france

Eurozone PMIs show very tentative signs of bottoming out

The eurozone economy continues to trend around 0% growth and there are no signs of any imminent recovery. Price pressures are still increasing for the service sector, which provides another argument for the ECB not to hike before June.

How you read today’s PMI release for the eurozone reveals whether you’re an optimist or a pessimist. The increase from 47.6 to 47.9 in the composite PMI for January cautiously shows signs of bottoming out but also still indicates contraction. We also note that France and Germany saw declining PMIs, making the increase dependent on the smaller markets. Manufacturing price pressures remain moderate despite the Red Sea disruptions, but the service sector indicates another acceleration in input costs.

To us, this shows that the eurozone economy remains in broad stagnation and that risks to inflation are not small enough to expect an ECB rate cut before June.

The eurozone continues to be plagued

USD/JPY Tops Majors in Past Month; Strong Verbal Intervention from Japan's Ministry of Finance as Resistance Nears

ING Economics: "French GDP stagnates in 1Q, hit by household consumption"

ING Economics ING Economics 29.04.2022 09:15
Weak domestic demand brought French growth to a halt in the first quarter, a worse result than expected. The outlook for the next few quarters is hardly more dynamic Source: iStock GDP stagnated in 1Q France's economic growth came to a halt in the first quarter, posting a 0% quarterly variation after 0.8% in the fourth quarter of 2021. Unlike the US, where the fall in GDP in the first quarter is linked to weak foreign demand, it is domestic demand that is falling in France, detracting 0.6 percentage points from GDP growth. Within domestic demand, it is above all household consumption that is clearly down, with a drop of 1.3% over the quarter on the back of high inflation and pessimism linked to the war in Ukraine. Gross fixed capital formation continues to grow, albeit slightly (+0.2%). Foreign trade also continues to grow, but at a slower pace than at the end of 2021, thanks in particular to a rebound in exports of transport equipment following the delivery of a cruise ship. Exports (+1.5% over the quarter) are growing faster than imports (+1.1), allowing foreign trade to make a positive contribution to economic growth (+0.1 point). Inventories also contributed 0.4% over the quarter, thus avoiding a contraction of the French economy. Finally, it should be noted that the total production of goods and services continues to increase in 1Q, but at a less dynamic pace than the previous quarter (+0.5% from +1.0%). Overall, these figures are worse than expected (the Reuters consensus was for +0.3% for the quarter). While 2021 had seen a more dynamic economic performance than hoped for, 2022 has started with a more significant slowdown than expected. This slowdown does not bode well for the future. More quarters of stagnation to come For the coming quarters, the growth outlook is not very bright. The sharp rise in inflation, which is now spreading more and more widely throughout the economy, is weighing on household incomes. This is compounded by household pessimism, illustrated by the sharp fall in consumer confidence in March and the fact that it did not recover in April. These two elements are likely to further dampen household demand. This drop in household demand will also start to be felt by companies, which will be less able to pass on the cost increases they are facing in their selling prices. There is therefore a risk of a deterioration in business confidence, which until now had held up rather well despite the shock of the war. In addition, the situation in China should weigh on production lines, complicating the supply of inputs and disrupting production in the coming months, but also on French exports. French economic growth is therefore likely to remain weak. Although none of these factors is sufficient to tip the French economy completely into recession, the combination of all of them at the same time drastically increases the risk of one or two quarters of negative growth for the rest of the year. We expect a weak growth situation for the next few quarters, with a second quarter probably close to 0% quarter-on-quarter and the second part of the year showing quarterly growth rates of around 0.4%. Ultimately, the French economy is expected to grow by 2.7% for the year as a whole, a weak figure if we consider the carry-over effect of the strong end of 2021 (2.4%).  TagsGDP France Eurozone Consumption DisclaimerThis 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
USDA's WASDE Update: Wheat Tightens, Corn Loosens

Work In France And French Labour Market | France’s labour market continues to outperform – for now | ING Economics

ING Economics ING Economics 17.05.2022 20:51
The unemployment rate has fallen further in France and the employment rate continues to rise. The labour market is therefore still doing very well in the face of the overall deteriorating economic outlook. However, the fall in unemployment may not last  Learn more on ING Economics The employment rate among young people in France is now at its highest level since 1991 All the lights are green in the labour market As the quarters pass, the performance of the French labour market continues to surprise positively. In the first quarter of 2022, the unemployment rate in France stood at 7.3% of the active population (as defined by the ILO), a slight decrease compared to the end of 2021. The unemployment rate is now 0.9 points below its pre-pandemic level and at its lowest level since 2008. But the most interesting aspect of the INSEE report is the employment rate, which is increasing in all age categories. The employment rate of 15- to 64-year-olds reached 68%, up 0.2 points over the quarter and at its highest level since the beginning of the statistical series (1975!). It is the young person category which has seen the highest increase, up 0.7 points over the quarter and up 4.8 points compared to the pre-pandemic level. This is quite an evolution, which goes hand-in-hand with the boom in "apprenticeships" (training in companies) among young people, the consequence of the "one youth, one solution" and "youth commitment contract" plans put in place by the government since the beginning of the health crisis under the leadership of the Minister of Labour, Elisabeth Borne. The employment rate among young people is now at its highest level since 1991 (34.6%), while among those aged 50 to 64, the employment rate has reached 65.5%, its highest level ever. This rise in the employment rate is accompanied by a fall in the number of people who are constrained in their labour supply, whether it is unused (wanting a job) or underused (underemployed). Therefore, contrary to what was observed at certain times during the health crisis, the improvement in labour market statistics is not a "trompe l'oeil", a consequence of a fall in hours worked (partial activity) or an exit from the labour market due to the impossibility of looking for a job. There is indeed a real improvement in the overall labour market situation in France at present. No sharp deterioration expected, but a stabilisation These data can be seen as good news for the economy, as a strong labour market means that nominal household disposable income does not deteriorate and thus supports consumption and consequently economic growth. That said, a strong labour market alone will not prevent a contraction in real household disposable income, given the high inflation environment. Indeed, we expect household consumption and GDP to contract in the second quarter of 2022. But the contraction would have been more pronounced if the labour market was in a bad position. What can we expect from the labour market in the coming quarters? The sharp economic deceleration is likely to have a negative impact on the labour market in the coming months and we expect much less dynamism in job creation. Nevertheless, at this stage we do not foresee a sharp deterioration in the unemployment rate. After all, recruitment difficulties are still very important: according to the Banque de France survey at the end of April, 52% of companies indicate that they are having difficulty recruiting. Furthermore, we continue to forecast economic growth in France in 2022 of 2.7%. This figure is much less optimistic than the European Commission's forecast (3.1%) but is still compatible with job creation over the year. We therefore expect the unemployment rate to stabilise at around 7.3% (in the ILO sense) for the rest of the year. If the French economy continues to grow in 2023, a further decrease in the unemployment rate could be observed and unemployment could reach 7% by the end of 2023, a symbolic level that has not been reached since 1982. A new prime minister Elisabeth Borne, the former minister of labour and architect of the plans that led to the sharp rise in the employment rate among young people, has just been appointed by Emmanuel Macron as prime minister of the new government. This left-wing technocrat, who has also served as minister of transport and ecological transition in the past, will first have to lead the president's party in the legislative elections of 12 and 19 June with the aim of winning a majority of seats in the National Assembly. Although Jean-Luc Mélenchon still hopes that his left-wing party alliance will win a majority to force Macron to choose him as prime minister, poll projections indicate that a presidential majority is more likely. The nomination of Borne as prime minister strengthens this probability a little as it could lead some left-wing candidates at odds with Mélenchon to rally support for the president. TagsUnemployment rate Prime Minister Labour market France 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
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
The French Housing Market Is More Resilient | The Chance Of Republicans Winning The Senate Is Up

France: In August Business Climate Indicator Hit 103

ING Economics ING Economics 25.08.2022 14:44
France's business climate stabilised in August at 103, painting a more favourable picture than the PMI indices. However, the sub-indices do not give cause for optimism and there is little doubt that the autumn and winter will be more difficult. Shoppers at the Galeries Lafayette department store on the Champs-Elysees in Paris   The business climate indicator, published by INSEE, stabilised in August at 103, above the long-term average (100). The decline in industry (from 106 to 104) was offset by an improvement in retail trade (from 96 to 99). In the services sector, the indicator remained almost stable at 106. The economic situation depicted by the business climate indicators seems more favourable than the PMI indices for August published on Tuesday suggested. Both the composite PMI and the PMI for the manufacturing sector were below the 50 level, which signifies contraction. Although business sentiment is generally above its long-term average in most sectors, some components of the index are more worrying. In particular, in industry, the stock of finished goods is rising sharply and is back above its long-term average for the first time since July 2020. At the same time, both global and foreign order books are deteriorating. After months of supply difficulties, stocks are now high and will need to be cleared in the coming months, which, combined with a slowdown in global demand, is likely to have a negative impact on production. The fall in production could therefore be faster than the fall in demand, thus accentuating the contraction in activity. We see a similar pattern in the retail sector, where the assessment of expected sales is deteriorating sharply while inventories are rising. Moreover, while industrial managers remain relatively positive about expected production in the coming months, they have revised their production assessment downwards sharply in recent months. This indicates that industrial activity is weaker than expected already this quarter.  There's more optimism in the service sector There's more optimism in the service sector. This is particularly the case in the accommodation and catering sub-sector, thanks to an excellent tourist summer in France. The general and personal outlook of business leaders in the services sector has improved and the economic uncertainty felt has decreased. There is little doubt that the service sector will make a more positive contribution to economic growth in the third quarter than industry, although optimism in the tourism sector could diminish rapidly as the summer fades.  All in all, after a rather good spring, with second quarter GDP up 0.5% Quarter-on-Quarter after the first quarter's drop (-0.2%), and a summer boosted by tourism and good weather, all indicators are now pointing to a much more difficult autumn and winter. The global slowdown in demand, the deterioration in consumer and business confidence, the risks to energy supplies and inflation, which is reaching new heights and undermining purchasing power, are likely to push the European and French economies straight into recession. While French GDP this year could grow by around 2.2% thanks to the second quarter and the carry-over effect, growth will stall in 2023 and will probably be close to 0% for the whole of the year. Read this article on THINK TagsGDP France Eurozone Business climate 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 French Housing Market Is More Resilient | The Chance Of Republicans Winning The Senate Is Up

France: CPI Hit 0.3% Less, But ING Economics' Team Expects Inflation Stay On High Levels

ING Economics ING Economics 01.09.2022 11:27
Consumer price inflation fell to 5.8% in August from 6.1% in July, but prices are still rising over a month. It is far too early to speak of a real slowdown in inflation. Inflation is expected to remain high in the coming months Inflation in France will likely stay above 5% for the whole of 2022, and close to 3.5% for the whole of 2023 Inflation down, but it is too early to talk about a real slowdown Consumer price inflation stood at 5.8% in August, down from 6.1% in July, thanks to a slowdown in the rise in energy prices (from 28.5% to 22.2% year-on-year). The harmonised index, which is important for the European Central Bank, stood at 6.5% compared to 6.8% in July. While this drop in the inflation figure might be seen as good news, it hides an unfavourable evolution of prices over one month: between July and August, consumer prices increased by 0.4%, compared to 0.3% between June and July. This indicates that it is far too early to speak of a real slowdown in inflation. In particular, food prices accelerated sharply in August. Due to the end of the summer sales, prices of manufactured goods have also rebounded.   Inflation will remain high in the coming months Looking ahead, the question is how the recent high energy prices will affect consumer price inflation. The "tariff shield" put in place by the government on gas and electricity prices means that household energy bills are not impacted by recent price developments in the markets. However, the current mechanism is supposed to end at the end of 2022. Although the government wants to reintroduce consumer protection in 2023, the mechanism could evolve and lead to price increases in household energy bills, although these would probably be smaller than the increases observed in the markets. This would result in keeping overall inflation high in 2023.  In addition to the direct impact on energy bills, higher market gas prices could push up costs for firms, leading to a further increase in underlying inflation. However, the sharp slowdown in demand leads to a decrease in the pricing power of companies, which will be less able to pass on cost increases to prices. In conclusion, the volatility of energy prices makes it difficult to know whether headline inflation has already peaked, but it is certain that inflation will remain high in the months to come. Given the expected recession (we expect GDP to contract by 0.2% over 2023 as a whole) and the slowdown in demand, inflation should then gradually decline in 2023, but the extent of the decline will depend on the measures taken by the government to protect households. As inflation in France has risen less than in the rest of the euro area in 2022, the base effect will be less favourable for France than in neighbouring countries in 2023, which will probably lead to French inflation being higher than in the euro area in 2023. Ultimately, inflation should be above 5% for the whole of 2022, and close to 3.5% for the whole of 2023. It should nevertheless return to around 2% at the end of 2023, provided energy prices don’t surge further from current levels. Read this article on THINK TagsInflation France Eurozone Energy 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 French Housing Market Is More Resilient | The Chance Of Republicans Winning The Senate Is Up

France: Industrial Production Decreased | French GDP (Gross Domestic Product) Is Expected To Decline

ING Economics ING Economics 09.09.2022 16:41
Industrial production fell sharply in July and remains 6% below its pre-pandemic level. Industry will probably contribute negatively to French economic growth in the third quarter   French industrial production fell by 1.6% over one month in July, and the decline was widespread across all branches of the industrial sector. Only construction increased its output by 0.5% over the month. Over a year, industrial production is down by 1%. It is therefore a difficult start to the third quarter for the French industrial sector, which is clearly suffering from the disruption of supply chains due to the war in Ukraine, lockdowns in China, and rising energy prices. Looking ahead, the contraction in order books since February, the high level of stocks of finished goods, high uncertainty, high energy and raw material prices, and potential disruptions to energy supplies do not point to an improved outlook for the French industrial sector. Indeed, the business climate indicator for the sector fell further in August. It is therefore likely that industry will make a negative contribution to French economic growth in the third quarter. The industrial sector only represents 15% of total French value added (20% if we include construction), so the weakness of industry is not enough in itself to conclude that the macroeconomic outlook for the next few quarters has worsened. However, the outlook is not much more favourable in the services sector. The deterioration in purchasing power caused by inflation, the decline in consumer confidence, and the fading of the positive effects of the post-pandemic reopenings will weigh on the dynamism of services in the coming months. As a result, the question is no longer really whether France and other European countries are heading for recession, but rather how fast the recession is coming. Given the developments of the last few weeks, there is a risk that French GDP growth will turn negative in the third quarter. We expect growth of 2.2% for the whole of 2022 and -0.2% for the whole of 2023.  Read this article on THINK TagsIndustrial Production GDP France 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 French Housing Market Is More Resilient | The Chance Of Republicans Winning The Senate Is Up

Europe: French Business Climate Went Down! How Much? Check It Out!

