for consumers since the spring. For now, German consumers are benefiting from a reversal of the price trend, and consumers in other European countries might experience a similar trend in the months ahead. However, we believe that consumers shouldn’t get their hopes up too high given that some inflationary trends in the cost base of food manufacturers and retailers are still present. That’s also why we deem it too early to forecast a prolonged period of decreasing food prices.   Modest drop in German consumer prices due to lower dairy, vegetables and margarine prices Consumer price index, 2020 = 100   Underlying costs for food manufacturers show a mixed picture Throughout 2022, almost all of the costs for food manufacturers moved in one direction, and that was up. That picture has changed when we look at some important types of costs.   Input costs are by far the most important cost category, and agricultural commodities are a major part of these inputs. Prices for agricultural inputs are moving in different directions. World market prices for wheat, corn, meat, dairy and a range of vegetable oils are down year on year, which is partly on the back of reduced uncertainty around the war in Ukraine. However, prices for commodities such as sugar and cocoa rallied considerably in 2023. The prospects of the El Niño weather effect potentially upsetting the production of commodities like coffee and palm oil in Southeast Asia alongside India’s partial export ban on rice have given rise to new concerns.We estimate that energy costs make up about 3 to 5% of the costs of food manufacturing, but this will also depend on the subsector and the type of energy contracts. Current energy prices in Europe are much lower compared to their peak in 2022, but they are still much higher compared to their pre-Covid levels. Volatility continues to linger, in part because more exposure to global LNG (Liquified National Gas) markets makes European gas markets more susceptible to price fluctuations. Uncertainty about where energy costs will be headed over winter can make food manufacturers more reluctant to reduce prices.Continuing services price inflation means companies along the food supply chain will face higher fees for the services they contract, such as accounting services and corporate travel.     Wages account for a bit more than 10% of the costs of a typical food manufacturer in the EU (excluding social security costs). Both the spike in inflation in 2022 and 2023 and the continued tightness in labour markets are leading to a series of wage increases in food manufacturing and food retail. In our view, wages will be an important driver for the production costs of food and for consumer prices over the next 18 months, given that wages go up in subsequent steps. Examples of wage increases in the food industry In the German confectionery industry, 60,000 employees get an inflation compensation of €500 in 2023 and 2024 on top of a 10-15% increase in regular wages. We see similar patterns for wage agreements at individual companies, such as for the German branch of Coca-Cola Europacific Partners. In the Dutch dairy industry, wages will increase by 8% in 2023 and another 2.65% in 2024, while the collective labour agreement in the Dutch meat industry contains a three-tiered increase of 12.25% in total between March 2023 and 2024. In France, it's expected that average wages in the commercial sector will rise by 5.5% in 2023 and 4.2% in 2024. This also gives an indication for wage development in industries such as food manufacturing.   Wages make up 13% of German food manufacturers' costs with some variation between subsectors Wage costs as a percentage of total costs, 2020     Adverse weather pushes up prices for potatoes and olive oil Following the warmest July on record, it’s evident that people are wondering to what extent weather will push up food inflation in the months ahead. The most recent monthly crop bulletin from the European Commission notes that weather conditions were on balance negative for the yield outlook of many crops and thus supportive for prices. Although the picture can be different from crop to crop and from region to region, there are certain food products where inflation is accelerating due to weather. One of the biggest victims of unfavourable weather in Europe this year is olive oil. The continued drought in Spain, and particularly a lack of rain during spring, leads to estimates that olive oil production will be down by 40% this marketing year. It will be quite difficult to find enough alternative supplies outside the bloc, given that the EU is the top exporter of olive oil. This is also the case for potatoes and potato products. Here, a wet start of the year in northwestern Europe followed by dry weather in May and June and abundant rain in July means conditions have been very unfavourable for potato yields and quality.   Food prices are likely to hover around their current levels for a while The developments in underlying costs for food producers lead us to the view that consumer food prices will likely hover around their summer levels for a while. When there are decreases in general prices, those will be the result of trends in specific categories, such as dairy, rather than being widely supported across all categories. This view is also supported by business surveys which show that sales price expectations of food manufacturers are now clearly past their peak, as you can see in the chart below.  Multiple major food companies, including Danone, Heineken and Lotus Bakeries, have signalled in their second-quarter earnings calls that there will be less pricing action in the second half of this year. However, some companies are indicating that they’re not yet done with pricing through their input cost inflation. Unilever, for example, reported that we should expect moderate inflation in ice cream in the second half of the year, for instance. In any case, we do see a likely increase in promotional activity as brands step up their efforts to re-attract consumers and boost volume growth. But given the elevated price levels and the muted macro-economic outlook, it’s likely to take a while before volumes fully recover.   European food manufacturers expect fewer price increases in the months ahead Sales price expectations for the months ahead, balance of responses       Price negotiations remain tense Food manufacturers have fought an uphill battle to get their higher sales prices accepted by their customers, such as food retailers. Negotiations in the current phase won’t be easy either because food and beverage makers will be heavily pushed by major retailers to reduce prices. Retailers that lost market share will be especially looking to secure better prices in a bid to re-attract consumers. Whether there is room for price reductions will vary from manufacturer to manufacturer depending on the agricultural commodities they rely on, the energy contracts they have and cross-country differences in wage developments. As such, explaining why prices still need to go up, cannot go down (yet) or can only go down by so much will be a significant task for food manufacturers in the coming months.
Portugal's Growing Reliance on Retail Debt as a Funding Source and Upcoming Market Events"

