european economy

Inflation – it's complicated. And it has dominated headlines for the past two years. Here's what we think is going to happen next In this article A complicated story The long road towards lower inflation Longer-term factors likely to push up inflation again   Industrial unrest has been increasing as workers demand higher wages to match inflation. 'For our wages' reads this banner at a recent protest in France A complicated story The drivers behind inflation have been discussed extensively. Lockdowns and reopenings, supply chain frictions, the war in Ukraine and an energy crisis pushed up headline inflation in most industrialised economies into double-digit levels this year. While inflation in Europe is still mainly driven by higher energy, commodity and food prices, it's become much more domestically driven in the US. At the end of the year, headline inflation in the States had started to come down significantly, and it seemed to have approached its peak in the eurozone. The big question for 2023 is whether headline inflation will retreat further and, if it does, how fast will the fall be? As we've seen over the past couple of years, the inflation outlook varies between regions.  The long road towards lower inflation Generally speaking, manufacturing firms across developed markets are reporting lower orders and rapidly rising inventory levels. Coupled with lower input prices for many commodities and also shipping, this points not only to lower inflation but also potentially to outright price falls in some durable goods categories; we already see that with used cars. That’s consistent with history, too: Goods inflation, particularly consumer durables, tends to be more volatile, but trends are also less persistent than services inflation. Just as goods price inflation surprised higher during Covid, it also has the potential to do the same on the downside. In the US, the latest ex-food and energy inflation readings are undershooting expectations, with some evidence that weakening corporate pricing power is spreading as businesses become more cautious about the outlook and see their inventory levels rise. However, Federal Reserve officials have signalled concern about services excluding housing (around 25% of the inflation basket) with the latest strong wage data set to keep them cautious.  We believe that the high share of shelter and used cars in the inflation measure (more than 40% of the basket) could push down headline inflation faster than many policymakers currently expect. After all, they reflect assets, so there is greater scope for outright price falls than for services. In the eurozone, however, headline inflation could prove to be a bit stickier, certainly if our house view is correct and gas prices stay high into winter 2023. Also, the pass-through from higher wholesale gas prices to consumers comes in waves and is likely to continue far into next year. As a consequence, headline inflation will just gradually come down and will only reach the ECB’s 2% target in 2024. Labour markets pose more of a conundrum but are crucial for the outlook for core inflation. While there’s little doubt hiring appetite is weakening as recession sets in - and that will continue - structural labour shortages suggest firms have an incentive to ‘hoard’ staff more than in past recessions. Given that demographics are less favourable in Europe than in the US, labour hoarding could be more accentuated in Europe. That suggests wage growth may also not slow as much. In any case, let’s not forget that wage growth is one of the most lagging indicators and even with a looming recession, wage negotiations at the start of 2023 will still be highly impacted by the inflation developments of the past two years and less by the looming recession. Remarkably, the UK faces a unique situation of an uptrend in the proportion of adults neither employed nor actively seeking a job, a situation exacerbated by healthcare problems. Longer-term factors likely to push up inflation again Our base case scenario remains that inflation in the developed economies will return to around 2% in 2024. However, this is no reason for relief and could be a very short-lived experience. In the longer term, structural shifts in the global economy are likely to push up costs and hence inflation. Deglobalisation - the restructuring of supply chains but also new trade barriers - presents new costs for corporates. Climate change and the transition to net zero will also initially push up costs for energy and commodities and will lead to more volatile inflation over the coming years. While 2022 saw higher gas prices due to the Ukraine war, those prices were already volatile in 2021, which was partly linked to periods of poor renewables' output. Until advances in energy storage become more widespread, the switch to zero-carbon electricity - and the associated volatility in output - implies periods of more volatile European power prices. Extreme weather also points to more volatility linked to supply chain pinch-points, as we saw with the drought-affected river Rhine in the summer. Demographic change, already leaving its mark on labour markets, will only grow and add to upside pressure on wages unless jobs are automated. Against this background of gradually declining but structurally higher inflation, the key question is what central banks will do if core inflation doesn’t return fully to target over the next 12 to 18 months. One option would be to keep policy rates high or higher for longer. The other option could be to become more flexible once inflation falls much lower. But it does suggest a return to consistently below-neutral interest rates is less likely in the medium-term. TagsInflation 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