ING Economics ING Economics 22.09.2022 12:09
The business climate declined again in September and is now at its lowest level since April 2021. In all sectors, it is mainly the outlook that is deteriorating Business climate deteriorates in all sectors In France, the business climate deteriorated again in September, dropping two points over the month to 102. Although still above its long-term average, the business climate has erased all its post-pandemic gains and is now equal to its April 2021 level. All major sectors of activity are participating in this deterioration, except for construction. In both industry and services, it is mainly the outlook components that are deteriorating, while order books are shrinking. It is interesting to note that the sectors that benefited most from the post-Covid rebound this summer, notably accommodation and catering, are the ones that feel that the outlook has deteriorated the most for the coming months. In all sectors, the perceived economic uncertainty has increased. Growth is likely to falter in the coming months Overall, the business climate indicator is a clear sign of a slowdown in economic activity in France, both now and in the coming months. While the spring and summer have been synonymous with more dynamic activity than expected, thanks in particular to the end of Covid restrictions and the return of foreign tourists, the autumn and winter look much more difficult for the French economy. Major uncertainty, high energy and raw material prices and potential disruptions to energy supplies are weighing on the industrial sector. At the same time, the deterioration in purchasing power caused by inflation, the decline in consumer confidence and the attenuation of the positive effects of the post-pandemic reopening are limiting the dynamism of the services sector. As a result, there is no longer any real engine to maintain a dynamic pace of growth in economic activity. The only good news is the labour market, which remains strong, as indicated by the employment climate, which rose by two points in September to return to its July level. While there are signs that the labour market may start to weaken in the coming months, it currently remains very robust and the labour shortage remains significant, which should limit the speed of any rise in the unemployment rate.   The business climate index confirms that the question is no longer whether France is heading for recession, but rather when the recession is coming. Given the developments of the last few weeks, it is feared that French GDP growth will move into negative territory in the third quarter. We expect growth of 2.2% for the whole of 2022 and -0.2% for 2023. Read this article on THINK TagsGDP France Eurozone Business climate 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
France escapes recession, for now

Eurozone: France - Oh My! Check Out August Print Of French Industrial Production!

ING Economics ING Economics 05.10.2022 14:19
Industrial production rebounded more than expected in August, by 2.4% over the month, thanks to the easing of supply constraints. As a result, economic activity could narrowly avoid a contraction in the third quarter, but a recession remains more than likely for this winter A broad rebound After falling by 1.6% over a month in July, French industrial production rebounded in August, increasing by 2.4% over the month. Over a year, the increase was 0.4%. Manufacturing output rose by 2.7% (after -1.6% in July). All branches of industry saw their production increase over the month, except for construction. The rebound was particularly dynamic in automotive production, which increased by 15.6% over the month, thanks to the easing of supply constraints. The August rebound allows industrial production to erase the losses accumulated during 2022 and return to its pre-war level. Nevertheless, output remains 3.5% below its pre-pandemic level. August's strong performance gives hope that industrial production will make a positive contribution to economic growth in the third quarter, which could narrowly avoid a contraction in activity. Headwinds are too strong for the rebound to last Nevertheless, looking ahead, it is to be feared that the effect of reduced supply constraints will not be sufficient to allow the French industry to continue to rebound. In fact, further contractions in industrial activity can be expected. Indeed, the sharp decline in global growth, the contraction in order books since February, the high level of finished goods inventories, high uncertainty, high energy and raw material prices and potential disruptions in energy supply clearly point to a deterioration in the outlook for the French industrial sector in the coming months. The business climate indicator for the sector fell further in September. Since the beginning of the year, it has lost more than 10 points, falling back to the level of spring 2021, thus erasing all its post-lockdowns gains. Moreover, the outlook is not much better in the services sector, which is weighed down by worsening purchasing power, declining consumer confidence and the fading positive effects of the post-pandemic reopening. There is therefore little doubt that France, like its European neighbours, is heading straight for recession. Given the developments of the last few weeks, it is to be feared that French GDP growth will move into negative territory in the fourth quarter, after a probable stagnation in the third quarter. The recession is likely to last throughout the winter, and the prospects for a rebound in the spring of 2023 are fading by the day. We therefore expect growth of 2.4% for the whole of 2022 and -0.4% for the whole of 2023. Read this article on THINK  
French strikes will cause limited economic impact

France: The Economic Picture Is Deteriorating

ING Economics ING Economics 24.11.2022 11:59
In November, the French business climate remained stable and above its long-term average, depicting a very different situation than the PMI indicators. We continue to believe that the economic picture is deteriorating Business climate and PMI moving in opposite directions The business climate in France remained stable in November at 102, above its long-term average. The economic situation deteriorated somewhat in industry, construction and services, but improved in wholesale trade. Industrial order books and the expected demand in services are deteriorating, while inflationary pressures seem to be building up. The data is surprising as it contrasts sharply with the PMI indices for November, released yesterday. The composite PMI for France fell below the 50 threshold for the first time since February 2021, which is synonymous with a contraction in economic activity, standing at 48.8. While the index for the manufacturing sector continued the descent that began in June, reaching 49.1, it is the evolution in the services sector that is noteworthy: for the first time in 20 months, the index fell into contraction territory, to 49.4. The PMI thus indicates that high inflation and reduced purchasing power have put an end to the growth in the services sector that had been made possible by the lifting of Covid-19 restrictions. This marks the end of the support of services to French economic growth, which should lead to a contraction of GDP in the fourth quarter. In terms of inflation, the situation portrayed by the PMI indices is also fundamentally different from that which has emerged from the business climate indicator: according to the PMI indices, inflation in purchase prices and in prices paid has fallen to its lowest point in nine months, although still well above its long-term average. The decline is even more marked in the manufacturing sector. Although still very high, inflationary pressures seem to be reducing. Uncertain outlook With two indicators that are supposed to depict the same situation evolving in such different ways, it is difficult to draw clear conclusions in terms of forecasts for the French economy. While the more optimistic will probably prefer to believe in the business climate, the PMI indices seem to have been better at predicting French economic activity in recent months. We continue to believe that the French economic outlook is marked by weakening domestic and foreign demand, declining new businesses and uncertainty. The momentum in activity provided by the services sector seems to have ended and industry does not seem ready to become the new engine of growth. The labour market is beginning to show the first signs of weakness, which should result in slower employment growth. As a result, GDP growth is expected to be weaker in the fourth quarter than it was in the third. For 2023, we still fear a small GDP contraction for the year as a whole. TagsPMI GDP France Eurozone Business climate 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
French strikes will cause limited economic impact

France: Stabilisation Of Inflation Can Be Seen As Good News

ING Economics ING Economics 30.11.2022 10:26
Inflation stabilised at 6.2% in France in November, but it has not reached its peak. Inflationary pressures are likely to intensify further in 2023 We expect French inflation to be around 5% for the whole of 2023   Consumer price inflation stood at 6.2% in France in November, unchanged from October. The monthly variation in prices was +0.4% against +1% in October. The less dynamic evolution of the price of petroleum products, after October was marked by fuel shortages, made it possible to compensate for the drop in the fuel rebate, which went from €0.30/litre to €0.15/litre in mid-November. As a result, energy inflation stood at 18.5% compared to 19.1% in October. A considerable level, but still much lower than in other European countries. The various measures taken by the government, including the tariff shield on the price of gas and electricity, have removed 2.5 points from inflation. In addition, food prices continue to accelerate, by 12.2% over one year, against 12% in October, as do those of manufactured goods (4.4% against 4.2% the previous month). Services inflation is stable, and comparatively low, at 3%. The harmonised index, important for the European Central Bank (ECB), remained stable at 7.1%. Overall, while this stabilisation of inflation can be seen as good news, it does not mean that inflation has peaked. On the contrary, the peak of inflation in France is still to come. A further acceleration of prices for December It is likely that inflation will rise again in December, probably reaching 6.5%. Indeed, the fuel rebate will be less important during the whole month of December than it was on average in November. In addition, past sharp increases in producer prices will continue to be passed on to consumer prices for manufactured goods and food. According to statistics published today by INSEE, the national statistics bureau of France, producer prices rose at a slower pace in October, with an annual increase of 21.4% compared to 26% in September. Although producer prices appear to have peaked, producer price inflation remains historically high, and this should continue to be reflected in the consumer price index in the coming months. Inflationary pressures will intensify further in 2023 Inflation in France is expected to rise further in early 2023. Indeed, due to regulations and contracts, many price revisions can only take place once a year, usually at the beginning of the year. This is particularly the case in the transport sector. These price revisions will significantly boost inflation in the first quarter of 2023. Moreover, companies seem confident in their ability to pass on past cost increases to their prices. In November, according to the European Commission's survey, companies' expectations regarding selling prices rose again, both in industry and in the services sector, despite the context of slowing demand. Strong inflationary pressures therefore still seem to be on the cards and core inflation is likely to rise further in early 2023. Furthermore, the energy inflation faced by households in 2023 will be influenced by the tariff shield, which foresees a 15% increase in the price cap for gas and electricity (compared to a 4% increase in 2022). The revision of the cap and the end of fuel rebates could add up to one percentage point to French inflation from January. As a result, energy inflation in France will continue to rise sharply next year, while it will start to fall in other European countries due to more favourable base effects. The peak of inflation in France should therefore only be reached later in 2023, and French inflation will fall much less rapidly than in neighbouring countries. The "delayed" peak in French inflation is bad news for the ECB, as average inflation in the euro area is likely to fall less quickly than expected. We expect French inflation to be around 5% for the whole of 2023, after 5.3% in 2022.  TagsInflation France 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
French strikes will cause limited economic impact

Macron Initially Thinks About Dissolving The Parliament

Saxo Bank Saxo Bank 06.12.2022 09:10
Summary:  "In a televised address, he criticises the opposition’s standpoint of absolute blockage and announces he is retiring from politics." - Christopher Dembik. When President Emmanuel Macron won a second term in May 2022, he believed he could lead France on a royal road to carry out reforms. However, this was before the June 2022 legislative elections when his party and his allies lost their outright majority in Parliament, thus forcing Macron to make compromises. Needless to say, this is something he is not familiar with.  Confronted with a strong opposition from the left-wing alliance NUPES and Marine Le Pen’s far-right National Rally, the government has no other choice but to pass major laws and the 2023 budget by a fast-track decree—triggering the constitution's article 49.3. Nevertheless, bypassing lawmakers cannot be a way to govern in a democracy. Not in the long run, at least. Macron initially thinks about dissolving the Parliament to organise snap elections. Polls indicate this is not a solution, as it would still lead to a hung parliament. He therefore understands that he will be a lame duck for the next four years and he will not be able to pass his signature pension reform.  Following the example of the founder of France’s democratic system Charles de Gaulle in 1946 and in 1969, Macron unexpectedly decides to resign in early 2023. In a televised address, he criticises the opposition’s standpoint of absolute blockage and announces he is retiring from politics. While France is preparing for a new presidential election, Macron decides to realise his long-time dream of establishing a start-up.  Inwardly, he did not give up on the idea of returning to power. He hopes that his supporters and the silent majority will ask him to come back when France will fall into a political turmoil, as it happened for De Gaulle in 1958. Macron’s resignation opens the door of the Élysée Palace to the far-right contestant Le Pen, thus causing a wave of stupefaction throughout France and beyond, and setting up the latest existential challenge to the EU project and its shaky institutional foundations.  Market impact: Causes a wobble in the euro, but eventually the opposite as the sense of crisis galvanizes an broader anti-populist coalition under new leadership – French OAT sovereign bond yields converge with German Bunds.   Source: French President Macron resigns in 2023 - Saxo Outrageous Prediction | Saxo Group (home.saxo)
France: ING expects economy to grow by 2.5% on average this year, but taking inflation and other headwinds into consideration, 2023 figure may go below the line

France: ING expects economy to grow by 2.5% on average this year, but taking inflation and other headwinds into consideration, 2023 figure may go below the line

ING Economics ING Economics 07.12.2022 10:47
In October, the goods trade balance deficit narrowed for the first time since the end of 2020, thanks to a marked improvement in the energy balance. Although the goods trade balance is still at extremely low levels, the current situation cannot really be considered worrying beyond the energy trade Improvement in the trade balance In October, France's goods trade balance improved for the first time since the end of 2020, thanks to a marked improvement in the energy balance. Well-filled gas reserves allowed France to reduce its gas imports in October. In addition, electricity imports were lower, in volume, but especially in price, thanks to the sharp decrease in electricity prices in the markets. The trade balance in goods now stands at €-12.2bn compared to €-17.2bn in September. The non-energy trade balance also improved in October to €-5bn from €-6.6bn in September, with exports falling less than imports. Stronger underlying trends Overall, although the trade balance deficit is often seen as an alarming signal of the state of the French economy, the current situation cannot really be considered worrying beyond the specific situation of the energy trade. In fact, the deterioration of the French external position in recent months is entirely energy-related and the underlying trends are rather solid. Since the beginning of the year, French exports have been more dynamic than in neighbouring countries, thanks to the strong rebound in sales of transport equipment abroad, but also due to the surge in agricultural exports, including wheat. The war in Ukraine has allowed France to generate a large agricultural surplus. At the end of the third quarter, French exports were up by 20% compared to before the pandemic (in value) and France's share of world demand has stabilised. In addition, alongside the deficit in the balance of goods, the balance of services is usually in surplus in France and should remain so in the coming months. Read next: To Simplify The Organization, Pepsico Will Lay Off Thousands Of Workers At The Headquarters In The USA | FXMAG.COM A worsened economic outlook After months of widening deficits, this improvement can be seen as good news for the contribution of foreign trade to economic growth. This could be positive in the fourth quarter and limit the risk of a significant contraction in GDP. Given the weakness of household consumption, we expect a slight contraction in GDP in the fourth quarter, which would see French GDP growing by 2.5% on average over the year 2022. For 2023, we fear that GDP will show a slightly negative figure for the whole year, due to the context of inflation which deteriorates purchasing power, higher rates which slow down investment, deteriorated economic sentiment, and a weaker global environment. Given energy price developments in November and the first few days of December, the goods trade balance could widen further in the coming months, but underlying trends in the goods and services balance could continue to improve. Read this article on THINK TagsTrade balance GDP France 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
France escapes recession, for now

France escapes recession, for now

ING Economics ING Economics 31.01.2023 09:21
French GDP grew by 0.1% in the fourth quarter, allowing the French economy to narrowly escape recession, at least for the time being. There are however few signs that the French economy will recover strongly in the coming months There are few signs of a dynamic recovery of the French economy in the coming months No winter recession in France French GDP grew by 0.1% quarter-on-quarter in the fourth quarter, a weaker figure than in the third quarter (+0.2%) but one that allows the French economy to escape recession, at least for the moment. Over the quarter, household consumption fell sharply (-0.9% compared to +0.5% in the third quarter), mainly due to a drop in food and energy consumption. However, this decline was offset by gross capital formation, which is slowing down but remains dynamic (+0.8% compared to +2.3% in the third quarter), and by a positive contribution from foreign trade, with exports falling less quickly than imports. On average in 2022, GDP increased by 2.6% (after +6.8% in 2021 and -7.9% in 2020). A resilient year, then, despite the major shock due to the war in Ukraine. But it should be understood that the growth of 2022 is above all the consequence of the strong progression at the end of 2021, the so-called carry-over effect. Expected quasi-stagnation in activity in 2023 Looking ahead, the data suggest that the French economic outlook remains uncertain, but far from dramatic. It doesn’t seem on the verge of recession. Nevertheless, escaping the recession does not mean rebounding strongly. Far from it. In fact, there are few signs of a dynamic recovery of the French economy in the coming months. The PMI indices indicate a deterioration in demand: new orders are falling and sales are declining. Household confidence is still at a historically low level and the French view the outlook in a very negative light. Moreover, inflation is expected to rise further in the first half of 2023, which implies that the evolution of real purchasing power will remain very low, dampening the dynamism of private consumption. Within companies, while stocks of finished products are high, new orders are falling sharply, meaning that the clearing of inventories could weigh on activity. In particular, while industrial production should continue to see supply difficulties ease, it is facing much weaker global demand and is still at risk of a renewed rise in global energy prices. The impact of the ECB's tighter monetary policy will begin to be felt in earnest in 2023, with rising rates likely to depress household and business investment. Finally, fiscal policy is expected to be less expansionary, which will be less supportive of economic growth. Ultimately, 2023 should be characterised by a quasi-stagnation of the French economy over all quarters of the year. A slight contraction of GDP in the first quarter of 2023 cannot be excluded. We expect GDP growth of 0.4% for the year 2023 as a whole. 2024 could see slightly better growth, thanks to a more pronounced fall in inflation, although the expansion will probably remain moderate. We expect 1.2% growth for 2024. To see a significant improvement in the outlook for the French economy in 2023, the fall in the price of gas on international markets and the reopening of China will not be enough. There needs to be a clear improvement in household and business confidence. Without this, stagnation remains the most likely scenario for 2023. Read this article on THINK TagsOutlook GDP France 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
Moderate Outlook: Growth and Disinflation Trends in the French Economy