Metals Surge on China's Property Sector Stimulus and Positive Economic Data

ING Economics ING Economics 01.09.2023 10:59
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.
Hungary's Temporary Inflation Uptick: Food Price Caps and Fuel Costs in Focus

The Indestructible Dollar: A Quiet Start to the Week in FX Markets

ING Economics ING Economics 04.09.2023 10:54
FX Daily: The indestructible dollar Today's US Labor Day holiday means that it has been a quiet start to the week in the world of FX. The dollar remains near its highs despite Friday's US NFP jobs report showing a jobs market moving better into balance and wages softening. That probably owes to poor growth prospects overseas. Second-tier US data releases look unlikely to hit the dollar too hard.   USD: Little reason to offload dollar positions The dollar has had a good couple of months. It has been buoyed by domestic strength in the US economy and souring sentiment in key trading partners such as Europe and China. The source of that strong domestic demand in the US has been a tight labour market, which has powered consumption. Despite US wage growth softening in August and the unemployment rate finally climbing, US Treasury yields actually rose on Friday and the dollar strengthened. Driving that move may have been the rise in the participation rate with people returning to the workforce. This suggests that the narrative may have moved on from the disinflation debate towards the extension of employment, consumption and domestic demand.  This week's US data calendar looks unlikely to open a decisive new chapter in this narrative – although in the past, the release of the ISM services index (remember that sub-50 reading at the start of the year?) has moved markets. That index is released on Wednesday. There are a few Federal Reserve speakers this week, but market expectations that Fed rates have peaked look set, as do views of a modest 100bp of Fed easing next year (we look for 200bp+). We see little to challenge a strong dollar this week and could see DXY edging up to the 104.50/70 area.  Elsewhere in the world, the central bank policy focus is on the likes of Australia, Canada, Poland, Chile, and Israel. No change is expected in most, although Poland should be starting its easing cycle this week, and Chile is expected to follow up its 100bp cut in July with another large rate cut.
Oil Defies Broader Risk-off Sentiment: Commodities Update

Europe's Construction Sector Faces Slump in Demand Amid High Costs and Interest Rates