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

In this article, we engage in a conversation with analyst Patrick Reid to discuss the potential impact of the Bank of England's interest rate decision on GBP quotes. We also explore the Turkish central bank's upcoming interest rate decision and its potential effect on TRY quotes. Additionally, we analyze the latest PMI readings in the US and Europe, examining whether they indicate the possibility of a "hardset landing." Lastly, we delve into the consolidation of US 10-year bond yields after a strong two-year uptrend and speculate on what might lie ahead based on factors such as the Terminal Rate and US macroeconomic conditions.   FXMAG.COM: How will Thursday's (22.06) Bank of England interest rate decision affect GBP quotes? Patrick Reid:The rate hike is fully priced in so the Forward Guidance on Future hikes is crucial to watch. We had a very hawkish FED which the market didn't tend to believe followed by an ECB indicating more hikes in July.  With regards to The BOE I feel trust is coming back but the market needs to be ready for more hikes. We have sticky Core Inflation and a mortgage crisis about to blow up. FXMAG.COM: How will Thursday's (22.06) Turkish central bank's decision on interest rates affect TRY quotes? Patrick Reid:I feel Turkey needs rates above 20% as the new appointment of senior officials to the Central Bank has not done much to stop its decline.      FXMAG.COM: What do the latest (23.06) PMI readings say about the US and European economies? Do they signal the possibility of a " hardset landing " in America and the Old Continent? Patrick Reid:ISM has been weaker in The US as of late but Friday will be key - especially for European PMI's. USD is consolidating at the yearly lows so i fell we will need a big beat of miss for this to change     FXMAG.COM: For several months, US 10-year bond yields have been consolidating after a 2-year robust uptrend, what's next?  Patrick Reid:It all depends on The Terminal Rate and US macro. I do not see 2 Year getting above 6% this year unless inflation goes higher and GDP doesn't get much weaker.  

Recent industrial production data from the Eurozone paints a concerning picture for the European economy and industry. According to Eurostat data, industrial production in Europe declined by 2% year over year in May, exceeding expectations of a 1% decrease. This raises questions about the broader impact on the European economy. The industrial sector plays a crucial role in any economy as it encompasses the processing and transformation of raw materials into finished and semi-finished products. This sector significantly influences other parts of the economy, including the housing market, retail sector, consumer spending, and ultimately, inflation. Changes in industrial production directly affect the supply and availability of products, which can have broader implications for the overall economic landscape.     FXMAG.COM: What does the industrial production reading from the Eurozone tell us about the state of the European economy and European industry?   Antreas Themistokleous: The industrial production in Europe for the month of May has declined by 2% year over year according to Eurostat data. This came out to be worse than the expectations of only 1% so how does that affect the European economy?    First of all the industrial sector is a major component of an economy since it's responsible for the processing and the transformation of natural products (raw materials) into other finished and semi-finished products which in turn assist in other parts of the economy such as the housing market, the retail sector. In addition it affects the consumer spending and inevitably inflation since it directly affects the supply and availability of products to be consumed.    Inflation data is another major component that affects an economy and the European inflation rate has shown some steady decline since the high of 10.6% in October 2022. Currently the rate is at 6.1% and on the 19th the official rate for the month of June will be published. Expectations are for a further decline of around 0.6% which if confirmed could influence the decisions of the European Central Bank in regards to their monetary policy and inevitably their interest rate decision on their next meeting on the 27th of July.    The interest rate set by the ECB is currently at 4% while the market is expecting the central bank to proceed with another step hike , 0.25%, at their meeting in late July. If the expectations are correct then we might see some boost for the Euro against its pairs while unemployment is holding stable at 6.5% for the last two months.   All in all the European economy seems to be at a stagnant phase. Inflation seems to be stickier than expected resulting in continued hawkish stance by the central bank to increase interest rates in an effort to discourage economic activity in the market. On the other hand unemployment is near a 25 year low adding to the buying power of consumers pushing inflation figures to the upside creating what temporarily seems to be a never ending cycle when it comes to fighting inflation.   