French industrial production continues to catch up

ING Economics ING Economics 03.02.2023 11:10
French industrial production continued to grow in December but still hasn't returned to its pre-pandemic level. While the shock of 2022 has yet to be fully digested by French companies, the outlook for 2023 remains moderate The French labour minister, Olivier Dussopt. being shown round a factory in southern France last month Increase in industrial production French industrial production increased by 1.1% over one month in December 2022, after +2% in November, thanks largely to a rebound in electricity production. Manufacturing output rose by 0.3% Month-on-Month in December, after +2.4% in November. The rebound was driven primarily by transport equipment manufacturing, which continues to recover after months of supply chain disruption. However, transport equipment production is still 14% below its pre-pandemic level. In December, coking and refining also grew rapidly, continuing its recovery from the October strikes which saw output fall by 47% over a month. The manufacture of capital goods fell by 3.3% in December, and the production of foodstuffs fell by 1.7%. Over the year, French manufacturing production increased by 3.6%. This is faster than GDP (+2.6% in 2022). Nevertheless, we still haven't fully recovered from the disruption of 2020 and 2021. At the end of 2022, French manufacturing output was still slightly below its pre-pandemic level, while GDP was 1.2% higher. It is also worth noting that, according to detailed GDP data published this week by INSEE, the value added of the manufacturing sector fell by 0.5% in the fourth quarter of 2022, despite the increase in production over the same period.  Read next: Starbucks Revenues Are High Despite High Costs| FXMAG.COM 2023 expected to be a minor year What can we expect in 2023? Thanks to supply chains easing, the production of transport equipment should continue to catch up and that should boost the whole of French manufacturing production. On top of that, since the beginning of the year, optimism seems to have returned thanks to the fall in energy prices on the international markets and the reopening of China, leading to upward revisions of the growth outlook. But beware of over-optimism. The shock of 2022 has yet to be fully digested by French companies. In a recent study that takes into account the types of contracts existing in France, INSEE estimates that most of the increase in electricity bills for companies has yet to take place. While bills rose by an average of 30% in 2022 for companies in the agricultural and industrial sectors, a rise of 92% is expected in 2023. As the INSEE study is based on data collected in November before the plunge in international energy prices, the rise in bills for 2023 may be overestimated. Nevertheless, there is little doubt that business energy bills will rise more in 2023 than in 2022 in France, despite the fall in spot prices on the markets. This is likely to hamper industrial production. In addition, the global economic slowdown, particularly in Europe and the United States, and the rise in interest rates, which increases the cost of financing for companies, are also likely to weigh on the industrial outlook in 2023. So, the contribution of industry to growth is likely to be subdued at best.  We expect GDP to grow by 0.4% in 2023, after +2.6% in 2022. Read this article on THINK TagsIndustrial production GDP France 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
Tourism: The Driving Force Behind Spain's Economic Growth

Poland’s President Andrzej Duda Said The Decision To Send Fighter Jets To Ukraine Was “Not Easy To Take”

Kamila Szypuła Kamila Szypuła 13.02.2023 11:31
The war has been going on for almost a year. Even though the Ukrainians fiercely defend their borders, they do not go without the right equipment. Ukraine asks its allies for help in the form of appropriate equipment, but such decisions as the example of the Polish president shows are not easy. In this article: French economy remains cautious War in Ukraine Orpea’s revenue growth remained solid French economy remains cautious After a strong economic recovery after the pandemic, France was hit by an energy shock caused by Russia's invasion of Ukraine. Inflation picked up and economic activity slowed down. Nevertheless, the economy remained resilient and inflation much lower than in other EU countries due to a more limited dependence on Russian gas. The government has also made significant reforms in fiscal policy. The government has made significant progress by proposing reforms to increase growth potential while lowering fiscal costs, including revised unemployment benefits to help increase labor supply and a comprehensive pension reform to rebalance the pension system and increase the employment rate of older workers to bring the effective retirement age closer to the EU average. The banking sector weathered the crisis well and supported the economic recovery, but global threats to financial stability are increasing. Despite the good news, the French economy remains cautious as the impact of the global situation may also be visible in this country. 🇫🇷France’s policies cushioned the impact of the energy shock, but economic growth is set to slow further and public debt will remain high. More in this Country Focus article. https://t.co/mPhkDZr4a6 pic.twitter.com/d43k423xE4 — IMF (@IMFNews) February 13, 2023   Read next: Amazon Is Slowly Dismantling Tony Hsieh’s Version Of Zappos, Louisa Vuitton Doubled Sales| FXMAG.COM War in Ukraine Moscow said on Monday that its forces had moved several kilometers along the Ukrainian front line, while Kiev said its troops had repelled Russian attacks in various areas. The Russian Ministry of Defense reported that Russian troops managed to move 2 km to the west in four days. Russia's foreign spy services said Monday it had intelligence that the US military was preparing Islamic militants to attack targets in Russia and the former Soviet Union. The agency did not release the intelligence behind its claim, and the claims could not be immediately verified. Moreover, from the events surrounding the war, Polish President Andrzej Duda said that the response to President Volodymyr Zelensky's request for F-16 aircraft was a "very serious decision", but gave no further indications as to whether this would happen. Ukraine war live updates: Wagner Group claims village; Polish president says jets decision 'not easy' https://t.co/pvqLoLfIyJ — CNBC (@CNBC) February 13, 2023 Orpea’s revenue growth remained solid French nursing home group Orpea reported nearly 8% revenue growth in the fourth quarter and has provided details of a planned capital increase. Orpea said revenue growth remained solid. It said the cash improvement was mainly due to extended credit lines and the suspension of payments made by creditors last year. Orpea shares jump on Q4 revenue and cash boost https://t.co/mbqiKCigqd pic.twitter.com/bq3UQwRpji — Reuters Business (@ReutersBiz) February 13, 2023
Moderate Outlook: Growth and Disinflation Trends in the French Economy

French business climate signals economic resilience in February

ING Economics ING Economics 22.02.2023 12:36
In France, the business climate improved slightly in February and paints a picture of a resilient and fairly solid French economy. This data suggests that GDP should remain in positive territory in the first quarter France's La Defense business district Resilience The business climate in France improved slightly in February to 103 from 102 in the previous five months, still above its long-term average. The improvement comes from the services and retail sectors, where the business outlook is improving, but also from industry, where order books are reported to be rising. In the construction sector, on the other hand, the business climate is deteriorating. The employment climate also remains very solid. At 110, the indicator is still well above its long-term average. Overall, the business climate paints a picture of a resilient and fairly robust French economy. The data suggest that GDP should remain in positive territory in the first quarter. Two speeds More generally, all the indicators published since the beginning of the year seem to suggest that the French economy is probably currently operating at two speeds. On the one hand, the industrial sector is still in a slowdown phase, despite the continuous improvement in supply chains. Demand, particularly international demand, is slowing, as indicated by the February PMI for industry, which fell back below 50 in February, dropping to 47.9 from 50.5 the previous month, its lowest in four months. The sharp fall in energy prices, and in particular the price of natural gas, which is now only about a third of its mid-December price, and the resulting improvement in the world economic outlook seem to be limiting the slowdown, but not erasing it completely. On the other hand, the services sector is showing significant resilience and remains dynamic. While, unlike in other European countries, French consumer confidence continues to fall, service companies are rather optimistic and indicate that activity is picking up. The accumulation of pending business and expectations of growth are encouraging them to continue hiring workers and anticipate further significant price increases. This resilience of the services sector is good news for the French economy. Indeed, with traded services accounting for 57% of French value-added, the dynamism of activity in services can counterbalance the slowdown in the manufacturing sector, which accounts for only 9% of total value-added. Read next: Sweden And Finland Are Getting Closer To Becoming NATO Members| FXMAG.COM Activity should continue to grow in the first quarter The question now is whether the dynamism of the services sector can continue in the coming quarters. French companies seem to think so, with the assessment of expected activity rising sharply, according to the INSEE survey. However, major risks remain. Unlike in other European countries, the inflationary peak has not yet been reached in France, and even higher increases in energy and food prices are still expected in the coming months. The shock to purchasing power is therefore not over and will continue to impact consumer behaviour. Moreover, the support of fiscal policy for purchasing power will become less important in the coming months. Finally, French consumer confidence is not recovering right now. Household consumption has already fallen significantly in volume terms in the fourth quarter and growth is likely to remain weak in the coming quarters. At the same time, the construction sector remains under pressure and the rise in interest rates is likely to continue to weigh on household and business investment spending.   Ultimately, the latest economic indicators for France suggest that activity is likely to be stronger than expected in the first quarter of 2023 and that a contraction in GDP should be avoided. Nevertheless, they do not dramatically change the outlook for the following quarters, where activity growth should remain rather weak. Read this article on THINK TagsGDP France Eurozone Business climate 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
French Outlook: Weak Economy Amid Social Tension

France: Inflation continues to rise while consumption rebounds slightly

ING Economics ING Economics 28.02.2023 10:53
French inflation has not yet peaked; it rose again in February and both headline and core inflation will probably creep higher in the coming months. Household consumption of goods rebounded in January, but this increase is partly misleading February data indicate that French inflation has still not peaked Inflation is still rising The time for inflation to recede has not yet come in France. In February, consumer price inflation stood at 6.2%, up from 6% in January, as a result of accelerating food and services prices. The harmonised index, which is important for the ECB, stood at 7.2% compared to 7% in January. Month-on-month, consumer prices rose by 0.9% compared to 0.4% in January. While in other European countries, the contribution of energy to inflation is becoming negative, energy continues to make a significant positive contribution to inflation in France. Despite the fall in oil prices, energy inflation is now at 14% over one year, compared to 16.3% in January. This is due to the revision of the tariff shield, which led to a 15% increase in household electricity bills in February (compared to 4% in 2022), in addition to a 15% increase in gas bills compared to 2022 prices since January. While government measures on energy prices had brought down inflation in France by almost 3 percentage points in 2022, French households are finally facing sharp increases in their energy bills, well behind their European neighbours. In France, energy inflation will probably continue to contribute positively to inflation throughout 2023. As in other countries, food inflation in France continues to rise, posting a 14.5% year-on-year increase in February, up from 13.3% in January. As the annual negotiations between supermarkets and food industry suppliers are due to end tomorrow, further food price rises are expected in the coming months (there is talk of an additional 10% price increase). Food inflation is therefore expected to rise further until the summer, contributing more and more to French inflation. With the end of the winter sales on 7 February, prices of manufactured goods are rising again, reaching a 4.6% growth over one year. Despite the normalisation of supply chains, the producer price index does not indicate a slowdown in inflationary pressures. On the contrary, French industrial producer prices accelerated again in January, by 1.6% over the month, compared to +1% in December, due to the strong acceleration of prices for products destined for the French market, while those destined for foreign markets are falling. Over one year, the growth of producer prices is 14.9%. In addition, the price intentions of manufacturers are only slightly down, according to the surveys. We should therefore expect a further acceleration in the prices of manufactured goods in the coming months, before a probable slowdown in the second quarter. Finally, services inflation is rising to 2.9% from 2.6% in January, due in particular to a series of price revisions in transport. We will have to wait until the summer to see inflation go down February data indicate that French inflation has still not peaked. Both headline and core inflation are likely to continue to rise in the coming months, giving the ECB further reason to continue raising rates beyond the first quarter. Despite a favourable base effect for petroleum products, it will probably take until the second quarter to see the peak in inflation in France and until the summer to see inflation really come down. Average inflation in 2023 will therefore probably be higher than in 2022. We expect 5.5% for the year, and 6.3% for the harmonised index, against 5.2% and 5.9% respectively in 2022. At the end of 2023, inflation will probably still be above 4%, a level higher than the European average. The deceleration in price developments is expected to continue in 2024, but will still be slow, averaging 2.6% over the year (3.5% for the harmonised index). Household consumption of goods rebounds Besides the inflation figures, INSEE is taking advantage of this last day of February to publish two other interesting statistics. First, the final estimate of GDP growth for the fourth quarter, which definitively determines the starting point for 2022 growth, was confirmed at +0.1%. Second, the household consumption of goods figures for January are particularly interesting as this is the first indicator of activity for 2023. The big question was whether the overall improvement in sentiment indicators since the beginning of the year would be reflected in the real data. It turns out that household consumption of goods rose by 1.5% in volume terms in January, compared with a fall of 1.6% in December. This increase is partly misleading. It is caused by a 4% increase over the month in energy consumption, which is mainly explained by the decrease in state aid for the payment of household energy bills. The reduction of the "energy voucher" has reduced the share of energy expenditure borne by the public authorities, which in turn has increased the share borne by households. According to INSEE, actual household consumption of both electricity and gas fell in January. The figure for consumer spending, therefore, paints an overly positive picture of the situation. Nevertheless, the data indicate a rebound in consumption of manufactured goods (+1.3% compared to -1.7% in December) and food consumption (+0.6% compared to -1.9% in December), suggesting that consumption has started the year on a slightly better note than at the end of 2022.  Recession risk recedes, but growth momentum will remain weak These data suggest that GDP growth should be a little better than expected in the first quarter and remain in positive territory. The risk of a recession this winter is receding. Nevertheless, there are many risks to the French economy for the rest of the year. The inflationary peak has not yet been reached in France, so the shock to purchasing power is not over. Consumer confidence remains at a very low level and households' willingness to save is at its highest since May 2021. It seems that, in the face of inflation, households would rather strengthen their savings than dip into them. The increase in the interest rate on the Livret A (the most popular savings product for households) to 3% in February is likely to further reinforce this mechanism. All of this will continue to impact on consumption, which will remain weak. In addition, the support of fiscal policy for purchasing power will become less important in the coming months. At the same time, the construction sector remains under pressure and the rise in interest rates is likely to continue to weigh on household and business investment spending. Ultimately, the French economy is likely to remain weak throughout 2023, but also in 2024. We expect growth of 0.7% both in 2023 and 2024. Read this article on THINK TagsInflation GDP France Eurozone 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
Rates Spark: Nothing new on the dovish front