ING Economics ING Economics 04.09.2023 15:52
Europe's construction sector set to slow as demand plummets High interest rates and soaring building costs have drastically reduced the demand for new buildings in Europe. So far, ongoing projects and a heightened focus on sustainability have prevented construction volumes from shrinking, but we're expecting to see a steep decline begin to emerge in 2024.   Zero growth in 2023 We’re expecting zero growth for EU construction volumes this year, an upgrade of our previous forecast which is mainly due to a better-than-expected first half of the year. Construction volumes still remain high. In June, EU construction production was at the same level as in the same period last year. Firms still have a healthy backlog of work, with 8.9 months of guaranteed projects at the beginning of the third quarter of this year. However, there are clear signs that volumes will start to shrink soon as the late cyclical nature of the sector begins taking effect. Home buyers and firms are reluctant to invest in new premises due to the weaker economy, high interest rates and increased building costs. Due to long lead times, it's likely to take a while before these effects are reflected in construction output volumes.   Construction volume still stable but fall in building material production Development EU Construction sector volume (Index February 2020=100, SA)   Looming slowdown on the cards for 2024 Manufacturers of cement, bricks and concrete – those right at the beginning of the value chain – are already facing sharp production declines. Building material suppliers of these materials are registering an average fall in production of 13% in June compared to the same period last year. The highest declines are faced in Austria (-15.0%), Germany (-15.6%), and The Netherlands (-19.5%). A decline in building permits, confidence and demand are also indicators for lower volumes in the construction sector in the second half of 2023 and into 2024. However, we only expect a modest decline for the EU construction of -1% in 2024.   Renovation market counterbalances decline in new building sectorThe construction sector will not see as much of a decline in production volumes as the building materials sector. Building material suppliers mainly deliver to new building projects, which are more susceptible to economic development than the renovation sector. The demand for renovation and maintenance – more than 50% of total construction production – is less affected by economic cycles. Interestingly, the demand for R&M may even increase during an economic crisis. For instance, homeowners who are unable to sell their houses often opt to enhance their existing living spaces in order to meet their changing housing needs. As a result, this can lead to an increase or at least sustainment of demand for R&M. In addition, the R&M market will likely show future growth driven by sustainable and energy-related factors. Many governments support sustainability measures, and high energy prices act as an extra trigger. Since energy prices have started to moderate this year, interest in energy-saving measures has slowed but still remains at a high level.   The confidence of the different subsectors is slowly decreasingAnother sign that the decline in the construction sector will be a small one is the slowly abating confidence indicators in different subsectors. Specialised construction companies have been optimistic for a long time, but in June, indicators were marginally negative for the first time in more than two years. This subsector consists of many construction branches that are active in R&M, such as installation, plasterers, carpenters, painters and glaziers. The confidence of companies in the non-residential building sector as a whole has been in negative territory for almost a year. Lastly, confidence in the infrastructure sector has remained positive for quite a while and only initially touched negative territory in August. Many infrastructure projects are driven by public investments, the availability of EU funds, the need for upgrading existing roads and required environmental investments such as the extension of electrical grids.
Naphtha Cracks: Deeply Negative Outlook Despite Summer Strength

Naphtha Cracks: Deeply Negative Outlook Despite Summer Strength

ING Economics ING Economics 08.09.2023 12:03
Naphtha cracks to stay deeply negative While the naphtha market has strengthened over the summer, prompt cracks still remain deeply in negative territory and well below historic norms. There are several reasons driving the broader weakness in the naphtha market. Firstly, a weak propane market has ensured that propane is the favoured feedstock for the petrochemical industry, with propane trading at more than a US$100/t discount to naphtha in northwest Europe. Secondly, downstream demand has been weaker, with cracker margins in both Asia and Europe not great. In Europe, the chemical sector has suffered significantly because of higher costs and weaker demand. As a result, chemical production over the first half of 2023 was down 12.3% year-on-year according to the European Chemical Industry Council (Cefic). Cefic numbers show that this weaker output from the sector is not isolated to Europe. South Korea and Japan also saw large declines over the first half of 2023, with output falling by 18.4% and 7.2% YoY respectively. Despite this, we expect naphtha cracks will see seasonal strength as we move into the northern hemisphere winter with increased usage amongst the petrochemical industry as propane’s discount to naphtha narrows, making propane a less attractive feedstock for the industry. However, whilst we see strength in cracks, we expect that they will remain firmly in negative territory and below historic norms through the northern hemisphere winter, given weak downstream demand.     Chemicals production still under pressure (YoY % change)
Banks as Key Players in the Energy Renovation Wave: Navigating Challenges and Opportunities in the EPBD Recast