FX Daily: European pessimism, Chinese optimism In quiet markets ahead of G3 central bank meetings later this week, currency pairs are being driven by the soft set of eurozone July PMIs and also the prospect of some renewed Chinese stimulus after China's Politburo promised 'counter-cyclical' measures. These look like short-term trends. We would wait for the policy meetings to set the true FX tone.   USD: China stimulus – here we go again In quiet markets ahead of G3 central bank meetings, the FX market's focus has once again fallen on China. Having broadly disappointed investor expectations this year, China's economy is seen as enjoying a lift after China's Politburo yesterday promised 'counter-cyclical' measures. These follow a drip feed of support measures over recent weeks, such as the easing of restrictions in the mortgage sector, the encouragement to buy cars and electronics, and perhaps some support to local governments saddled with debt. None of these seem to be a game-changer so far, but the market optimists are hoping that this new directive from the Politburo will be turned into powerful stimulus at the State Council level.  Tellingly, USD/CNH did not move much when these measures were announced during the European session yesterday, but Asian investors are running with the story and driving the renminbi some 0.6% higher this European morning. Chinese equities are having a decent run too. These short-term trends may well fizzle out – we've been here before with prospects of China stimulus – but they could provide some mild support to emerging market and commodity currencies through the session. The reason why we warn against pursuing a full 'risk-on' rally in Rest of World (RoW) currencies is that the European economy looks weak and tomorrow's FOMC meeting will probably see the Fed's foot remaining firmly on the monetary brakes. Additionally, there was an overnight Wall Street Journal article by Fed watcher Nick Timiraos entitled: 'Why the Fed isn't Ready to Declare Victory on Inflation' – perhaps a nod to a still hawkish FOMC statement tomorrow.  Today's US data releases are second tier, but the consensus is expecting a decent tick-up in the July consumer confidence reading. As in the UK, there is a growing sense that consumers have so far been able to handle the pain of higher rates, diluting the case for any early easing cycles.   DXY can trade a tight 101.00-101.50 range ahead of tomorrow's Fed meeting.

EUR: July PMIs rain on the parade As our colleague, Bert Colijn, wrote yesterday, the worsening eurozone July PMI figures point more towards contraction than stagnation in the European economy. That is something our European macro team highlights in their ECB commentary – namely that the ECB is just too optimistic in its growth forecasts. A reality check for those forecasts could undermine the ECB hawks and indeed the PMI data triggered an independent 0.4% sell-off in the trade-weighted euro yesterday. Even though yesterday's break below 1.1100 in EUR/USD was a euro, not a dollar-led move, we still see some downside risks to EUR/USD from the dollar side later this week. Expect support at 1.1050 to remain under pressure heading into tomorrow's FOMC meeting and a break under 1.10 would of course undo the positive momentum witnessed earlier this month. It is possible we see a very narrow range in EUR/USD today, something like 1.1050-1.1100, where the pro-growth China news may be the only factor holding EUR/USD above 1.1050.  Bigger picture, we may have to wait until September for the more sustainable upside breakout in EUR/USD, when the Fed will have sufficient evidence of disinflation to formally acknowledge it in an FOMC statement. Also, look out for the German IFO today – presumably as soft as yesterday's flash July PMI releases.

Bank of England set to raises rates to a new 15 year high European markets underwent another negative session yesterday, clobbered by concerns over weaker than expected economic activity, which in turn is raising concern for earnings growth heading into the second half of the year. Throw in a US credit rating downgrade from Fitch and the catalyst for further profit taking after recent record highs for the DAX completed the circle of negativity.     US markets also underwent a negative session, with the Nasdaq 100 undergoing its worst session since February, while the US dollar acted as a haven and the yield curve steepened. As a result of the continued sell-off in the US, and weakness in Asia markets, European markets look set to open lower later today, and while the Fitch downgrade doesn't tell us anything about the US political governance that we don't already know investors appear to be looking to test the extent of the downside in the market.     Earlier this week we saw some poor manufacturing PMI numbers which showed that the European economy was very much in recession, with disinflation very much front and centre. This has raised questions as to whether the services sector will eventually succumb to similar weakness. There has been some evidence of that in recent readings but by and large services activity has been reasonably robust. In Spain services activity is expected to remain steady at 53.4, along with Italy at 52.2. The recent flash numbers from France saw further weakness to 47.4, while in Germany we can expect to see a resilient 52, down from 54.1.         EU PPI for June is expected to slip further into deflation to -3.2% year on year. In the UK services activity is expected to slow to 51.5 from 53.7. With inflation unexpectedly slowing more than expected in June to 7.9% it could be argued that the pressure on the Bank of England to hike by another 50bps has eased somewhat, especially since the Fed and the ECB both hiked by 25bps last week.     Having seen core CPI slow by more than expected to 6.9% forward rate expectations have eased quite markedly in the past few weeks. Forward market expectations of where the terminal rate is likely to be, have slipped from 6.5%, to below 6%. It's also likely that inflation for July will slow even more markedly as the effects of the energy price cap get adjusted lower which might suggest there is an argument that we might be close to the end of the current rate hiking cycle.     The fly in the ointment for the Bank of England is the rather thorny issue of wage growth which has moved above core CPI, and could prompt the MPC to err towards the hawkish side of monetary policy and raise rates by 50bps, with a view to suggesting that this could signal a pause over the coming weeks as the central bank gets set to consider how quickly inflation falls back over the course of Q3. Such an aggressive move would be a mistake given that a lot of the pass-through effects of previous rate increases haven't fully filtered down with some suggesting that the Bank of England should pause. In the current environment this seems unlikely given a 25bps is priced in already.       In a nutshell we can expect to see a hawkish 25bps as a bare minimum, and we could also see a split with some pushing for 50bps. We could also get an insight into how new MPC member Megan Greene views the current situation when it comes to casting her vote. One thing seems certain, she is unlikely to be dovish as Tenreyro whom she replaced on the MPC.     We'll also get a further insight into the US labour market after another bumper ADP payrolls report yesterday which saw another 324k jobs added in July. Weekly jobless claims are expected to come in at 225k, while we'll also get an insight into the services sector with the ISM services index for July which is expected to come in at 53. The employment component will be of particular interest, coming in at 53.1 in June, having jumped from 49.2 in May.       EUR/USD – managed to hold above the 50-day SMA for the time being, with a break below targeting further losses towards 1.0830. Resistance currently at last week's high at 1.1150.     GBP/USD – also flirting with the 50-day SMA with a clean break targeting a move towards the 1.2600 area.  Resistance at the 1.2830 area as well as 1.3000.         EUR/GBP – continues to edge higher drifting up to the 0.8630 level before slipping back, although it is now finding some support at the 0.8580 area. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to look well supported above the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 10 points lower at 7,551     DAX is expected to open 22 points lower at 15,998     CAC40 is expected to open 15 points lower at 7,297   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  