French industrial production falls

ING Economics ING Economics 03.03.2023 10:42
Optimism at the beginning of the year was probably premature. Manufacturing output fell sharply in January in France, confirming that industry is currently in a strong slowdown phase, which is likely to continue over the coming months Unexpected fall in production After the figures for household consumption of goods for January, INSEE published the second indicator of actual activity for the first quarter, industrial production, which finally gives a clear view of how the French economy has started the year.  And the news is not very good. Manufacturing output fell sharply in January, by 1.8% over one month, compared with a 0.2% rise in December. For industry as a whole, the fall was 1.9% over the month compared to +1.5% the previous month. The fall is due to the manufacture of transport equipment, which dropped by 6.7% over the month. The production of automobiles decreased by 2.6% and that of other transport equipment fell by 9.5%. This series is nevertheless still very volatile, as it is strongly influenced by the deliveries of ships or planes produced in France. More worryingly, the manufacturing of other industrial products was also in strong decline over the month (-2%) after having already decreased by 0.2% in December. The chemical, pharmaceutical, wood-paper and rubber-plastic industries saw their production fall over the month. Slowdown This data confirms the signals given by the business climate and PMI indices. The French industrial sector is currently in a slowdown phase, despite the continuous improvement in supply chains. However, the slowdown appears to be more significant than the confidence indicators suggested. It seems that demand, especially international demand, is slowing down sharply. The bad news is that the slowdown is likely to continue in the coming months, as indicated by the February PMI for industry, which fell back below 50 in February, dropping to 47.4 from 50.5 the previous month. The sharp fall in energy prices on international markets and the resulting improvement in the global outlook may be limiting the extent of the slowdown, but not erasing it completely. In this context of slowing demand, high inventory levels could negatively impact production, leading to weak manufacturing output in the coming months.  Read next: NAGA analyst on Eurozone inflation: This is likely to trigger a more restrictive monetary policy from the ECB for two reasons | FXMAG.COM Premature optimism More generally, all the data published so far suggests that the optimism at the beginning of the year was perhaps a little premature. Certainly, GDP growth could remain in positive territory in the first quarter, which would be a little better than expected at the end of 2022. However, better than expected does not mean good. There are many risks to the French economy for the rest of the year. The inflationary peak has not yet been reached in France, so the shock to purchasing power is not over. Consumer confidence remains at a very low level and households' willingness to save is at its highest since May 2021. It seems that, in the face of inflation, households would rather strengthen their savings than dip into them. All this will continue to impact consumption. In addition, the support of fiscal policy for purchasing power will become less important in the coming months. At the same time, the construction sector remains under pressure and the rise in interest rates is likely to continue to weigh on household and business investment spending. Ultimately, the French economy is likely to remain weak throughout 2023, but also in 2024. We expect growth of 0.7% in 2023 and 2024. Read this article on THINK TagsIndustrial production GDP France 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
French strikes will cause limited economic impact

French strikes will cause limited economic impact

ING Economics ING Economics 06.03.2023 10:52
France is currently facing a movement of protests against the pension reform proposed by the government. This Tuesday 7 March marks the 6th day of mobilisations and the unions hope that the movement will strengthen. Although this is an important event from a political and social point of view, the economic impact of the strikes should not be overestimated People take part in a demonstration against the French government's pension reform Unions in united front against pension reform In France, the eight main trade unions (CFDT, CGT, FO, CFE-CGC, CFTC, Unsa, Solidaires and FSU), which are presenting an unprecedented united front, kicked off a mobilisation on 19 January. They want the government to back down on its pension reform. The first day of mobilisation,19 January, brought together 1.12 million demonstrators throughout France, including 80,000 in Paris, according to the Ministry of the Interior. On 31 January, the figure reached 1.27 million demonstrators (87,000 in Paris). Subsequent days were less successful, with 757,000 people on 7 February, 963,000 on 11 April and 450,000 on 16 February. Now that the school holidays are over, the strike of 7 March should see a resumption of the movement in force, with between 1.1 and 1.4 million people expected on the streets. The unions wish to "bring France to a standstill". Transport will be paralysed, school closures are expected and other sectors will be disrupted, notably the energy sector and the chemical industry. The government has called on the French to work from home as much as possible. The unions have announced a "renewable" strike, which could last, at least partially, beyond 7 March. What is the economic impact of these strikes? The economic impact of a strike can be defined as the sum of direct effects (on the companies concerned) and indirect effects (on the companies penalised in their activity by the transport and supply problems), to which are added substitution effects: for example, some of the travellers deprived of their train may turn to other modes of transport. By observing economic growth over a period when strikes have taken place and comparing these data to an estimated counterfactual situation, not impacted by mobilisations, it is possible to estimate a posteriori the impact of a strike on GDP growth. Overall, research shows that, while activity may be impacted in some sectors of the economy, strikes have had little lasting effect on economic growth. In fact, the economic impact of strikes is most often limited to the period of mobilisation and the losses recorded are generally quickly offset in the following months. INSEE (the national statistics institute) has estimated the macroeconomic impact of previous social movements in France. For example, the impact of the November 1995 strikes against the Juppé plan and its pension reform was less than 0.2 points of GDP growth loss at the national level in the fourth quarter of the year, although the social tensions lasted three weeks, with a major blockage of public transport. This drop was then very much offset by an increase in activity in the following quarter. As for the protests in November 2007 against the reform of the special pension schemes, they mobilised more people than in 1995 but lasted only 10 days, generating a drop of about 0.2 points of GDP which was totally compensated afterwards. In 2018, the "intermittent strike" of the SNCF strongly disrupted transport for three months, to the detriment of certain sectors such as tourism and the hotel industry. But this strike only cost a little less than 0.1 points of GDP in the second quarter of 2018, according to INSEE, and a positive impact of the same order was recorded in the following quarter. During the fourth quarter of 2018, mobilisations resumed, with the "yellow vests" crisis, unprecedented because it was not managed by the trade unions, with a large number of rallies scattered over time and across the territory. The actions took place at the weekend, making them less noticeable. According to INSEE, this movement cost 0.1 points of GDP in the fourth quarter of 2018, at the height of the movement. French President Emmanuel Macron What impact can we expect from the 2023 strikes? So far, the mobilisation of French people to demonstrate or go on strike has been important, but probably not enough to have a significant macroeconomic impact. The microeconomic impact on some sectors is also very limited. Tomorrow will only be the sixth day of mobilisation and the disruptions have been, for now, limited to some very specific sectors, such as transport. Given the development of homeworking since the pandemic, it is likely that the "indirect costs" of transport disruptions on other sectors of activity will be much more limited than in previous strikes. If the mobilisation were to intensify drastically and some sectors were blocked for several weeks, the impact on GDP growth could become quantifiable, of the order of 0.1 or even 0.2 percentage points less than in a situation without a strike. As the current French economic situation is, for other reasons, marked by a slowdown in activity, this could lead to a growth rate of 0%, or even a tiny bit negative for French GDP over this period. However, strikes would only be one of the factors (with a small impact) behind this development. An impact greater than 0.2 percentage points on French economic growth seems, at this stage, very unlikely.  Read this article on THINK TagsStrikes GDP France 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
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
French Outlook: Weak Economy Amid Social Tension

France: Business climate indicates a resilient economy

ING Economics ING Economics 28.03.2023 15:58
Business sentiment declined only slightly in March despite the social tensions surrounding the pension reform. This confirms that activity in France is resilient, even if the outlook for the coming quarters remains moderate La Defense, a major business district in France Slight decrease in business climate In France, the business climate decreased slightly in March, to 103 compared to 104 in February. The indicator is still above its long-term average and has been remarkably stable since June, fluctuating between 102 and 104. The decrease in March can be explained by the fact that in all sectors business leaders are slightly less optimistic about past activity and expected activity. Nevertheless, in industry, order books continue to grow, while in trade, retail order intentions are down sharply. The business climate confirms that activity in France at the beginning of the year is proving to be more resilient than might have been anticipated a few months ago. Although they are slightly less optimistic for the future, companies remain fairly confident, despite the social tensions surrounding the pension reform and limiting activity in certain sectors. Previous experiences of social tensions in France show that the economic impact is generally temporary and fully compensated by a rebound in activity in the following months. While the impact on growth in 2023 should be close to 0%, it cannot be ruled out that social tensions reduce growth in the first quarter by 0.1 to 0.2 percentage points compared to a scenario without tension, before an equivalent rebound in the second quarter. The fact that economic sentiment is holding up is good news for economic growth at the beginning of the year, but it does not mean that economic activity is very dynamic in all sectors. Industrial production fell in January and could continue to be weak, even with a sustained improvement in supply chains. We expect slightly positive quarterly growth in the first quarter, of about 0.1%. What can we expect next? The outlook for the French economy over the next few quarters remains subdued. The global economic slowdown is likely to weigh on exports and the industrial sector. The inflationary context will continue to weigh on household consumption. In addition, the full impact of monetary policy tightening is likely to start to be felt, weighing on household and business investment. In this respect, the impact of recent market turbulence on the French economy is still rather uncertain. But even if the problems remain contained, this could lead to a tightening of credit conditions, which would have a slightly negative impact on economic activity in the coming quarters. All in all, we expect growth of 0.7% in 2023 and 2024, following growth of 2.6% in 2022. Read this article on THINK TagsGDP France Eurozone Business climate 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
Moderate Outlook: Growth and Disinflation Trends in the French Economy

France: Inflation falls, but not by much, and consumption drops

ING Economics ING Economics 31.03.2023 14:15
Inflation decreased in France in March, thanks to base effects on energy prices. Nevertheless, underlying inflationary pressures remain very high and food inflation will continue to rise. GDP growth will therefore likely remain weak, as confirmed by the falling consumer consumption in February Inflation falls, thanks to energy As expected, headline inflation in France fell in March to 5.6% from 6.3% in February. The harmonised index, which is important for the European Central Bank, stands at 6.6% against 7.3% last month. This fall in inflation is mainly due to the base effects of energy prices, which rose in March last year when the war in Ukraine started. Energy inflation thus stood at 4.9% in March compared to 14.1% in February. Given the tariff 'shield,' which limited the increase in gas and electricity prices in France to 4% in 2022 and 15% in 2023, energy continued to contribute positively to French inflation, unlike in other European countries which saw energy bills fall in 2023 after the very sharp rise in 2022. In addition, the government's decision to raise tobacco prices pushed these prices up by 7.8% year-on-year in March (compared to +0.2% in February). Food inflation also continues to rise, by 15.8% year-on-year in March, compared to 14.8% in February. Food is now by far the largest contributor to inflation in France. At the same time, inflation in manufactured goods rose from 4.7% to 4.8%. Despite the fall in headline inflation, underlying inflationary pressures remain very high. Consumer prices rose by 0.8% over one month in March, which is well above historical averages. The only positive element is the slight drop in services inflation, from 3% to 2.9% in March, due in particular to the fall in transport services prices, which indicates that the increases in the minimum wage have not led to a sharp rise in the prices of all services, so far. Transport also benefits from lower fuel prices. What is the outlook for inflation? In the coming months, food inflation is expected to remain the largest contributor to consumer price inflation in France. Despite the fall in world food commodity prices, food inflation will probably continue to rise in the short run. Indeed, the cost increases of recent months will continue to be reflected in food prices, as evidenced by the recent trade negotiations, which will lead to an increase in prices paid by supermarkets to their suppliers of around 10%. However, the impact of these negotiations is not expected to be immediate on prices but gradual during the second quarter of 2023. Read next: Japanese recovery continues, but weakening labour data is a concern| FXMAG.COM Producer prices remain dynamic in industry, rising by 13% year-on-year in February compared to 14.5% in January, but are decelerating. This implies that inflationary pressures for manufactured goods will start to ease in the coming months. In addition, survey data for March indicates that fewer firms are expecting higher prices. Although price expectations remain historically high, they have started to decline in all sectors. Assuming that energy prices remain lower than in 2022, headline inflation is expected to average 5% in 2023 (5.9% for the harmonised index), with a marked decline from the end of the summer. Nevertheless, inflation should end the year above 3%. Consumption declines This expected decline in inflation is taking place against a background of slowing global demand, and growth, expected in France in 2023. The data on household consumption of goods for the month of February, published this morning by INSEE, confirms this once again. Consumer spending fell by 0.8% in volume over the month, following a 1.7% rise in January - a rise that was truncated by statistical effects linked to the disappearance of the energy voucher. Consumption is down in all product categories, and the drop is particularly strong in food (-1.2% over the month). Though services consumption probably held up better, household consumption will probably not be a strong driver of economic growth in the first quarter. We expect quarterly growth to be 0.1%, and the risks are tilted to the downside, particularly in view of the social unrest in March, which may have had a temporary negative impact on activity. Growth is not expected to be much more dynamic for the rest of the year, with activity hampered by rising interest rates, slow global growth, and the inflationary environment. We expect GDP growth to be weak at 0.7% for 2023 as a whole, and 0.7% in 2024 (down from 2.6% in 2022). Read this article on THINK TagsInflation GDP France Eurozone 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
French Outlook: Weak Economy Amid Social Tension

France: Industrial production rebounds but outlook remains sluggish

ING Economics ING Economics 05.04.2023 16:23
Industrial production rebounded in France in February, but not enough to compensate for January's decline. Energy-intensive activities remain heavily impacted by the energy shock. These data confirm rather lacklustre growth   Since the beginning of the year, it has been clear that economic activity in France is showing some signs of resilience. In particular, business confidence remains very solid despite the more unfavourable global context, the rise in interest rates and the social tensions surrounding the pension reform. The February industrial production data confirm this. Indeed, industrial production rebounded in France, increasing by 1.2% over the month, after the (slightly upwardly revised) 1.4% decline in January. Manufacturing output is also up, by 1.3% after falling by 1.5%. Most branches of activity saw an increase over the month, with the rise being particularly strong in the manufacture of transport equipment. Over the last three months, manufacturing output has risen by 1.7%, thanks in particular to the rebound in automobile production linked to easing supply chains. Energy-intensive activities are nevertheless down sharply over the year, by 25.9% for steel, 22.5% for paper and cardboard and 19.9% for chemicals. From these data, we can conclude that the energy shock continues to have an impact on French economic activity, despite the drop in global energy prices. Given the time lag for international price developments to be reflected in companies' bills, it is likely that production in energy-intensive activities will continue to be held back in the coming months. Read next: German industrial orders surged in February| FXMAG.COM These data indicate that the trend for French industrial production is still sluggish, though it does not resemble a collapse, thanks in particular to supply chain pressures easing. Nevertheless, the increase in activity in February is not sufficient to compensate for the decline in January. In addition, it is likely that the social tensions surrounding the pension reform will result in less dynamic industrial activity in some sectors in March, before a rebound in the following months. Overall, industrial activity is likely to decline over the quarter, which will contribute negatively to economic growth in the first quarter. At the same time, the data indicate that the inflationary context is weighing on household consumption, mainly goods. With the volume of household consumption of goods falling by 0.8% month-on-month in February, growth momentum is likely to remain weak. We expect slightly positive quarterly growth in the first quarter of 0.1%. The outlook for the French economy in the coming quarters remains moderate. The global weak growth is likely to weigh on exports and the industrial sector. The inflationary context could continue to weigh on household consumption. In addition, the full impact of monetary policy tightening is likely to begin to be felt, weighing on household and business investment. We expect growth of 0.7% in 2023 and 2024, after 2.6% in 2022. Read this article on THINK TagsIndustrial Production GDP France 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
Moderate Outlook: Growth and Disinflation Trends in the French Economy