End of Europe’s Exemption for Container Alliances: Navigating Market Challenges

ING Economics ING Economics 11.10.2023 14:51
End of Europe’s exemption for ship alliances adds to tough market conditions Europe's planned termination of the so-called 'block exemption rule' that enables container liners to closely cooperate within alliances will limit room to manoeuvre. This particularly applies to the container liners outside of the largest players, and adds to already challenging market conditions.   Europe plans to end the anti-trust exemption for container alliances The European Commission has announced it will not extend the block exemption for container liners which expires 25 April 2024. This exemption enabled container shipping companies with a combined market share of up to 30% to provide joint services to clients, and resulted in the formation of three large alliances, 2M (Maersk, MSC), The Alliance (Hapag-Lloyd, HMM, Ocean Network Express and Yang Ming) and The Ocean Alliance (CMA CGM, Cosco, OOCL, Evergreen), as companies sought to manage capacity and share their networks. The exemption in the cyclical container liner market was first introduced during the global financial crisis in 2009 and extended in 2014 and again in 2022. In the early stage of the pandemic - when container liners suffered unprecedented uncertainty - the regulation was again extended. But with consumers stuck at home shifting their spending to goods, and ports and supply chains across the world congested due to closures and events such as the blockage of the Suez Canal, freight rates skyrocketed, and profits reached record highs in 2021 and 2022. This sparked criticism around the rationale for the exemption among shippers and policymakers.   The golden age in container shipping has ended - but the market structure has also changed Container rates have collapsed since early 2022 and spot rates on Asia to Europe trade have dropped below pre-pandemic levels. The sector has also faced a combination of faltering demand and a flood of newly ordered vessel capacity coming online. However, the European Commission has acted in light of what it sees as structural market changes. There has been consolidation. And on top of this, several liner companies including Maersk, CMA CGM and MSC have actively taken stakes in port terminals, logistics services providers and even air freight services over the past two years. With this ‘integration,’ these companies have developed a presence across supply chains and an ability to offer end-to-end logistics solutions.    End of the exemption makes offering joint services and capacity management more difficult The expiry of the block exemption means that cooperation in terms of joint services will be restricted and managing capacity (by for instance taking out (‘blanking’) sailings) will be more difficult. For some container liners, it will also be more difficult to offer specific port calls to clients. Profits in container shipping have been on a downward track from elevated levels since the second quarter of 2022. Global container volumes have been falling this year and are expected to grow only slightly this year amid global headwinds for trade. At the same time, the market is set to be flooded by a wave of new vessels coming online (TEU-capacity will be expanded by some 27% in 2023-2025) making the conditions in container shipping more challenging.   Alliances won't (necessarily) cease to exist, but room to manoeuvre will be more limited The EU and US have followed the same approach regarding the exemption, with the ruling also under review in the US. Either way, the EU is already part of large trade routes and the lifting of the exemption will limit the room to cooperate and weigh on market conditions, especially for pure container liners. MSC and Maersk decided earlier to dismantle their cooperation, possibly because market leader MSC has become big enough by itself. The other two alliances won’t necessarily cease to exist, but there will probably be a higher regulatory burden for joint operations under general competition rules.  
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US Rates Experience Bull Flattening Amid Supply Relief and Weaker Data, Bank of England Maintains Holding Pattern

ING Economics ING Economics 02.11.2023 14:39
Rates Spark: Supply relief, weaker data and the Fed proceeding carefully Rates rallied on a mix of supply relief, weaker data and the Fed pointing to the tightening impact of the still overall higher long-end rates. Before we test further downside, we likely have to see tomorrow’s payrolls report first. Today's BoE meeting should complete the unfolding holding pattern across major central banks.   US rates rally on a mix of supply relief, weaker data and a Fed "proceeding carefully" US rates drove a bull flattening of curves. At the end of the US session, the 10Y UST yield rallied below 4.75% with the 2s10s curve flattening 5bp on a mix of supply relief, weaker data and the Federal Reserve pointing to the tightening impact of the still overall higher long-end rates. The Treasury’s refunding announcement was deemed tolerable, partly because the headline requirement of the upcoming November refunding of US $112bn was $2bn lower than the market had expected. But more importantly, the gradual increases of auction sizes over the quarter were focused on shorter tenors, with 2Y, 3Y, 5Y, and 7Y sizes increasing by $9bn, $6bn, $9bn, and $3bn respectively, by the end of January 2024. In contrast, 10Y and 30Y new issue and reopening auction sizes were increased by only $2bn and $1bn, respectively, and 20Y auction sizes were left unchanged.   The Fed kept rates on hold and maintained a hawkish bias, pointing to further tightening becoming less likely. The Fed acknowledged that the higher real rates are having a clear tightening effect, and it can let the debt markets do the last of the pain infliction for them. The rise in real yields has helped to push the curve steeper, and the 5s10s has recently joined the 10s30s with a positive upward-sloping curve. Only the 2s5s spread remains inverted. This overall look does suggest the bond market is positioning for a turn in market rates ahead. The big move will come when the 2Y starts to anticipate cuts.   Yields turn lower, but 5% is not entirely out of reach yet for the 10Y   BoE to complete the holding pattern across major central banks It feels like the Bank of England is more of a sideshow given the gyrations spilling over from the US. The market is also quite firm in its expectations of the BoE keeping rates on hold at today’s meeting and it is also our view. However, looking a little further ahead the markets still see a more than one-in-three chance that the bank rate could be raised one more time. The Monetary Policy Committee is unlikely to close the door to further tightening, but as holding patterns of other major central banks are unfolding, this pricing could eventually shift even more towards reflecting the “Table Mountain” once touted by the Bank’s chief economist.   Central banks seen on hold for the next months   Today's events and market view The UST yield now sits notably lower at 4.73%, but it has not materially broken any trends though. Before we test further downside we likely have to see tomorrow’s payrolls report first. An outcome close to the consensus might not be enough to materially lower rates from here. There is still a path back up to 5%. We still feel that pressure for higher real rates remains a feature, despite the easing off on longer tenor issuance pressure. We need to see the economy really lurch lower, in particular on the labour market, before the bond bulls take over. That said, there will be other job market indicators out already today such as the Challenger job cuts data and the usual weekly initial jobless claims figures. Factory orders and the final durable goods orders round off today's US data releases. In Europe, the BoE decision takes centre stage. For the eurozone, we will be looking at the unemployment data, but probably focus more on what European Central Bank key officials Philip Lane and Isabel Schnabel will have to say.   Today’s government bond supply will come from France in 10Y to 50Y maturities and in Spain in 5Y to 30Y maturities.
Unraveling the Dollar Rally: Assessing the Factors Behind the Surprising Rebound and Market Dynamics