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

The EUR/USD currency pair moved upwards and downwards over the past day. Such a movement does not surprise us, as we have repeatedly mentioned that the current move to the south is fairly weak, and corrections and pullbacks occur quite frequently. So it's not surprising that the euro initially dropped and then increased.     Overall, it continues to decline, just not very rapidly or hastily. Yesterday showed us what many had realized long ago. The European economy is just shy of sliding into a recession. For several quarters, GDP indicators have been teetering on the brink of negative values. But what can one expect when the European Central Bank regularly raises its rate? It's worth noting that the GDP is going through tough times with a not-so-high key rate, especially when compared to rates in the UK and the US, where they are much higher.   While the British economy is also struggling, the American economy is growing briskly, giving the dollar a strong advantage. We will discuss business activity indices. For now, it's worth noting that the downward trend for the pair continues, but the CCI indicator went into the oversold zone yesterday. This is a strong buying signal, so we can expect a stronger upward correction soon. Especially since, on the 24-hour timeframe, we are still looking for a confident breakthrough of the Ichimoku cloud. Thus, the pair continues its correction within the global upward trend, but the main movement can resume anytime. What are the fundamental reasons for this? There aren't any. However, it's important to remember that the forex market doesn't always move strictly with fundamentals and macroeconomics.     The European economy is sliding into the abyss. The service sector in the European Union and Germany has fallen below the "waterline." If the manufacturing sector has been in the negative business activity zone for over a year, the service sector entered it in August. Now, both sectors in Germany and the EU are below the key level of 50.0, which does not bode well for the European economy. For instance, business activity indices in the US could be in better shape but still higher than in the EU or Germany.   Hence, we can only state the obvious: US statistics continue to outperform European ones. It's worth noting that the American currency has been falling for almost a year now. This happens when the Federal Reserve's rate rises faster and stronger, and the US economy appears much more stable and confident than the European one. Recognizing this fact leads us to believe that the European currency is extremely overbought and unjustifiably expensive. Based on this, we anticipate a further decline in the European Union's currency.   This week, we are awaiting the speeches by Jerome Powell and Christine Lagarde. Although we think both officials will only provide a little significant information, the market might still grasp certain hints. Both leaders hint at a pause in September; if one doesn't, it might support their country's currency. Given the sharp decline in business activity in the European Union, we believe the likelihood of "dovish" rhetoric from Christine Lagarde is much higher. But the Federal Reserve has also adopted a "two meetings – one hike" policy, so Powell is unlikely to discuss the need for immediate tightening without seeing the August inflation report.       The average volatility of the EUR/USD currency pair over the last five trading days as of August 24 is 65 points and is characterized as "average." Therefore, we anticipate the pair to move between levels 1.0809 and 1.0939 on Thursday. A downturn in the Heiken Ashi indicator will signal a resumption of the downward movement.   Nearest support levels: S1 – 1.0803 S2 – 1.0742 S3 – 1.0681   Nearest resistance levels: R1 – 1.0864 R2 – 1.0925 R3 – 1.0986     Trading recommendations: The EUR/USD pair currently maintains a downward trend. New short positions should be considered with targets at 1.0803 and 1.0742 in case of a downward reversal in the Heiken Ashi indicator or a price rebound from the moving average. Long positions can be considered if the price consolidates above the moving average, with targets at 1.0939 and 1.0986.   Explanations for illustrations: Linear regression channels – help determine the current trend. The current trend is strong if both are directed in the same direction. Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should proceed. Murray levels – target levels for movements and corrections. Volatility levels (red lines) – the probable price channel in which the pair will operate in the next 24 hours, based on current volatility indicators. The CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250) indicates that a trend reversal in the opposite direction is approaching.  