France: business outlook worsens

ING Economics ING Economics 20.04.2023 13:22
French business sentiment fell back in April, following a deterioration in the outlook for activity and demand. This does not bode well for economic growth in the coming months. For the first time, inflationary pressures are clearly moderating A man holds a newspaper with the title 'The fight continues' during a rally over the Macron government's new pension reform The outlook darkens While France has had weeks of strikes and protests over pension reform, April business climate data provide key insights into France's economic situation at the start of the second quarter. Since the beginning of the year, French economic activity had shown signs of resilience, but now it seems that the economic context is darkening. Thus, the business climate fell back in April to 102 compared to 103 in March, a figure still above its long-term average. While the current assessment is still OK-ish, the index's components relating to the outlook for activity, demand and order books have deteriorated markedly, both in the services sector and industry. This signals a much less positive view by business leaders of the outlook for the French economy in the coming months, which does not bode well for economic growth. Moderation of inflationary pressures The only good news in the report is the sharp fall in expected sales prices by manufacturers and retailers and the slight fall in expected prices in the services and construction sectors. This is the first time that we have seen a real moderation in inflationary pressures in France, suggesting that consumer price inflation should gradually decline over the coming months. This is good news for the European Central Bank, although inflation in France is likely to remain higher than in other European countries until the end of 2023. This is due to less favourable "base effects" in France than elsewhere, with French household energy bills having hardly increased in 2022 at a time when they were exploding in other countries. This allowed for much more moderate inflation in 2022 in France than in neighbouring countries. Read next: FX Daily: A glimpse of future easing| FXMAG.COM Following the 15% increase in gas and electricity prices at the beginning of 2023, French energy bills continue to rise compared to 2022, while in other countries they have started to decrease gradually, in the wake of the sharp fall in energy prices on international markets. We expect inflation to average 5% for the year (5.6% for harmonised inflation).   Weak growth to be expected Ultimately, the business climate data indicate that the pace of growth of the French economy is likely to be sluggish in the coming quarters. While GDP growth was probably slightly positive in the first quarter, an acceleration in the second quarter seems unlikely, given the disrupted social context, the global economic slowdown, rising interest rates and still very high inflation. Growth in the order of 0.1% quarter-on-quarter is expected for the second quarter. Furthermore, the outlook for the French economy remains subdued for the second half of the year. We expect growth of 0.6% in 2023 and 0.7% in 2024, after 2.6% in 2022. Read this article on THINK TagsInflation GDP France Eurozone Business climate 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
Moderate Outlook: Growth and Disinflation Trends in the French Economy

France: Exports boost GDP while inflation increases again

ING Economics ING Economics 28.04.2023 15:19
French GDP grew by 0.2% over the quarter, due almost entirely to the normalisation of the supply chain situation, as domestic demand declines and inflation suprises to the upside Source: Shutterstock Exports allow GDP to grow In France, GDP rose by 0.2% in the first quarter. This increase is due to foreign trade, which contributed 0.6 points to growth thanks to more dynamic exports than imports (+1.1% over the quarter versus -0.6%). This is a result of a rebound for transport equipment exports (+9.5% over the quarter), made possible by the improvement of constraints on production lines. On the other hand, household consumption stagnated over the quarter, after a 1% fall in the fourth quarter of 2022. France narrowly avoided a further fall in consumption, thanks to a recovery in energy consumption (+3.7% vs -6.4% in the previous quarter). But this is partly caused by the end of government support for energy bills. Food consumption continues its dizzying decline, down 2.3% compared to +3.1% in the previous quarter. Household consumption of goods fell by 0.2% in the quarter, but the details indicate that the situation deteriorated very sharply, with consumption of goods falling by 1.3% over the month of March, after -0.8% in February and +1.6% in January. Total gross fixed capital formation fell by 0.2% over the quarter, but household gross fixed capital formation dropped even more sharply by 1.4%, in connection with the rise in interest rates which depressed investment in housing. The contribution of domestic demand to growth is negative at -0.1 points, as is that of inventories at -0.3 points. It also should be noted that the data for the two previous quarters have been revised downwards. GDP had thus progressed by only 0.1 in the third quarter of 2022 and had stagnated in the fourth quarter, but the average growth for 2022 remains 2.6%. The outlook for the rest of the year remains bleak All in all, the growth of the French GDP in the first quarter comes almost exclusively from supply chain normalisation,  which allowed a strong growth of exports. On the other hand, domestic demand is in decline. This does not bode well for the coming quarters. Indeed, business surveys indicate that the effect of supply chain improvements is fading and that sentiment among manufacturers remains quite negative for the coming months in line with the global economic slowdown. Exports are therefore likely to grow much more slowly in the coming quarters. At the same time, consumer confidence is not recovering and, unlike in other European countries, remains at a historically low level. In addition, the savings rate has started to rise again and, according to surveys, households want to save more in the coming months. This implies that households are likely to draw much less on their savings accumulated during the Covid-19 period to support consumption. Consumption growth is therefore likely to remain very moderate, although it could pick up slightly in the second quarter as the protests and demonstrations against pension reform subside. Read next: German economy not out of recessionary danger, yet| FXMAG.COM Investments should remain very weak against a backdrop of rising interest rates, and the outlook for the rest of the year therefore remains rather bleak. We expect growth of 0.7% in 2023 and 0.7% in 2024, after 2.6% in 2022. Inflation rises again As expected, inflation increased again in France in April. It stood at 5.9%, against 5.7% in March. The harmonised index, stands at 6.9%, compared to 6.7%, which is bad news for the European Central Bank. This increase is mainly due to base effects on energy, as the year-on-year fall in oil prices was less marked than in March. Energy inflation was therefore 7% in April, compared with 4.9% in March. Given the tariff shield that has limited the increase in gas and electricity prices in France to 4% in 2022 and 15% in 2023, energy continues to make a positive contribution to inflation, unlike other European countries that have seen energy bills fall in 2023 after the very sharp rise in 2022. Thanks to a deceleration in fresh food prices, food inflation slowed to 14.9% over the month from 15.9% in March. Food prices, excluding fresh produce, continue to be very dynamic in the wake of the negotiations between food suppliers and distributors concluded in March. This led to an increase in the prices paid by supermarkets to their suppliers of around 10%, which is gradually being passed on to sales prices. Food remains the main contributor to French inflation. In addition, the price of services is on the rise again, rising by 3.2% over one year in April compared with 2.9% in March. Inflation in manufactured goods fell slightly to 4.7% from 4.8% in March. Inflationary pressures should gradually subside Fortunately, pipeline inflation is coming down, indicating that French inflation should start to decline in the coming months. Producer price growth, which gives an indication of the evolution of production costs, continues to fall sharply each month. In March, producer prices rose by 6.5% compared to March 2022, a much slower increase than the 30% observed at the peak in August and down from 13.3% in February. However, the decline in production costs will be gradual and slow, with month-to-month trends suggesting that the situation is still far from normal. Moreover, companies' sales price forecasts fell significantly in April, particularly in the industrial and construction sectors. The decline is particularly marked in industry, where business sales price expectations are now at the level of early 2021, before the sharp rise in inflation. Inflation in manufactured goods should therefore fall in the coming months. In services, the decline in price expectations is not yet very marked, indicating that services inflation may take longer to normalise. Finally, given the decline in agricultural commodity prices on international markets and the weakness of demand, food inflation should gradually decline once the impact of the trade negotiations has been absorbed, i.e., during the summer. Even though inflation should fall in the coming months, it will likely remain higher than in other European countries until the end of 2023. This is due to less favourable "base effects" in France than elsewhere, with French household energy bills having hardly increased in 2022 at a time when they were exploding in other countries. This allowed for much more moderate inflation in 2022 in France than in neighbouring countries. Following the 15% increase in gas and electricity prices at the beginning of 2023, French energy bills continue to rise compared to 2022, while in other countries they have started to decrease gradually in the wake of the sharp fall in energy prices on international markets. We expect inflation to average 5% over the year (5.6% for harmonised inflation). Read this article on THINK TagsInflation GDP France Eurozone 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
French Outlook: Weak Economy Amid Social Tension

France: Unemployment still historically low, for now

ING Economics ING Economics 18.05.2023 11:44
The unemployment rate in France stabllised at 7.1% in the first quarter, a historically low level. But signs of a cooling labour market are mounting Since the beginning of 2020, 1.2 million additional jobs have been created in France, 85% of them in the services sector Unemployment is at historically low levels The unemployment rate in France stood at 7.1% in the first quarter, stable compared to the fourth quarter of 2022, and still historically low. It is now 1.1 percentage points lower than its pre-Covid level of 8.2% and 3.4 percentage points lower than its peak in 2015. These signs confirm what the employment figures were already indicating: the French labour market, like in the rest of Europe, remains incredibly strong. Since the beginning of 2020, 1.2 million additional jobs have been created in France, 85% of them in the services sector. This is an increase of 5.8% over the period, which is much faster than GDP growth (of 1.7% over the period), indicating that, since the pandemic, growth has been particularly employment intensive. While a strong labour market is generally supportive of household purchasing power and can sustain consumption, these very good figures do not necessarily suggest more dynamic economic growth in the coming months. In fact, the unemployment rate is one of the most lagging economic indicators: the good performance in the first quarter is mainly a consequence of the dynamic growth seen in 2021 and 2022. Indeed, the last time the unemployment rate was so low in France was in 2007-08, at the start of a major recession. Signs of cooling grow The outlook for 2023-24 is not as bad as it was then, but the signs of a cooling labour market are mounting and the outlook is less favourable. For example, the slowdown in temporary contract hire has accelerated recently, which is usually a harbinger of a more generalised weakening of the labour market, as companies first cut temporary employment in the face of slowing demand before turning to internal employment. Indeed, the number of job-seekers coming from the end of a temporary assignment has risen sharply over the past six months. In addition, according to the business surveys, hiring intentions of companies in all sectors have been declining for several months and the decline was accentuated in April, a sign of an expected weakening of the economic situation. The decline is particularly marked in the services and construction sectors. Read next: The Commodities Feed: US announces SPR purchase| FXMAG.COM Finally, the proportion of companies that consider that the lack of labour is a limiting factor to their production is falling in all sectors, although it remains at a historically high level. The pace of job creation should therefore slow down significantly in the coming months and could even turn slightly negative in the second half of the year. This should lead to an increase in the unemployment rate, reaching 7.3% at the end of 2023 and 7.6% at the end of 2024 (ILO definition). The expected rise in unemployment would nevertheless be moderate in relation to the scale of the expected economic slowdown and a sharp fall in employment seems unlikely. The labour market is indeed structurally tighter, notably due to the ageing of the population, which will push companies to retain jobs more than during previous economic downturns. Read this article on THINK Tags Unemployment rate Labour market France 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
Weak Second Half Growth Impacts Overall Growth Rate for 2023

Labour-Market Induced Sell-Off: Impact on US Treasuries and Rates Differentials! Comparing US and Euro Rates: Factors Influencing Policy Rate Paths

ING Economics ING Economics 31.05.2023 08:37
10Y US Treasury yields are more than 60bp away from the peak they reached in early March, prior to the regional banking crisis. The Fed has been pushing a more hawkish line disappointed by the lack of progress on the inflation front, but end-2023 Sofr futures still price a rate that is 50bp below the early March peak.   At least so far, this doesn’t feel like a wholesale reappraisal of the market’s macro view although a more forceful Fed communication at the 14 June meeting, with potentially a hike and a higher end-2023 median dot, could push us closer to this year’s peak in rates.     ECB pricing is hard to move but markets look to the BoE for guidance In Europe, today’s inflation prints from France, Germany, and Italy will, in addition to yesterday’s Spanish release, give us a pretty good idea of where the eurozone-wide number will fall tomorrow. If the drop in Spain’s core inflation is any guide, EUR markets will struggle to follow their US peers higher.   Add to this that it is difficult for euro rates to price a path for policy rates that materially diverges from their US peers. Even if the Fed hikes in June or July, the EUR swap curve already prices ECB hikes at both meetings. Swaps assign a low probability to another hike in September for now.   That probability may well rise but we think any labour-market induced sell-off in US Treasuries will reflect, in part, in wider rates differentials between the two currencies.   It is difficult for euro rates to price a path for policy rates that materially diverges from their US peers  
EUR Reacts to ECB's Dovish Hike, Now More Influenced by the USD

UK Mortgage Approvals Show Promising Rebound, Fueling Optimism for Housing Market Recovery

Michael Hewson Michael Hewson 29.05.2023 09:11
UK Mortgage Approvals (Apr) – 31/05 We've started to see a modest improvement in mortgage approvals since the start of the year, after they hit a low of 39.6k back in January, as the sharp rise in interest rates at the end of last year weighed on demand for property as well as house prices.   As energy prices have come down, along with lower rates, demand for mortgages has started to pick up again with March approvals rising to 52k, while net consumer credit has also started to improve after similar weakness at the end of last year.   With inflationary pressures starting to subside we could see this trend continue in the coming months, as long as energy prices remain at their current levels, and the Bank of England starts to signal it is close to being done on raising rates.     Manufacturing PMIs (May) – 01/06 Last week saw the latest flash PMIs show that manufacturing activity in France and Germany remained weak, while in Germany activity deteriorated further to its lowest levels since June 2020, when economies were still reeling from the effects of pandemic lockdowns.   We also found out that the German economy was in recession after Q1 GDP was revised lower to -0.3%. The UK and US on the other hand were able to see a modest pickup in economic activity. It is clear that manufacturing globally is in a difficult place, we're also seeing it in China, as well as copper and iron ore prices, which suggests that global demand is weakening sharply.   Italy and Spain economic activity is also expected to see further weakness in manufacturing when their latest PMIs are released later this week.
Economic Slowdown in France: Falling Consumption and Easing Inflationary Pressures

Economic Slowdown in France: Falling Consumption and Easing Inflationary Pressures

ING Economics ING Economics 31.05.2023 10:44
France: consumption plunges while inflation moderates The second quarter got off to a poor start in France, with household consumption falling for the third consecutive month in April, and the outlook has been revised downwards. Against a backdrop of falling demand, inflationary pressures are moderating more quickly than expected.   Consumption continues to plummet In April, for the third consecutive month, consumer spending on goods fell. This time, the fall was 1% over the month, following a 0.8% fall in March. Household consumption of goods is now 4.3% lower than a year ago and 6.3% below its pre-pandemic level. The fall is due to lower energy consumption (-1.9% over one month) and a further fall in food consumption. Food consumption is now 11% below its pandemic level.   The magnitude of the fall shows the significant impact of the inflationary context and the fall in purchasing power, which has led households to significantly alter their consumption habits.   These figures were eagerly awaited, as they are the first real activity data available for the second quarter. And we can now say that the second quarter got off to a poor start. It is clear that the French economy is slowing sharply. It is unlikely that consumption will make a positive contribution to GDP growth in the second quarter, especially as the slowdown is beginning to have an impact on the labour market, as suggested by the employment climate data published by INSEE last week.   The prospect of a recovery later in the year seems to be fading. This has led us to revise our growth outlook slightly downwards. We are now expecting GDP growth of 0.6% in 2023 and 0.7% in 2024, with the risks still tilted to the downside. Although France escaped recession last winter, today's indicators are a reminder that a recession in the coming months cannot be ruled out.   Strong moderation in inflationary pressures Against this backdrop of falling demand, inflationary pressures are moderating. As expected, the pace of consumer price inflation eased in France in May. Inflation stood at 5.1%, down from 5.9% in April, while the harmonised index, which is important for the ECB, reached 6% in May, compared to 6.9% in April. The good news is that the fall in inflation is now visible in all consumer categories. Energy inflation fell sharply to 2% year-on-year in May.   Unlike in other European countries, it remains positive, however, as the rise in household energy bills did only take place at the start of 2023, rather than in 2022, as a result of the "tariff shield" introduced by the government last year. Food inflation remains very high but is starting to fall, to 14.1% in May from 15% in April.   At 4.1% year-on-year, compared with 4.6% in April, growth in the prices of manufactured goods is also moderating, as is that of services, which stood at 3% compared with 3.2% in April. These last two developments are very good news, as they signal that the inflation peak is behind us, but also that inflation is likely to fall rapidly over the coming months. Indeed, the signs of moderation in inflationary pressures are mounting.   For example, tensions in supply chains have disappeared and the growth in industrial producer prices, which gives an indication of changes in production costs for the manufacturing sector, slowed sharply to 5% year-on-year in April (compared with 9.5% in March). Over one month, producer prices fell sharply, by 4.1%, after +1.2% in the previous month. This indicates that growth in the prices of manufactured goods is set to slow markedly over the coming months.   Furthermore, business forecasts for selling prices fell sharply in May, particularly in the industrial and construction sectors, but also in services. Inflation in services should therefore continue to weaken over the coming months.   Finally, given the fall in agricultural commodity prices on international markets and the weakness of demand, food inflation should continue to fall gradually, and more rapidly once the impact of the price agreement between food producers and big retailers has been absorbed, i.e. during the summer. Ultimately, inflation is likely to fall over the coming months, helped by weak demand. We are expecting inflation to average 4.7% over the year (5.7% for harmonised inflation).
Resilient US Economy and the Path to Looser Fed Policy