Tide of Lower US Rates Propels EUR/USD Higher: A Look into 2024"

ING Economics ING Economics 16.11.2023 12:40
EUR/USD: Lifted higher by the tide of lower US rates US slowdown is central: Our forecast for a higher EUR/USD next year hangs wholly on the view that the US will slow down, inflation will ease and the Fed will be able to make monetary policy less restrictive. Currently we forecast 150bp of Fed easing starting next May/June. This is premised on tighter financial conditions finally weighing enough on aggregate demand to see US growth converge on the stagnant trajectories, especially in Europe. Our team forecast US growth at just 0.5% next year versus the consensus of 1.0%. Equally, our end year 2024 EUR/USD forecast of 1.15 is slightly above the current consensus of around 1.11. In terms of timing the trajectory, our current bias is that EUR/USD strength will become more apparent from the second quarter onwards. The dollar traditionally performs well at the start of the year and with the eurozone in recession, the first quarter may be too early to see a decisive turn higher in EUR/USD.     ECB could crumble: The headwinds to a EUR/USD rally largely stem from weak eurozone growth and the risk that the ECB chooses to cut rates alongside the Fed. This would limit the expected narrowing in yield differentials at the short-end of the curve. Our team forecast three quarters of negative eurozone growth (3Q23 to 1Q24 inclusive) and full-year 2024 eurozone growth at just 0.2%. We expect 75bp of European Central Bank (ECB) easing in 2024 starting in the third quarter, but clearly the risk is that the ECB eases earlier and the Fed later such that the starting pistol for the EUR/USD rally is never fired. Equally, a failure of European governments to agree on fiscal reform by year-end 2023 could see the re-introduction of the Stability and Growth Pact in early 2024 – an unwelcome arrival in a recession.   EUR/USD looks fairly valued:  Our medium-term fair value model suggests EUR/USD is fairly valued down at these lowly levels. In other words, there is not the kind of extreme undervaluation that has supported EUR/USD at these levels in the past. This really does build the case that if there is to be a EUR/USD rally, it will have to be driven by the dollar leg. Away from the Fed easing story there is also the risk of US fiscal deterioration and de-dollarisation – perhaps both slow-burn stories. There is also the small matter of the US election. Most commentators warn of a Trump 2.0 administration being ‘louder’. Depending on how the opinion polls progress, we presume any swing in favour of a second term for Donald Trump to be dollar positive – given the experience of the loose fiscal and protectionist policy agenda during his last stay at the White House.    
Challenges and Contrasts: Navigating the Slippery Slope of Global Economies