While we've understood Federal Reserve Chair Jerome Powell's potential rhetoric, what about European Central Bank President Christine Lagarde's statement? That's much more complicated. The ECB's rate is below the Fed's, yet inflation in the European Union is higher. This single factor suggests that the ECB should agree to additional tightening. However, in recent months, we've repeatedly heard that a pause is needed. A pause doesn't mean the end of the tightening process, but, in a manner of speaking, its final stretch. If Lagarde hints at such a scenario in her speech, the euro will dip even further in the market.     The second crucial factor is the state of the European economy. GDP has been stagnant for almost four quarters, and PMIs keep falling. As a result, every new rate hike will push the European economy into an even deeper hole. It's important for the ECB to maintain a balance between the rate and the economy. Every subsequent ECB meeting is now a mystery. Some members of the Governing Council believe in another rate hike, while others insist on a pause. Lagarde is set to guide the market on Friday. In my opinion, the chances of a dovish stance from Lagarde is much higher. Even if she announces that the current course will be maintained, it doesn't mean all members of the Governing Council will support her stance. From this perspective, the Fed appears to be a more cohesive entity, so the preliminary verdict is as follows: Powell's hawkish stance is more likely, while Lagarde's is "conditionally-hawkish".   This means a further decline for the EUR/USD. As for the GBP/USD, a lot hinges on the 1.2618 mark. A successful attempt to break through it will signal the market's readiness to continue selling, regardless of Powell's remarks in Jackson Hole. Based on all the above, I don't expect the market mood to change on Friday. Both instruments might start forming corrective upward waves, but so far, there are no signs for either. Hence, it's too early to talk about a strong increase in demand for the euro and the pound.     Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are quite realistic, and with these targets in mind, I advise selling the instrument. The a-b-c structure appears complete and convincing. Therefore, I advise selling the instrument with targets set around the 1.0788 and 1.0637 marks. I believe that the bearish segment will persist, and a successful attempt at 1.0880 indicates the market's readiness for new short positions. The wave pattern of the GBP/USD pair suggests a decline within the downtrend segment. There is a risk of ending the current downward wave if it is wave "d" and not "1". In that case, wave 5 could start from current levels. However, in my opinion, we are currently seeing the construction of a corrective wave within a new downtrend segment. If this is the case, the instrument will not rise much above the 1.2840 mark, and then a new downward wave will commence. We should brace for new short positions.  