Underwhelming Eurozone Industrial Production in April Raises Concerns for Second Quarter

ING Economics ING Economics 14.06.2023 14:09
Eurozone industrial production up in April but with lots of underlying weakness The production increase in April underwhelms and leaves a good chance of negative overall production growth in the second quarter. The economy, therefore, remains in a stagnation environment as the second quarter is unlikely to show much of a bounceback in economic activity.   The 1% increase in production in April came on the back of a -3.8% decline in March. While this is a disappointing bounceback, the underlying data look worse. Growth was mainly down to a 21.5% increase in Ireland, which has notoriously volatile production data these days. The large countries experienced poor output developments in April. German production was flat according to the European definition, France posted a small 0.8% increase, but Italy, Spain and the Netherlands experienced a contraction of -1.9, -1.8 and -3.5% respectively.   Industrial dynamics provide a mixed picture at best for the sector. New orders have been weak for some time now. Domestic demand for goods has been declining for a while and global activity has also disappointed. Besides that, the catch-up effects from supply chain disruptions have been fading. On the other hand, lower energy prices should work favourably from a production perspective, but overall this is not yet resulting in stronger activity.   This release does not bode well for second-quarter GDP. The small increase in production in April leaves industrial output well below the first-quarter average. Given that May surveys of the sector continue to be downbeat, it is likely that production will contract on the quarter. With retail sales sluggish in April and May surveys pessimistic, don’t expect much of a second quarter in terms of economic recovery after two quarters of negative growth.
France's Business Climate Stabilizes, but Weak Growth Outlook Persists: Automotive Sector and Tourism Provide Temporary Boost

France's Business Climate Stabilizes, but Weak Growth Outlook Persists: Automotive Sector and Tourism Provide Temporary Boost

ING Economics ING Economics 22.06.2023 10:22
France: business climate stabilises, but growth outlook remains weak Business sentiment stabilised in France in June. The industrial sector is benefitting from the return to normal in the automotive sector, while the summer looks set to be a good one for the services sector. These temporary factors are mitigating the subdued outlook, but growth will remain weak over the coming quarters.   Automotive and services more optimistic The business climate figures are the first data to be published for the month of June, allowing us to better examine the economic situation in France at the end of the second quarter. And the news is not bad. The business climate stabilised in June, at 100, the level of its long-term average. While the situation is improving in the industrial and retail sectors, it is deteriorating further in the construction sector. The improvement in business sentiment in the industrial sector is particularly noteworthy, after weakening for several months, not only in France but also in the rest of the world. Manufacturers are more positive about past production, but also about future production prospects and order books. The details indicate that it is the automotive industry that is seeing its situation improve most, which probably follows the easing of supply chain problems. This is therefore more likely to be a catch-up effect from a previously disrupted situation than the start of a new trend. In the services sector, business sentiment is stable and still above its long-term average. Interestingly, the outlook for business activity has risen slightly. This increase is largely due to businesses in the accommodation and catering sector, which are much more optimistic about activity over the coming months. This indicates that the summer is shaping up to be a very good one for the French tourism sector, which will support economic growth in the third quarter. In the retail sector, order intentions and inventories are up. In construction, the business climate continues to decline for the sixth month in a row. Finally, price intentions are down in all sectors. This is a further sign that the inflation peak in France should finally be behind us, and that price growth should be less dynamic in the coming months. The fall in inflation is likely to take time, however, as price intentions in services remain high, despite falling over the past two years.   Growth likely to remain weak in 2023 and 2024 Ultimately, based on all the available figures, it seems that France is facing a moderation in its growth prospects. In the short term, however, this moderation will be mitigated by the catching-up of the automotive industry and the good health of the tourism sector, which continues to benefit greatly from the post-pandemic recovery. These factors should support growth in the third quarter but are likely to run out of steam after that. The end of 2023 and 2024 are likely to be much weaker, against the backdrop of a global economic slowdown and high interest rates that will have an increasing impact on demand. We are still expecting growth of around 0.5% this year, a forecast close to those of the Banque de France and INSEE, which are predicting 0.6%. For 2024, we are less optimistic than the central banks, forecasting French GDP growth of 0.5% (compared with a forecast of 1% by the Banque de France).  
UK Public Sector Borrowing Sees Decline in July: Market Insights - August 22, 2023

UK Retail Sales Outlook and Flash PMI Focus Amid Inflation Concerns - Analysis by Michael Hewson

Michael Hewson Michael Hewson 23.06.2023 11:35
UK retail sales could surprise to the upside, flash PMIs in focus - By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets fell for the fourth day in succession yesterday, driven lower on worries that central banks will look through concerns over a slowdown in economic activity and prioritise the battle against inflation, and look set to open lower this morning.     These concerns have been magnified in recent days with last week's hawkish Fed meeting, followed by the bigger than expected 50bps rate hikes from the Bank of England and Norges Bank yesterday, as investors started to worry that creating a possible recession was likely to become a necessary side-effect in their willingness to push inflation back down to their 2% targets. Certainly, the sticky nature of core inflation is causing a great deal of anxiety not only on the part of central bankers, but also on the part of those who are due to come off fixed rate mortgages in the next 12 months. The hope is that this period of high rates could soon give way to a softening later in the year, however the big rise in core inflation suggests that we may have to endure them for quite a bit longer.     On the plus side the lowering of the energy price cap next month is already seeing energy companies writing to customers and lowering their monthly direct debits with gas prices now back at 2021 levels. This should start to see headline inflation continue to decline into the end of the year.       While concerns over a possible recession are increasing, a lot of the economic data so far thisyear has proved to be reasonably resilient, which makes the timing of yesterday's decision to be more aggressive by the Bank of England a little bit after the fact.   For an economy that is wrestling with food price inflation of close to 20% the resilience seen in the UK consumer has been surprising so far this year, with clothing retailer Next surprising the market earlier this week when it upgraded its full year profits forecasts on better-than-expected trading activity.   Consumer confidence has improved as petrol prices have come down and certainly helped with some of that, however we also can't ignore the recent increase in interest rate costs that are likely to act as a drag in H2 of this year. In April we saw retail sales excluding fuel rise by 0.8%, partially reversing a sharp -1.4% decline in March, which in turn reversed a 1.4% gain in February.   The gain in April was even more surprising given the rise in tax rates, including council tax and other utility bills that kicked in at the start of the fiscal year.   For May estimates are for retail sales to fall by a modest -0.2%, even with recent updates from a few UK retailers pointing to continued resilience when it comes to spending patterns. We also have the latest flash PMI numbers for June which are likely to continue to exhibit one of the more notable trends we've seen in recent months, which has been an ongoing divergence between services sector activity and manufacturing activity.   This trend has also started to manifest itself in China which is seeing its manufacturing sector start to struggle.   In France manufacturing activity remained steady at 45.7, while Germany slipped back to 43.2 from 44.5. Both of these are expected to remain close to current levels.   Services continue to remain resilient but even here activity is cooling off a touch, with France slipping to 52.5 from 54.6, while Germany improved to 57.2 from 56. Again, these are expected to come in slightly weaker at 52.1 and 56.3.   In the UK the picture appears to be more upbeat, although even here manufacturing is struggling, coming at 47.1 in May, while services also slowed to 55.2 from 55.9. UK manufacturing is expected to soften to 46.8 and services to 54.8.     Lower fuel costs may offer some support here; however, most service providers are struggling with higher costs, which by and large they are having to pass on.    EUR/USD – pushed briefly back above the 1.1000 level yesterday before slipping back, 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 should act as support. Below 1.0850 signals a move towards 1.0780.     GBP/USD – spiked up to 1.2850 yesterday before slipping back, however it remained above the lows this week at the 1.2680/90 area. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510, but needs to clear 1.2850.      EUR/GBP – failed between the 0.8630/40 area before slipping back. The main support is at least weeks 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 – has finally cracked the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move, as it looks to close in on the 145.00 area. Support now comes in at 140.20/30.      FTSE100 is expected to open 27 points lower at 7,475     DAX is expected to open 120 points lower at 15,868     CAC40 is expected to open 53 points lower at 7,150
Barclays H1 2023: Mixed Performance with Strong Investment Banking and Consumer Division

Navigating Uncertainty: Shifting Sentiment in European and US Stock Markets

ING Economics ING Economics 26.06.2023 08:04
European and US stock markets have seen a significant shift in sentiment over the past few days when it comes to the global economy. Rising bond yields, driven by more hawkish central banks, which has prompted investors to reassess the outlook when it comes to valuations and growth.     While European markets saw their biggest weekly loss since March, US markets also took a tumble, albeit the first one in 8 weeks, as a succession of central banks pledged that they had significantly further to go when it comes to raising rates. Bond markets also started to flash warning signs with yield curves becoming more inverted by the day whether they be France, Germany, or the UK. Friday's weak finish hasn't translated into a strongly negative vibe as we start a new week for Asia markets, even allowing for events in Russia at the weekend which aren't likely to have helped the prevailing mood, with the US dollar slightly softer this morning after getting a haven bid at the end of last week.     With economic data continuing to show varying signs of vulnerability, particularly in manufacturing the situation could have got even spicier over the weekend when Wagner Group boss Yevgeny Prigozhin set his troops on the road to Moscow in an insurrection against the Kremlin, and Russian President Vladimir Putin.   As it turns out a crisis was quickly averted when it was announced that Prigozhin would go into exile in Belarus, with any charges against him dropped, and Wagner troops would return to their bases. One can only imagine the reaction if that news had broken if markets had been open at the time, however it only adds to the general uncertainty surrounding the war in Ukraine and how quickly things can start to unravel.   This weekend's events also serve to indicate how fragile Vladimir Putin's position is given that one of his most trusted advisors suddenly went rogue.   As we look ahead to the final week of June and the end of the quarter, as well as the first half of the year we can reflect to some extent that markets have held up rather well when all things are considered. They have been helped in that by the sharp falls in energy prices back to pre-Russian invasion of Ukraine levels, as well as the low levels of unemployment which have served to keep demand reasonably resilient.     The elephant in the room has been the stickiness of core inflation as well as signs that demand is starting to falter, and this week we could get further confirmation of that trend.   Today we get the latest Germany IFO Business Climate survey for June, which if last week's flash PMI numbers are any guide could well show that the confidence amongst German business is faltering, with expectations of a slowdown to 90.6, from 91.7.     We also get flash CPI inflation numbers from Germany, France and the EU where headline prices are likely to show further signs of softening, with core prices set to remain sticky. At around the same time we get the latest PCE inflation numbers from the US for May.   These are likely to be important in the context of the Federal Reserve's stated intention to raise interest rates at least twice more before the end of the year.     In April the core PCE Deflator edged up from 4.6% to 4.7%, an area it has barely deviated from since November last year. You would have thought that even with the long lags seen from recent rate hikes they would start to have an impact on core prices.   This perhaps explains why central banks are being so cautious, even as PPI prices are plunging and CPI appears to be following.       EUR/USD – pushed briefly back above the 1.1000 level yesterday before slipping back, 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 should act as support. Below 1.0850 signals a move towards 1.0780.     GBP/USD – currently 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 – failed to rebound above 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 – has finally moved above the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move, 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 6 points higher at 7,468     DAX is expected to open 28 points higher at 15,858     CAC40 is expected to open 8 points higher at 7,171
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.
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 August CPI: Impact on USD/JPY and Trading Strategies

US Jobs Market Confounds Expectations, RBA Rate Decision Looms, and Manufacturing PMIs Signal Concerns

Michael Hewson Michael Hewson 03.07.2023 08:35
US non-farm payrolls (Jun) – 07/07 – the US jobs market has continued to confound expectations for all this year, and it is this factor that is making the Federal Reserve's job in trying to return inflation to its target rate much harder to achieve. When the May payrolls report was released a month ago, we once again saw a bumper number, this time of 339k, with April revised up to 294k. The resilience of the jobs market has also been a little embarrassing for the economics profession, comfortably beating forecasts for the 14th month in succession. It also presents a problem for the Federal Reserve in the context of whether to to stick or twist when it comes to more rate hikes in the coming months. We've already seen a pause in June, however the commitment to raise rates by another 50bps by year end has got markets a little nervous, driving yields higher at the short end of the yield curve. For June, forecasts are again for a number below 300k, at 213k. We did see a rise in the unemployment rate from 3.4% to 3.7% while the participation rate remained steady at 62.6%. Wages also remained steady at 4.3%, however we also know that job vacancies after briefly dipping below 10m in March, rose strongly again in April to 10.1m. Against this sort of backdrop the Federal Reserve had to downgrade its forecast for end of year unemployment from 4.5% to 4.1%. Even with this adjustment it's hard to see how this will play out unless we see a significant rise in the participation rate, and vacancies start to disappear.         RBA rate decision – 04/07 – having paused earlier this year when it came to their own rate hiking cycle the RBA now appears to be playing catchup. Having caught the markets by surprise in April by hiking rates by 25bps, they followed that up in May by another 25bps rate increase pushing the cash rate up to 4.1%. The sudden hawkish shift in stance appears to have been prompted by stinging criticism over its failure to spot early enough the inflation surge seen at the end of 2021, and through 2022. They were hardly unique in this, with other central banks being similarly caught out, however their response has been fairly tepid, in comparison to the likes of the RBNZ where rates are much higher at 5.5%. This suggests that the RBA might feel it has to overcompensate in the opposite direction, running the risk of them tightening too hard and unsettling the housing market. Will the RBA raise rates again or decide to wait and see.               Manufacturing PMIs (Jun) – 03/07 –. recent flash PMI numbers suggest that the underperformance in manufacturing has continued in June with activity in Germany falling to its lowest level since March 2020, at 41, and the initial Covid lockdowns. In France we saw similar weakness albeit slightly higher at 45.5. Of slightly great concern has been weakness in Chinese economic activity with weak demand there feeding into a global narrative that the economy is slowing, weighed down by higher costs and varying degrees of supply chain disruption. Economic activity in Italy and Spain has also been weak, however on the plus side they have managed to outperform France and Germany. If the eurozone is to avoid a 3rd quarter of negative growth then it is Italy and Spain that might allow them to do it. 
CNH Finds Support Amid Battle for Funding in Money Markets