Challenges and Contrasts: Navigating the Slippery Slope of Global Economies

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.11.2023 14:14
On a slippery floor By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   While the US economy has been surprisingly resilient this year to the Federal Reserve's (Fed) aggressive monetary tightening, we cannot say that we have a similar soothing picture in Europe. The energy crisis, that followed the pandemic, has been hard on Germany. The country needs money when money becomes rare and expensive. Germany decided to suspend the debt limit for the 4th consecutive year – signaling that borrowing in Europe will continue to increase, and the new debt that the Europeans will take on their shoulders will cost significantly higher than a few years ago.   German bonds fell yesterday on news of yet another suspension of the debt limit. The 10-year German yield advanced to 2.60%, Italy's 10-year yield jumped to 4.40%, the Italian – German yield spread rebounded this week from the lowest levels since September, and the widening yield spread between core and periphery could become a limiting factor for euro appetite at a time traders should decide whether the EURUSD should appreciate above the 1.10 psychological mark.   As per the European Central Bank (ECB) expectations, the European officials do their best to tame the rate cut expectations in the Eurozone. Belgian central bank governor Pierre Wunsch said yesterday that the ECB won't cut the rates as long as wages growth remains elevated, while the German central bank head Joachim Nagel said that cutting rates too early would be a mistake. A mistake? Maybe. Yet, economic data comes as further evidence that the European economies are not going toward sunny days. Released yesterday, the European PMI figures came in slightly better than expected, but the reading was below 50 for the 6th consecutive month, meaning that activity in the Eurozone contracted for the 6th consecutive month. The Eurozone GDP fell below 0 at the latest reading, while in comparison, the US GDP grew nearly 5%. This is to say that, based on the current data, the Fed has a greater margin for keeping rates steady than their European counterparts. It at least has better credibility. And the Fed's bigger hawkish margin compared to the ECB should keep the euro appetite limited against the US dollar following the rally since the beginning of October.   In the US, despite warnings that the falling US long-term yields will, at some point, trigger a hawkish reaction from the Fed and eventually reverse, the Fed doves remain in charge of the market. The US dollar index struggles to gain traction above the 200-DMA.   The USDJPY remains offered near the 50-DMA after the Japanese inflation advanced to a 3-month high in October (rose to 3.3% level from 3% printed a month earlier). Normally, it would've boosted bets of Bank of Japan (BoJ) normalization, but the BoJ should first awaken from its coma.  In energy, US crude trades near $75/76 region. Downside risks prevail due to speculation that the delayed OPEC meeting could result in Saudi Arabia not doubling its solo production cuts. There is even a slim possibility that they eventually reverse them.   I am wondering if this week's drama is not staged amid poor buying following the news that Saudi would doble its cuts, to cast shadow in Saudi's intention to defend oil prices, to bring attention to OPEC and to Saudi which finally would go ahead and double its production cuts hoping that the market reaction would be stronger than if they had announced the same outcome this weekend. In all cases, deteriorating growth prospects will likely limit the upside potential in oil prices in the medium run. The short run will certainly see more volatility.    
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Navigating Economic Crossroads: US Non-Farm Payrolls and Services PMIs Analysis by Michael Hewson

Michael Hewson Michael Hewson 04.12.2023 13:31
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.  
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Prolonged Softness in Services PMIs Amid Unchanged RBA Rates: Insights by Michael Hewson

Michael Hewson Michael Hewson 06.12.2023 12:08
Services PMIs expected to remain soft, as RBA leaves rates unchanged By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets got off to a rather lacklustre start to the week, weighed down by a rebound in the US dollar as well as weakness in basic resources and energy prices, as investors took a pause after the gains of the past couple of weeks.  US markets fared little better, sliding back in the face of a modest rebound in yields as investors hit the pause button ahead of this week's jobs data, which is due at the end of the week, with markets in Europe set to open slightly weaker this morning.   Earlier this morning the RBA left rates on hold at 4.35% after last month's decision to raise rates by another 25bps. Despite last month's surprise decision to raise rates today's decision acknowledged that inflation was now starting to moderate in goods even as concerns remained about services inflation. Nonetheless, despite this acknowledgement that inflation appears to be slowing there was little indication that the central bank was considering another rate move in the near term. Last month's decision to raise rates was driven by concern about domestic price pressures and while today's decision to hold was a relief there was little sign that a policy change in either direction was being considered with Governor Bullock acknowledging significant uncertainties around the outlook.   Nonetheless today's decision to hold came against a backdrop of a month which has seen 2-year yields decline almost 40bps from their 4.52% peaks on the 1st November, as markets surmised the central bank is now done, with the Australian dollar falling sharply.   The recovery in US yields yesterday appeared to be because of the possibility that the declines seen over the past few days may have been a little too much too quickly, given Powell's comments on Friday last week when he pushed back on the idea that rate cuts were on the cards for the first half of 2024.   There is certainly an element of the market getting ahead of itself when you look at a US economy that grew at 5.1% in Q3 and still has an unemployment rate of 3.9%. The same sadly cannot be said for Europe where the French and German economies could well already be in recession.   While recent manufacturing PMI data in Europe suggests that economic activity might 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. This in turn 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 main concern is that the resilience shown by the likes of Spain and Italy as their tourism season winds down appears to have declined after Italy fell sharply in October to 47.7, while Spain was steady at 51.1, although both are expected to show slight improvements in today's November numbers with a rise to 48.3 and 51.6 respectively.   The UK economy also appears to be showing slightly more resilience where there was saw a recovery into expansion territory in the recent flash numbers to 50.5, while earlier this morning the latest British Retail Consortium retail sales numbers for November, which showed that consumers remained cautious despite the increasing number of Black Friday deals ahead of the Christmas period as retailers looked to tempt shoppers into opening their wallets. Like for like sales in November rose 2.6%, the same as the previous month, with sales of high value goods remaining soft, with consumers preferring to go with lower ticket and essential items spend of food and drink, health and personal care.      In the US we also have the latest October JOLTS job opening numbers which are expected to show vacancies slow from 9.5m to 9.3m, while the latest ISM services survey forecast to show a resilient economy.   The headline is expected to show an improvement to 52.3, with prices paid at 58 and employment improving to 51.4 from 50.2 due to additional holiday period hiring. Gold prices are also in focus after yesterday's new record high saw a sharp reversal with prices closing lower in what looks like a bull trap and could see prices pause for a period of time and retest the $2,000 an ounce in the absence of a rebound.     EUR/USD – continues to look soft dropping below the 200-day SMA at 1.0825, with a break of the 1.0800 having the potential to retest the 1.0670 area. Resistance now at the 1.0940 area, and behind that at last week's highs at 1.1015/20.   GBP/USD – the failure to move above the 1.2720/30 area has seen the pound slip back with support at the 1.2590 area currently holding. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820.    EUR/GBP – found support at the 0.8555 area for the moment, but 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 – found some support at the 146.20 area in the short term, with resistance now at the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with the next support at the 144.50 area.   FTSE100 is expected to open 15 points lower at 7,498   DAX is expected to open 9 points higher at 16,413   CAC40 is expected to open 3 points lower at 7,329
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Market Analysis: Fed's Dovish Pivot, European Economic Challenges, and Expectations for the Week Ahead