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

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

Soft US jobs data, further China stimulus fuel appetite  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank       Last week ended on a positive note, and this week started with a solid risk appetite, as the US jobs data hinted at a finally loosening jobs market, while Chinese stocks rallied on further measures deployed by the Chinese government to support the country's faltering property market. In fact, the latest news suggests that more than 1800 new homes were sold in Beijing on Saturday alone after the government eased mortgage rules last week (vs. around 3100 homes were sold in Beijing during the entire August). The Hang Seng index jumped more than 3% this Monday before paring gains.   In the US, Friday's jobs data was good, in terms of Federal Reserve (Fed) expectations. The US economy added 187K new nonfarm jobs last month, above expectations, but the unemployment rate ticked higher to 3.8% as the participation rate rose. The wages growth fell from 4.4% to 4.3% in August. The US 2-year yield, which is the most sensitive to changes in Fed expectations, tipped a toe below the 4.80% level, as investors took the opportunity to increase their bets that the Fed is certainly done with its rate hikes this cycle. Activity on Fed funds futures gives around 93% chance for another skip at the September meeting, and the probability of a pause in November has almost jumped to two thirds. The S&P500 recorded its best week since June, and rebounded to the highest level in a month, while Nasdaq 100 ended last week a few points below the 15500 level, and with trend and momentum indicators pointing at further strength.   Today, the US and Canada will be closed, but Europe is open for business and even though the week starts with a favourable risk appetite, there is nothing in the latest economic data to make the European investors cheer. Released last Friday, the euro area manufacturing PMI came in lower than expected, and posted the 14th consecutive month of contraction as the energy crisis continued taking a toll on activity in the old continent. Released earlier last week, the latest inflation estimate for the Eurozone showed that inflation in the euro-area stagnated, instead of easing further. In summary, activity is slowing but inflation is not - due to still too high energy prices, and that's bad for the European Central Bank (ECB). There are now rising voices that the ECB won't hike rates when it meets this month, although it's hard to imagine Christine Lagarde announce a pause while weakness in economic activity isn't yet reflected in price dynamics, and the European jobs market remains relatively strong.       US crude hits $86pb  The barrel of US crude traded past $86pb, as oil bulls continued buying the tight supply narrative from OPEC+. But looking at the crude's impressive rally since the 24th of August dip, and taking into account that the RSI index now warns that oil has stepped into the overbought market conditions, we shall see a minor correction in oil prices this week, before an eventual push toward the $89/90pb area.   Elsewhere, the European nat gas futures remain highly volatile due to strikes in Australia. Hundreds of Chevron workers will be going on a strike on September 7. Strikes cause decent positive pressure and a lot of volatility in TTF futures. But the European nat gas reserves are full by around 90% and there is no particular urge for the European to rush to nat gas at the current prices. Therefore, the price rallies on strike news remain interesting short-term trade opportunities for top sellers. 

While the euro is actively trying to find some kind of bottom against the US dollar, the speeches of European politicians are coming to an end. Perhaps after that, the pressure on the single currency will somehow decrease, but personally, I have strong doubts about this, as there are absolutely no reasons for it. And if we also consider the first possible pause in the cycle of interest rate hikes from 2022, as well as the actively shrinking European economy, then we can deduce that there will be fewer reasons to buy risky assets.   However, some hawkish European politicians continue to "stick to their guns." According to a member of the Executive Board, Klaas Knot, investors betting against the European Central Bank raising interest rates next week may underestimate the likelihood of it happening. While a slowdown in the eurozone's 20-nation economy is sure to damp demand, updated inflation projections won't differ much from the last round in June, the Dutch central bank chief said. "I continue to think that hitting our inflation target of 2% at the end of 2025 is the bare minimum we have to deliver," said Knot.   As I mentioned earlier, he made such statements before a week-long period of calm preceding the September meeting of the ECB Governing Council. Knot also noted that the markets are currently experiencing difficulties, which are also experienced by the central bank. Just recently, the central bank governors of Germany, Belgium, Austria, and Latvia expressed support for another quarter-point rate hike, likely the last in this cycle. However, their colleagues from Italy and Portugal are among those emphasizing that economic risks are starting to emerge. Recent eurozone PMI data and today's revised downward GDP report for the eurozone in the 2nd quarter clearly indicate this. ECB President Christine Lagarde, speaking earlier this week, also did not make any commitments, simply stating that inflation is too high, and the central bank is determined to tame it, with decisions based on appropriate data. Obviously, it's also challenging to assess the current progress in inflation. Underlying pressure has decreased, but the overall reading has increased due to a sharp spike in non-oil prices. European politicians have also recently discussed this, lamenting issues with the energy market. Wage negotiations and corporate price behavior will be crucial in determining how quickly inflation returns to the target level. As for today's technical picture for EUR/USD, the bears have slightly eased their grip. To maintain control, bulls need to stay above 1.0700. This will allow them to break back to 1.0750. From there, they can climb to 1.0770, but it will be quite difficult to do so without support from major players. In the event of a downtrend, I only expect significant action from major buyers around 1.0700. If there's no significant support there, it would be a good idea to wait for a new low at 1.0665 or open long positions from 1.0635. Regarding the technical picture for GBP/USD, the pound will continue to fall. We can only bet on a recovery once traders take control of the level at 1.2530. Returning to this range will restore hope for a recovery towards 1.2560, after that we can talk about a more significant surge towards 1.2700. In case the pair falls, bears will try to take control below 1.2484. If they succeed in doing so, breaking through the range will hit bullish positions and push GBP/USD towards the low at 1.2440 with the potential to reach 1.2400.