Mixed Signals: Services PMIs Hold Up, Fed Minutes Reveal Divergence, and AO World's Recovery Path

Michael Hewson Michael Hewson 03.07.2023 08:36
Services PMIs (Jun) – 05/07 - despite the dire start of manufacturing activity, services have held up well but even here we are seeing pockets of weakness with France seeing a sharp drop in the flash numbers a few days ago, sliding from 52.5 to 48, while activity in the rest of the euro area remains broadly positive. This is an area that could help boost economic activity in Italy and Spain now we're in the holiday season and which may help avert a 3rd quarter of weakness. We're also expected to see positive readings from the UK and the US.   Fed minutes – 05/07 – recent briefings from various Fed officials do suggest that a divergence of views is forming on how to move next, as well as in the coming months, and while the commitment to a pause in June was well flagged the commitment and guidance did pose a bit of a problem to the Fed given the strong economic data only days before the meeting in question. Powell managed to overcome that with a strongly hawkish message at his press conference along with an upgrade to the central banks key economic forecasts. A number of members changed their dots to reflect the prospect that they were prepared to raise rates twice more by the end of the year, with a hike in July looking increasingly likely.  This was somewhat surprising given markets were pricing one more rate hike, however key in amongst this is the Fed's determination that markets stop pricing rate cuts by the end of this year. This insistence of pricing in rate cuts by year end has been one of the key characteristics that has helped drive recent gains in stock markets. This slowly appears to be being priced out, as is the possibility that the Federal Reserve, along with other central banks, looks to prioritise pushing inflation down at the risk of raising the level of unemployment. This week's minutes ought to give us an indication of the thought processes of the more dovish members of the FOMC, and how comfortable they are with the prospect of further rate rises.    AO World FY 23 – 05/07 – has had its share of problems after getting a huge lift during the pandemic as business for electrical goods shifted online. These growing pains presented problems of their own in terms of scaling its operations so when the inevitable slowdown happened the business struggled to cope as costs surged. Back in 2021 the shares rose to a record high of 443p, as a pandemic buying frenzy pushed the shares up from lows of 48.5p in the space of 9 months. It's taken a little bit longer to round-trip that journey with the shares hitting a record low back in August of 39p. We've seen a decent recovery since then, helped by a number of guidance upgrades this year, one on January, with the focus on reducing costs with revenues set to see a 17.2% decline from last year. In March EBITDA guidance was raised again, to between £37.5m and £45m, with management citing further margin improvements. In April this was followed by a Q4 trading update which predicted UK revenues of £1.13bn while updating its profit guidance to the top end of its recent range upgrade of EBITDA of between £37.5m to £45m. In a sign of confidence regarding AO's turnaround plan, in June Mike Ashley's Fraser Group acquired a 19% stake in the business at 68p per share in a welcome boost for the online retailer.  
Australian Employment Surges in August Amid Part-Time Gains, While US Retail Sales and PPI Beat Expectations

Eurozone Manufacturing Contracts as Euro Remains Steady; US ISM Manufacturing PMI Weakens; US PCE Index Slows, Fed Rate Hike Still Expected

Kenny Fisher Kenny Fisher 04.07.2023 08:40
Manufacturing PMIs point to contraction across the eurozone but euro remains steady US ISM Manufacturing PMI weakens US PCE Index slows but Fed still expected to hike in July EUR/USD is almost unchanged on Monday, trading at 1.0909.   Eurozone manufacturing continues to sputter The eurozone manufacturing sector has been in poor shape for months and the downturn worsened worse in June. The eurozone PMI slowed to 43.4 in June, down from 44.8 and shy of the consensus of 43.6 points. Germany, the largest economy in the bloc, looked even worse, as the PMI fell to 40.6, down from 43.2 and below the consensus of 41.0 points. Spain, Italy and France also reported readings below 50, which separates contraction from expansion. Manufacturing in the eurozone has now contracted for 12 straight months and the PMI reading was the lowest since May 2020. Customer demand has fallen sharply and manufacturing employment declined in June for the first time since January 2021. These latest numbers indicate that manufacturing is in trouble, but this is nothing really new and the euro shrugged off the weak numbers. The news wasn’t much better in the US, as ISM Manufacturing PMI eased to 46.0 in June, down from 46.8 in May. ISM Manufacturing Employment contracted as well, falling from 51.4 to 48.4 and missing the consensus of 50.5 points. The week wrapped up with inflation releases showing that deceleration is alive and well. On Friday, the PCE Price Index, which is the Fed’s preferred inflation indicator, declined from 0.4% to 0.1% in June. As well, UoM Inflation Expectations dropped to 3.3% in June, down from 4.2% in May and the lowest since March 2021. Inflation may be headed in the right direction, but the Fed is still widely expected to raise rates at the July 12th meeting. Traders have priced in a 25-basis point hike at 86%, according to the CME FedWatch tool.   EUR/USD Technical EUR/USD is putting pressure on support at 1.0908. This is followed by support at 1.0838 1.0980 and 1.1050 are the next resistance lines    
Services PMIs and Fed Minutes: Analyzing Market Focus and Central Bank Strategy

Services PMIs and Fed Minutes: Analyzing Market Focus and Central Bank Strategy

Michael Hewson Michael Hewson 05.07.2023 08:19
Services PMIs and Fed minutes in focus By Michael Hewson (Chief Market Analyst at CMC Markets UK) In the absence of US markets yesterday, European markets underwent a modestly negative session on a fairly quiet day, and look set to open modestly lower this morning, with Asia markets drifting lower. For the past few days, markets have been trading in a broadly sideways range with little in the way of momentum, as investors weigh up the direction of the next move over the next quarter.   The last few weeks have been spent obsessing about the timing of a possible recession, particularly in the US, with the timing getting slowly pushed back into 2024, even as bond markets flash warnings signs that one is on the horizon.     As we look ahead to Friday's US payrolls report, speculation abounds as to how many more central bank rate hikes are inbound in the coming weeks, against a backdrop of economic data that by and large continues to remain reasonably resilient, manufacturing notwithstanding.     Despite the dire start of manufacturing activity as seen earlier this week, services have held up well, although we are now starting to see some pockets of weakness. A few days ago, in the flash numbers France saw a sharp fall in economic activity, sliding from 52.5 to 48 for June, although activity in the rest of the euro area remains broadly positive.     This is an area of the economy that could help boost economic activity, particularly in Italy and Spain now we're in the holiday season and has seen these two countries perform much better in recent months. The outperformance here could even help avert a 3rd quarter of economic contraction for the euro area.       Expectations for Spain and Italy are 55.7, and 53.1, modest slowdowns from the numbers in May, while France and Germany are expected to slow to 48 and 54.1.     We're also expected to see a positive reading from the UK, albeit weaker from the May numbers at 53.7. US PMI numbers are due tomorrow given the July 4th holiday yesterday.     Later today with the return of US markets, we get a look at the most recent Fed minutes, when the FOMC took the collective decision to keep rates on hold, with the likelihood we will see a resumption of rate hikes later this month.     In the lead-up to the decision there had been plenty of discussion as to the wisdom of pausing given how little extra data would be available between the June and July decisions. The crux of the argument was if you think you need to hike again, why wait until July when the only data of note between the June and July decisions is one payrolls report, and one set of inflation numbers.     All of that is now moot however and while inflation has continued to soften, the labour market data hasn't. Here it remains strong with tomorrow's June ADP report, the May JOLTs report, weekly jobless claims, as well as Friday's June payrolls numbers.     Tonight's minutes may offer up further clues as to the Fed's thinking when it comes to why they think that two more rate hikes at the very least will be needed by the end of this year.     A few members changed their dots to reflect the prospect that they were prepared to raise rates twice more by the end of the year, with a hike in July now almost certain. This stance caught markets off guard given that pricing had been very much set at the prospect of one more rate hike, before a halt.     A key part of the thinking may have been the Fed's determination that markets stop pricing rate cuts by the end of this year. This insistence of pricing in rate cuts by year end has been one of the key characteristics that has helped drive recent gains in stock markets.     This has now been largely priced out, so in this regard the Fed has succeeded,   The key now is to make sure that the Federal Reserve, along with other central banks, while prioritising pushing inflation down, don't break something else, and start pushing the rate of unemployment sharply higher.   This is the balancing act central banks will now have to perform, and here it might be worth them exercising some patience. Given the lags being seen in the pass through of monetary policy it may be that a lengthy pause after July, keeping rates at current levels for months, is a wiser course of action than continuing to raise rates until the tightrope snaps, and the whole edifice comes tumbling down.       Today's minutes ought to give us an indication of the thought processes of the more dovish members of the FOMC, and how comfortable they are with the prospect of this balance of risks.             EUR/USD – remains range bound with support 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 – still looking well supported 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 it has resistance at 1.2770.       EUR/GBP – rolling over again yesterday, sliding below the 0.8570/80 area, and looks set to retarget the 0.8520 area. Resistance remains at the 50-day SMA which is now at 0.8655. Behind that we have 0.8720.     USD/JPY – currently capped at the 145.00 area, with support at the 144.00 area this week.  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 5 points lower at 7,514     DAX is expected to open 28 points lower at 16,011     CAC40 is expected to open 23 points lower at 7,347
Upcoming Corporate Earnings Reports: Ashtead, GameStop, and DocuSign - September 5-7, 2023

France Records Surprisingly Strong Q2 Growth on Export Surge, While Domestic Demand Slips

ING Economics ING Economics 28.07.2023 11:01
Surprisingly strong second quarter growth in France French GDP grew by an above-consensus 0.5% in the second quarter on the back of strong exports, while domestic demand contracted. The third quarter started on a weaker footing.   Exports drive French growth, while consumption contracts French GDP expanded by 0.5% in the second quarter, significantly above the 0.1% consensus expectation. This was surprising, given the social unrest in the quarter and rather subdued sentiment indicators. However, domestic demand still contracted by 0.1% on the back of a 0.4% fall in consumption and a 1.6% decline in residential construction. The 0.7% growth in business investment was unable to compensate for this. On top of that, the ongoing inventory correction subtracted another 0.1 percentage point from growth. So, growth was entirely due to external demand, with exports advancing by 2.6%, while imports grew by 0.4% on the quarter. The recovery in the car industry probably boosted exports, though there was also the delivery of a cruise ship, which pushed up exports of transport equipment by 11.2% after +1.8% growth in the first quarter. Also, the continued reopening of nuclear power plants has made France a net exporter of electricity again.   Weak start to the third quarter While today’s figure is definitely a pleasant surprise, it remains to be seen whether this dynamic growth can be maintained. The third quarter might get a boost from a normalisation of tourism income after the more subdued Covid-19 years. However, according to the July PMI figures, the French economy started the third quarter of 2023 with the sharpest reduction in business activity since November 2020, with sentiment in both the manufacturing and services sectors below the 50-point boom-or-bust level. We, therefore, expect a deceleration of the growth pace in the second half. That said, on the back of the stronger-than-expected first half, we might have to revise our 2023 GDP growth forecast (now standing at 0.5% for the year) slightly upwards.   Inflation on a downward trend In another report published today, it appeared that consumer price inflation fell to 4.3% in July, from 4.5% in June, with the HICP inflation figure dropping from 5.3% to 5.1%. While French inflation remains higher than the eurozone average, on the back of a different dynamic in energy prices (since prices were capped in France last year, the downward impact of lower market prices is less pronounced in France than in other countries), the trend is downwards. That said, the July PMI survey showed a clear difference between manufacturing and services. Manufacturing prices have been falling for some months thanks to declines in raw material costs, but service prices continue to rise at a still highly elevated pace, presumably driven by higher labour costs. This is a phenomenon which is quite similar in the rest of the eurozone and which will make the discussions on the pace of decline in core inflation all the more lively at the next ECB’s governing council meeting.
EUR/USD Fragile Amidst Strong US Data and Bleak Eurozone News

European Banks Pass Stress Tests with Resilient Capital Buffers

ING Economics ING Economics 31.07.2023 16:03
Most European banks prove resilient in bank stress tests The European bank stress tests didn't reveal big capital gaps. Overall, we think the results confirm that the banking system is strongly capitalised and we see the results as supportive for bank risk.   No "official" pass or fail in the stress tests, but some banks come out with very limited capital gaps The European Banking Authority published the results of the European bank stress tests on Friday evening. The majority of banks weathered the adverse conditions well with only three banks falling short of the risk-weighted assets-based minimum capital requirements in the adverse scenario. Another four banks would fall short of the minimum leverage ratio-based requirements.  No big capital gaps were revealed, however. We would argue that German and French banks scored perhaps slightly weaker in the tests. As the EBA puts it, the exercise is not meant to be a pass or fail exercise but it acts as a supervisory tool and as an input for Pillar 2 assessments of banks. The EBA does not publish the names of individual banks that do not meet requirements. We identify those banks falling short of the minimum requirements to be based in France, Germany, Greece and Italy. Most gaps in the requirements are, however, very limited. The only larger gap would be diminished by the application of the IFRS 17 standard.   Some banks would struggle to fill their buffer requirements despite staying above their minimum requirements The tests, however, act as a good reminder that if the going gets tough, banks may face limitations on their distributions such as in paying their AT1 coupons. In the adverse scenario, several banks wouldn’t be able to fill their buffer requirements despite staying above their minimum capital requirements.  The EBA tests examined the resilience of 70 larger European banks in a baseline and adverse scenario in 2023-2025. The European Central Bank examined additional banks, with the total coming in at 98.   We examined the individual bank performance more closely in our research note published on 31 July called European Banks: Stress tests prove stressful for some banks available for our Investment Research subscribers. 
Eurozone Producer Prices Send Signals of Concern: Impact on Consumer Inflation and ECB's Vigilance - 03.08.2023

Bank of England Poised to Raise Rates to a 15-Year High Amid Economic Concerns

ING Economics ING Economics 03.08.2023 10:13
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)  
EUR/USD Trading Analysis and Tips: Navigating Signals and Volatility

EUR/USD Trading Analysis and Tips: Navigating Signals and Volatility

InstaForex Analysis InstaForex Analysis 07.08.2023 09:50
Analysis of transactions and tips for trading EUR/USD The test of 1.0961 on Friday afternoon, coinciding with the rise of the MACD line from zero, prompted a buy signal that led to a price increase of over 40 pips.     Reports on the volume of orders in Germany and industrial output in France and Italy did not help euro rise last Friday. However, weak data on the US labor market favored bullish traders, leading to a sharp increase in EUR/USD during the US trading session. Today, pressure may return on the pair, unless the data on industrial production in Germany and investor confidence in the eurozone show very good values. Although disappointing reports will continue the pair's decline, a lower-priced euro will certainly attract more buyers.   For long positions: Buy when euro hits 1.0989 (green line on the chart) and take profit at the price of 1.1035. Bullish traders will return to the market in the event of very good reports on the eurozone. However, before buying, ensure that the MACD line lies above zero or just starting to rise from it. Euro can also be bought after two consecutive price tests of 1.0960, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0989 and 1.1035   For short positions: Sell when euro reaches 1.0960 (red line on the chart) and take profit at the price of 1.0919. Pressure will intensify in the case of weak data from the eurozone. However, before selling, ensure that the MACD line lies below zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0989, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0960 and 1.0919.     What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely.   MACD line- it is important to be guided by overbought and oversold areas when entering the market Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.    
Argentine Peso Devaluation: Political Uncertainty Amplifies Economic Challenges