Michael Hewson Michael Hewson 18.12.2023 13:44
Weak start for Europe ahead of German IFO - By Michael Hewson (Chief Market Analyst at CMC Markets UK)  After an unexpectedly dovish pivot from Fed chairman Jay Powell on Wednesday, European and US markets ended another positive week very much on a mixed note after New York Fed President John Williams pushed back on market expectations of a rate cut as early as March, saying it was premature to be even considering anything of that sort.   Williams was followed in his comments by Atlanta Fed President Raphael Bostic who delivered a similar line of thought, saying he expected rate cuts to begin in Q3 of 2024 if inflation falls as expected. With the Fed dots indicating that US policymakers saw rates back at 4.6% this appears to be more in line with the message the Fed had hoped to deliver on Wednesday, however markets decided to take Powell's press conference comments and run with them, getting out in front of their skis in doing so.   Given where the US economy is now it's surprising that the Fed are said to be to start to be thinking in terms of cutting rates simply because with the economy currently where it is, there is currently no need. With GDP at 5.2% in Q3, unemployment at 3.9%, and weekly jobless claims at just over 200k the risk of inflation reigniting is clearly still a concern for some policymakers.   That certainly doesn't appear to be the case in Europe where economic activity is stagnating at best and even now the ECB comes across as being reluctant to counter a rate cut, even though a reduction in borrowing costs is clearly needed, given that headline inflation is back within touching distance of its 2% target.   The same could be argued for the UK except wage growth is still trending well above 7%, while headline CPI is at 4.6%, though this could come down further in numbers due to be released on Wednesday.   As we look towards the final week before the Christmas break, trading activity is likely to be somewhat thin and choppy, and while we have seen record highs for the Dow, DAX and CAC 40 in the last week or so, we still remain some distance away from the 2021 record peaks of the Nasdaq 100 and S&P500.   As for the FTSE100 we're looking at yet another year of underperformance, after the record highs of mid-February, with the UK benchmark up by just over 1% year to date, with the FTSE250 not faring that much better.   Due to the relatively subdued nature of Friday's US finish, today's European market open looks set to be a slightly weaker one with the only data of note the latest German IFO Business survey for December. Given the weak nature of last week's PMI numbers it would be surprising to see a significant improvement on the November numbers when the current assessment improved slightly to 89.4.   The US dollar was one of the big losers last week driven lower by expectations that US rates have peaked and are on their way back down, with the Japanese yen one of the biggest gainers.   This shift in sentiment will no doubt be welcomed by the Bank of Japan and to some extent helps them out with respect to the weakness of the yen ahead of tomorrow's rate decision. There is now less incentive for them to think about altering their current policy settings, although they might hint at starting to execute some form of shift early next year.      EUR/USD – the rebound to 1.1010 last week didn't last long, unable to push through the November peaks at 1.1015/20. We still have support now back at the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the July peaks at 1.1275.   GBP/USD – broke briefly above the 1.2730 area, and the 61.8% retracement of the 1.3140/1.2035 down move, pushing up to 1.2795 before reversing. The bias remains for further gains while above the 200-day SMA at 1.2520. We also have support at the 1.2590 area.   EUR/GBP – slipped back from the 100-day SMA at 0.8640 last week, with support at the 0.8570/80 area. A move below 0.8580 targets 0.8520.   USD/JPY – slipped below the 200-day SMA at 142.50 last week, opening the prospect of a move towards 140.00. We now have resistance at 146.00 and while below that we could push towards 139.20.     FTSE100 is expected to open 7 points lower at 7,569   DAX is expected to open 15 points lower at 16,736   CAC40 is expected to open 3 points lower at 7,594
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Red Sea Geopolitical Strife: Disruptions Cast Shadows Over 2024 Trade and Supply Chains