2024 set to be the year that the hike cycle is felt The ECB hike cycle seems over, but the shockwaves of tightening will still shape the eurozone economy in 2024. Traditional lags in transmission are now accompanied by longer ones in average interest burden increases, potentially extending the impact of tightening. For the ECB, the risk of being behind the curve for the second time in one cycle is growing. The end of the hike cycle is most likely here. The ECB has raised interest rates aggressively - from -0.5% to 4% in just over a year. With inflation coming down quickly and the economy stagnating, it is hard to see how the ECB could continue hiking rates, either this week or in the coming months. Instead, the focus is shifting towards possible first rate cuts. This makes it an excellent moment to focus on how fast monetary transmission is happening and what to expect from the impact of this in 2024.   The initial impact of tightening was significant In March, we concluded that the early signs of a rapid impact on transmission channels were significant. Since then the pace has moderated a bit, depending on the channel. As back in March, we follow the ECB’s own categories of transmission channel. At the end of 2023, broad money supply is still contracting quickly, currently at an annual pace only seen in 2009. Bank rates for loans for households and businesses are still rising rapidly and the euro has broadly appreciated against the currencies of major trade partners since late summer - it is now slightly above levels seen at the start of ECB’s rate hikes. Asset prices have also corrected, but with very different results across asset classes.   Flow chart of how monetary policy impacts the economy, according to the ECB Moving on from the channels to the real impact of monetary tightening so far, the impact on bank lending has slowed. Most importantly, the bank lending impact was strong at the start of the tightening cycle - lending growth to non-financial corporates has slowed from around 1% month-on-month in the summer of 2022 to 0% in November and has stabilized around 0% since. This also seems related to a working capital and inventories-related lending surge in summer, the need for which faded when supply chain problems eased. Lending to households slowed from 0.4% month-on-month in May 2022 to 0% in April 2023, since when it has also stabilized around 0%. Overall, the lending correction is not dramatic, but has a significant impact on future investment. Don’t forget that there is likely more to come - the ECB Bank Lending Survey suggests continued weakness in lending ahead. In short, the impact of monetary policy tightening on lending and consequently on the real economy is unfolding like every textbook model would suggest.   At face value, monetary transmission is working quickly   Not every aspect of tightening works quickly, quite some of the burden is still to come While at face value the transmission of monetary policy tightening is working as planned, looking slightly deeper reveals more complexity and more sluggishness. Coming from a long period of negative rates is having a big impact on how fast interest payments are rising. Looking at net interest payments from corporates, we see that these have increased disproportionally slowly so far (chart 4). The same holds for households, where the average mortgage rate paid by households in the eurozone has only increased by 0.8% while new mortgage loan rates are up by 2.7%. For governments, the same is true. Interest rate payments are increasing but remain at relatively low levels. Low locked in-rates have caused a relatively small increase in debt burdens so far.   Average interest payments have started to move up only slowly   This means three things: First of all, costs have not increased materially so far, which would be an additional tightening effect. Higher costs force cuts in spending or investment elsewhere, which results in weaker activity. While the relationship between interest rates for new loans and average debt burden was more synchronized in previous hike cycles, the initial effect on debt burdens has been relatively limited. Secondly, this means that the impact of the hike cycle is likely more spread out this time. Over the course of next year, loans will have to be refinanced at higher rates, which will continue to increase average debt burdens. So, while the initial impact of ECB tightening has already been forceful, it is reasonable to expect that the effect will not fade quickly in 2024 as more businesses, households and governments adjust to a new reality of higher rates. Lastly, since there is now such a discrepancy between the current interest rate and the average interest rate paid in the economy, the ECB could cut rates but average interest payments could still be increasing. So, if the ECB were to start the process of decreasing interest rates, part of the tightening effect would still be coming through the pipeline. This would dampen the effect on monetary easing.   Important moderating effects have kept the impact on GDP mild so far Much to the chagrin of the ECB, governments have continued to provide ample fiscal support to the economy. As chart 6 shows, the fiscal stance is falling moderately, but continues to be generally supportive of economic activity. It is not the first time that fiscal and monetary stances are at odds with each other - think back of the 2010s when fiscal austerity countered ECB efforts to bring inflation up to 2%. Now this is working the other way, as fiscal support boosts economic activity and therefore counters the ECB’s efforts to reduce underlying inflation.   As in the 2010s, monetary and fiscal policy are working in different directions   The labour market is also moderating the impact of tightening; at least for now. The weaker economic environment since late 2022 has not yet translated into a weaker labour market. While a relatively simple Okun’s Law would suggest that the labour market should be cooling slightly, it remains red hot. This supports economic activity and maintains wage pressures for the moment. Tightening efforts in the labour market remain relatively invisible for now. Finally, investment has continued to be supported by the supply-side problems from 2021 and 2022. While new orders have fallen, production has been kept up by the large amount of so far unfulfilled orders brought forward. The size of eurozone order books has fallen rapidly since late 2022, which has boosted activity and masked weakness in drying up orders when it comes to total economic activity. These factors have so far suppressed the impact of tightening on the economy, but we expect them to be less supportive of growth in 2024. While the fiscal stance is set to remain expansionary, with the exception of Germany, it will likely be less so in 2024 than in 2023. The labour market has recently shown more serious signs of weakening, which leads us to expect that unemployment will finally start to slowly increase over the course of next year. Backlogs of work have largely been depleted, meaning that the full effect of monetary tightening will likely be felt more strongly next year as mitigating factors fade.   Unemployment is lower than you would expect on the basis of current economic activity   The landing has been very soft so far, but gets bumpier in 2024 Inflation has come down very quickly over the course of 2023. Peaking at 10.6% YoY in October, it has fallen to 2.4% in November. This has been achieved with economic activity stagnating but not falling and the labour market continuing to go from strength to strength. The monetary stance has moved from an interest rate of -0.5% and QE to a 4% interest rate and QT. Can we really move from a broadly accommodative stance to a very restrictive stance and not notice any economic pain? That seems unlikely: much of the impact of the higher rate environment is likely to be felt next year because of the usual lag of monetary policy, because some effects of tighter policy are now more lagged than in previous cycles, and because mitigating factors are set to fade. Milton Friedman’s famous quote that monetary policy has ‘long and variable lags’ seems to be an understatement in the current complex monetary environment. That does mean that the restrictive impact of monetary policy on the economy is set to increase while inflation already looks to be solidly under control. The month-on-month core inflation rate in November was negative and the trend has been sharply down. Disinflation in 2023 was mainly the result of base effects due to ending supply shocks and not so much to monetary policy tightening. Disinflation in 2024, however, will be mainly the result of the further unfolding of monetary policy tightening. While there are clear uncertainties about the inflation outlook - including how wage growth will develop and whether new spikes in energy prices could emerge - there is a high risk that the ECB is getting behind the curve for the second time in one cycle. It was late in responding to inflation on the way up and could well be late in responding on the way down as well. Expectations of rate cuts have moved forward and have grown a lot recently. Given the wrong assessment of inflation dynamics on their way up and concerns about possibly more persistent inflationary drivers, we think the ECB will be very hesitant to simply reverse the rate hiking cycle. Instead, we expect the ECB to wait for additional wage growth data for the first quarter and then start cutting in June - but rather gradually, with three cuts of 25bp every quarter. That would still leave monetary policy restrictive and keep average interest rate payments going up as society adjusts to higher interest rates. It would also make new investments slightly more attractive again. The hike cycle may have so far seemed like an easy adjustment to swallow, but ironically the pain of tightening will likely be felt most when the ECB already starts to ease.