ING Economics ING Economics 27.12.2023 15:15
Red Sea avoidance signals a disruptive start to 2024 for trade and supply chains We didn't expect a quiet year for trade and supply chains, but before it's even started, the vital shipping sector has been once again been pushed into the centre of geopolitical conflicts. Companies have started avoiding the Red Sea and this already leads to significant delays in supply chains and prices hikes on the spot market – and it could still get worse.   What's going on? Following several drone attacks from Houthi militants on merchant vessels, most of the world's largest container liners – including MSC, Maersk, CMA-CGM, Hapag Lloyd, Evergreen and HMM – began avoiding the 30km wide Bab al Mandeb sea strait to the Red Sea and the Suez Canal, which handles some 12% of global trade. They detoured their ultra large container vessels around Cape of Good Hope from mid-December. Roughly half of the shipped freight through the canal comprises containerised goods, making it the most important artery for container trade. The trade lane is also a vital corridor to ship oil and oil products from the Persian Gulf to Europe and the US. Re-routing around the Cape adds some 3,000-3,500 nautical miles (around 6,000 km) to the journeys connecting Europe with Asia. At a speed of 14 knots, this means around 10 days is added to the duration of the trip. Since almost all container vessels are detoured, this could push up vessel capacity consumption by over 20-25%, which would turn overcapacity into a short-term shortage.  An international coalition has been created by the US to provide naval escorts, but the risks won’t disappear immediately, and the rerouting continues.   Global container spot rates are on the rise again on the verge of 2024 World container index (WCI), freight rates in $ per FEU (40 ft container)   Container rates on the rise and delays upcoming, but impact is all about long it lasts The massive re-routing of vessels will lead to significant delays on arrival in ports. And this will also have knock-on effects on connecting vessels and the turnaround of vessels. In European ports like Rotterdam (most calls for ultra large container vessels from Asia), but also Antwerp and Hamburg, this could lead to new congestion and delays in delivery further down the line in the first quarter. The weeks ahead of the Chinese New Year are busy in container shipping, but at least for shippers and consumption in Europe, the first quarter is quieter, and inventories are still relatively high. Nevertheless, the mounting delays could turn into shortages or waiting times for some consumer products in the first part of the year. After spiking at unprecedented levels at the end of 2021, container rates returned to their pre-pandemic levels and even below over the course of 2023, as the high demand from the pandemic retreated and a range of newly delivered vessels created overcapacity. But the Red Sea crisis pushed up container global container rates again. For the US, the combination with the Panama Canal's low water restrictions even complicates supply lines to the East Coast. However, an important difference between the pandemic era and the Suez Canal blockage of the Evergiven in 2021 is that the demand-supply balance is currently far less strained. This will most likely prevent rates from reaching multiples again, but it all depends on how long the situation lasts.   Unexpectedly higher freight rates and also more complicated pricing for shippers in 2024 For shippers, freight charges are increasingly opaque as several surcharges add to bold port to port rates. The current situation in the Red Sea region leads to emergency contingency adjustment charges. This also further complicates next to other price supplements, such as peak season surcharge and ‘emissions surcharge’ following the start of the European emissions trading system (ETS). Either way, for shippers and eventually also for consumers, 2024 starts with higher than expected freight rates.  

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