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

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

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

A dream comes true. By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank The EURUSD traded south yesterday, as the European Central Bank (ECB) Chief Christine Lagarde reckoned that growth and inflation are slowing, while insisting that the rate cut decision will be data dependent. The pair cleared the 200-DMA support, fell to 1.0820, it's a little higher this morning, but we are now below the 200-DMA and the ECB rate cut bets on falling inflation and slowing European economies remain the major driver of the euro weakness, with many investors now thinking that June could be a good time to start cutting the rates. Three more rates could follow this year. Across the Atlantic, the US released its latest GDP update and the data was as good as it could possibly get. The US economy grew 3.3% in Q4 versus 2% expected by analysts. It grew 2.5% for all of last year –quite FAR from a recession. The consumer spending growth slowed to 2.8%, but remained strong on healthy jobs market and wages growth, business investment and housing were supportive and... the cherry on top: the GDP price index, a gauge of inflation fell to 1.5%. Plus, data from rent.com showed that the median rent rate declined in December, and that's good news when considering that rents have been one of the major drivers of inflation lately, and they look like they are cooling down. In summary, yesterday's US GDP data was the definition of goldilocks in numbers: good growth, slowing inflation. A dream comes true. As reaction, the US 2-year yield fell below 4.30% and the 10-year yield fell below 4.10%. The strong numbers didn't necessarily hammer the Federal Reserve (Fed) cut expectations given that inflation slowed! Investors are not sure that March would bring the first rate cut from the Fed – as the probability of a March cut is around 50%, but a May cut is almost fully priced in. Today, all eyes are on the Fed's favorite gauge of inflation: core PCE – expected to have retreated to 3% in December. A number in line with expectations, or ideally softer than expected could further boost risk appetite.