Cooling Trends in France's Labor Market as Unemployment Inches Up

ING Economics ING Economics 11.08.2023 10:54
France’s solid labour market is starting to cool France's unemployment rate rose slightly in the second quarter. The low point seems to have been passed, and the trend over the next few quarters is likely to be upwards.   Unemployment rate still historically low, but no longer falling France's unemployment rate stood at 7.2% in the second quarter, up slightly from the first quarter's low point of 7.1%. Despite the additional 20,000 unemployed, the unemployment rate remains historically low, down 1 point on its pre-health crisis level (8.2%). Furthermore, the employment rate remained at its highest level since the start of the series (1975) and stable over the quarter at 68.6% (of the population aged between 15 and 64). There was a significant rise in the employment rate for the oldest age groups (55-64), up 0.7 points over the quarter.   A renewed fall in the unemployment rate in the coming months seems unlikely From all the data published by INSEE, it's clear the French labour market remains very solid. Nevertheless, despite stronger-than-expected GDP growth in the second quarter, the trend is for the labour market to cool, and the unemployment rate appears to have bottomed out. A renewed fall in the unemployment rate in the coming months seems unlikely. Signs of a deterioration in the economic outlook remain strong, and growth is likely to be weaker in the coming quarters. Indicators are also pointing to a further cooling in the labour market in the future; companies' hiring intentions are falling, especially in the services sector. Industrial companies are beginning to report more problems of demand than of supply, and the proportion of companies seeing the lack of labour as a factor limiting production is decreasing. Nevertheless, this proportion remains at a historically high level. We believe that the worsening economic outlook should slow the pace of hiring by companies, which would hinder job creation and lead to a gradual rise in the unemployment rate over the coming quarters. After years of strong job creation, job destruction is likely to be seen in 2024 and 2025, leading to a slight rise in the unemployment rate. We expect it to be 7.3% at the end of this year, 7.4% in 2024 and 7.5% in 2025.
Argentine Peso Devaluation: Political Uncertainty Amplifies Economic Challenges

Cooling Trends in France's Labor Market as Unemployment Inches Up - 11.08.2023

ING Economics ING Economics 11.08.2023 10:54
France’s solid labour market is starting to cool France's unemployment rate rose slightly in the second quarter. The low point seems to have been passed, and the trend over the next few quarters is likely to be upwards.   Unemployment rate still historically low, but no longer falling France's unemployment rate stood at 7.2% in the second quarter, up slightly from the first quarter's low point of 7.1%. Despite the additional 20,000 unemployed, the unemployment rate remains historically low, down 1 point on its pre-health crisis level (8.2%). Furthermore, the employment rate remained at its highest level since the start of the series (1975) and stable over the quarter at 68.6% (of the population aged between 15 and 64). There was a significant rise in the employment rate for the oldest age groups (55-64), up 0.7 points over the quarter.   A renewed fall in the unemployment rate in the coming months seems unlikely From all the data published by INSEE, it's clear the French labour market remains very solid. Nevertheless, despite stronger-than-expected GDP growth in the second quarter, the trend is for the labour market to cool, and the unemployment rate appears to have bottomed out. A renewed fall in the unemployment rate in the coming months seems unlikely. Signs of a deterioration in the economic outlook remain strong, and growth is likely to be weaker in the coming quarters. Indicators are also pointing to a further cooling in the labour market in the future; companies' hiring intentions are falling, especially in the services sector. Industrial companies are beginning to report more problems of demand than of supply, and the proportion of companies seeing the lack of labour as a factor limiting production is decreasing. Nevertheless, this proportion remains at a historically high level. We believe that the worsening economic outlook should slow the pace of hiring by companies, which would hinder job creation and lead to a gradual rise in the unemployment rate over the coming quarters. After years of strong job creation, job destruction is likely to be seen in 2024 and 2025, leading to a slight rise in the unemployment rate. We expect it to be 7.3% at the end of this year, 7.4% in 2024 and 7.5% in 2025.
Financial World in a Turbulent Dance: Lego, Gold, and Market Mysteries

Flash PMIs Expected to Weaken Further in August: Market Insights by Michael Hewson

Michael Hewson Michael Hewson 23.08.2023 10:04
05:40BST Wednesday 23rd August 2023 Flash PMIs set to weaken further in August   By Michael Hewson (Chief Market Analyst at CMC Markets UK)     The FTSE100 managed to finally break its worst run of losses since 2019 yesterday, posting its first daily gain since the 10th August. The gains were hard-won however with the index trying retreating from its daily highs and failing for the second day in a row to consolidate a move above 7,300. The rest of Europe managed to do slightly better, outperforming and closing higher for the 2nd day in a row, although still closing well off the highs of the day.       US markets on the other hand after starting strongly slipped back after European markets had closed, sliding back on comments from Richmond Fed President Thomas Barkin who said the Fed needed to be open to the prospect the US economy might re-accelerate which might mean the central bank might need to hike rates further and keep them higher for longer, pushing the US dollar to its highs for the day in the process. Despite the weaker finish for US markets, the resilience in Asia markets looks set to see European markets open slightly higher later this morning.  The last set of flash PMIs saw German manufacturing slide to its lowest levels since the Covid lockdowns at 38.8 in further signs that the engine of the German economy continues to stutter. Weak demand in its key export markets as well as domestically, along with higher energy prices weighing on economic activity.       The only bright spot was services which came in at 52.3, but even here economic activity was slower, and both sectors are expected to weaken further in August further complication the task of the ECB which is expected to signal a pause in its rate hiking cycle next month. Manufacturing activity is expected to soften further to 38.6, while services is expected to slip to 51.5. Economic activity in France was also disappointing in July, although the underperformance was more evenly distributed with both manufacturing and services both in contraction heading into Q3. Manufacturing slipped to 45.1 in July and services dropped to 47.1. With energy prices rising sharply over the last few weeks, it's hard to imagine a scenario that will see a significant improvement given the weakness seen in China and other overseas markets. Manufacturing is forecast to come in at 45, and services at 47.5.     While economic activity has been slowing in Europe, the UK has also seen similar slowdowns in both manufacturing and services, although the composite PMI is just about hanging on in expansion territory, unlike its peers across the Channel.     Construction has been a notable strong point, however the focus today is on manufacturing which slowed to 45.3 in July, while services slowed from 53.7 in June to 51.5 in July. The recent GDP numbers for June showed a strong performance, however Q3 is likely to be much more challenging, with higher oil and gas prices likely to filter through at the petrol pump. UK manufacturing is expected to slow to 45, and services to 51.     US manufacturing and services look set to be more resilient at 49 and 52 respectively.      EUR/USD – continues to find support just above the 1.0830 area. Below 1.0830 targets the 200-day SMA at 1.0790 and trend line support from the March lows at 1.0750. Still feels range bound with resistance at the 1.1030 area.     GBP/USD – failing at the 50-day SMA again and the 1.2800 area. We need to see a move through the 1.2800 area, to signal potential towards 1.3000. A break below 1.2600 targets 1.2400.           EUR/GBP – sinking towards support at the 0.8520/30 area. A move below 0.8500 could see 0.8480. Above the 100-day SMA at 0.8580 targets the 0.8720 area.     USD/JPY – failed to push above the 146.50 area yesterday,but while above the 144.80 area bias remains for a move towards 147.50. Below the 144.80 area, targets a move back to the 143.10 area.     FTSE100 is expected to open 10 points higher at 7,280     DAX is expected to open 42 points higher at 15,747     CAC40 is expected to open 14 points higher at 7,255
Positive Start Expected as Nvidia's Strong Performance Boosts Market Confidence

Positive Start Expected as Nvidia's Strong Performance Boosts Market Confidence

Michael Hewson Michael Hewson 24.08.2023 10:53
05:40BST Thursday 24th August 2023 Positive start expected after Nvidia knocks it out of the park   By Michael Hewson (Chief Market Analyst at CMC Markets UK)     Despite a raft of disappointing economic data from France, Germany and the UK which saw services activity slide into recession territory, European equity markets managed to finish the day higher yesterday. Rather perversely markets took these data misses as evidence that rate hikes were starting to work and that further rate hikes were likely to be unnecessary, sending bond yields sharply into reverse, as markets started to price an increased probability of recession. Yesterday's economic data will certainly offer food for thought for central bankers as they get set to assemble today at Jackson Hole for the start of the annual symposium, ahead of interest rate meetings next month where they are likely to decide whether to raise rates further to combat sticky inflation. If yesterday's data is in any way reflective of a direction of travel, then we could see a Q3 contraction of 0.2%. Of course, one needs to be careful in reading too much into one month of weak PMIs, especially in August when a lot of industry tends to shutdown or pare back economic activity, however the weakness in services was a surprise given that the summer holidays tend to see that area of the economy perform well.     US markets also underwent a strong session led by the Nasdaq 100 in anticipation of a strong set of numbers from Nvidia with the bar set high for a strong set of Q2 numbers. Back in Q1 when Nvidia set out its revenue guidance for Q2 there was astonishment at the extent of the upgrade to $11bn. This was a huge increase on its Q2 numbers of previous years, or any other quarter, with the upgrade being driven by expectations of a big increase in sales of data centre chips, along with investments in Artificial Intelligence.       Last night Nvidia crushed these estimates with revenues of $13.5bn, datacentre revenue alone accounting for $10.3bn of that total, a 171% increase from a year ago. For comparison, in Q1 datacentre revenue accounted for $4.3bn. Gross margins also beat expectations, coming in at 71.2% as profits crushed forecasts at $2.70 a share. Nvidia went on to project Q3 revenues of $16bn, plus or minus 2%. The company also approved an extra $25bn in share buybacks, with the shares soaring above this week's record highs in after-hours trading, with the big test being whether we'll see those gains sustained when US markets reopen later today.     On the back of last night's positive finish, as well as the exuberance generated by the belief that interest rate hike pauses are coming next month, European markets look set to open higher later this morning. The focus today is on the latest set of weekly jobless claims numbers which are set to remain unchanged at 239k, as well as July durable goods orders, excluding transportation, which are forecast to see a rise of 0.2%, a modest slowdown from June's 0.5% gain.      EUR/USD – bounced off the 200-day SMA at 1.0800 with support just below that at trend line support from the March lows at 1.0750. Still feels range bound with resistance at the 1.1030 area.     GBP/USD – the 1.2600 area continues to hold with resistance still at the 1.2800 area and 50-day SMA. A break below 1.2600 targets 1.2400.        EUR/GBP – briefly hit an 11-month low at 0.8490 before rebounding sinking towards support at the 0.8520/30 area. A move below 0.8500 could see 0.8480. Above the 100-day SMA at 0.8580 targets the 0.8720 area.     USD/JPY – the failure to push above the 146.50 area has seen a pullback below the 145.00 level. This raises the prospect of a move towards the 50-day SMA at 142.70 area.     FTSE100 is expected to open 24 points higher at 7,344     DAX is expected to open 70 points higher at 15,798     CAC40 is expected to open 36 points higher at 7,282  
Persistent Stagnation: German Economy Confirms Second Quarter Contraction

Analyzing Powell's Jackson Hole Speech and Lagarde's ECB Insights: Market Insights by Michael Hewson

Michael Hewson Michael Hewson 25.08.2023 09:07
All ears on Powell and Lagarde at Jackson Hole today   By Michael Hewson (Chief Market Analyst at CMC Markets UK)     After an initially positive start to the day yesterday, only the FTSE100 managed to eke out any sort of gains, after a rebound in yields and the fading of the Nvidia sugar rush saw European markets slip into negative territory.   US markets, having started very much in a positive vein with the Nasdaq 100 leading the way higher, also turned tail as bond yields pushed higher, along with the US dollar, finishing the day sharply lower. As we look towards today's European open, the rise in yields and weak finish in the US, as well as weakness in Asia this morning, is set to see European markets open lower this morning. Much of the narrative for this month was supposed to be centred around what Fed chair Jay Powell would likely say at Jackson Hole today with respect to the prospect of another pause in the rate hiking cycle when the FOMC meets next month.   This week's poor economic data out of Germany and France has shifted the spotlight a touch when it comes to central bank policy towards the European Central Bank and Christine Lagarde's speech, at 8pm tonight, after Powell who is due to speak at 3:05pm.   While this year's Symposium is titled "Structural Shifts in the Global Economy" it won't be just Jay Powell whose words will be closely scrutinised for clues about rate pauses next month it will also be the Bank of England and the Bank of Japan where markets will be looking for important insights into the risks facing central banks in terms of the risks in over tightening monetary policy at a time when the challenges facing the global economy are numerous.   This week's PMIs have highlighted the challenges quite clearly to the point that it appears the ECB may well also look at a rate pause next month, alongside the Federal Reserve, although the reasons for an ECB pause are less about inflation falling back to target, than they are about a tanking economy.   The latest German PMIs suggest the prospect of another quarter of contraction in Q3, while the Bank of England has a similar problem, although the bar for a pause next month is slightly higher given how much higher UK CPI is relative to its peers.   Before we hear from ECB President Christine Lagarde, Powell will set the scene just after US markets open, and his tone is likely to be slightly less hawkish than he was a year ago.  When Powell spoke last year, he made it plain that there was more pain ahead for US households and that this wouldn't deter the central bank in acting to bring down inflation, even if it meant pushing unemployment up. While Powell is unlikely to be anywhere near as hawkish, as he was last year, he won't want to declare victory either. As we already know from recent comments from various Fed officials it is clear the Fed believes the fight against inflation is far from over, and in that context it's unlikely he will deliver any dovish surprises.   This belief of a slightly hawkish Powell is likely to have been behind yesterday's sharp declines in US markets, which were driven by rising yields as investors continued to price in higher rates for longer. Not even a set of blow-out earnings from Nvidia was enough to keep markets in the black, with the shares opening at a new record high above $500, before sliding back to finish on the lows of the day, closing unchanged. The inability to hold onto any of the early gains suggests that the recent enthusiasm for this $1trn chipmaker may be due a pause. While investors will be focussing on Powell, the focus today returns to the German economy and in the wake of this week's poor PMIs we'll be getting the latest snapshot of the business sentiment in Europe's largest, but also sickest economy, as well as the final reading of Q2 GDP.   The most recent German IFO business climate survey showed sentiment falling to its lowest level since October last year in July at 87.3 and is expected to slow further to 86.8. Expectations also slipped back to 83.5 suggesting the economy could remain in recession in Q3.   Any thoughts that we might see an improvement in August are likely to have been dealt a blow by the sharp rise in oil prices seen in the last few weeks, as well as this week's PMIs. With recent economic data out of China also suggesting a struggling economy, German exporters are likely to continue to find life difficult.        EUR/USD – sinking below the 200-day SMA at 1.0800 with support just below that at trend line support from the March lows at 1.0750. Still feelsrange bound with resistance at the 1.1030 area.   GBP/USD – slipped below the 1.2600 area which could well open up a move towards 1.2400 and the 200-day SMA.  We still have resistance at the 1.2800 area and 50-day SMA.       EUR/GBP – the rebound off this week's 11-month low at 0.8490 looks set to retest the 0.8600 area. We also have resistance at the 0.8620/30 area.   USD/JPY – rebounded off the 144.50 area with resistance at the highs this week at the 146.50 area, with resistance also at 147.50.   FTSE100 is expected to open 5 points lower at 7,328   DAX is expected to open 39 points lower at 15,582   CAC40 is expected to open 16 points lower at 7,198    
A Bright Spot Amidst Economic Challenges

Inflation Data Analysis: Will Key Numbers Prompt ECB's September Pause?

Michael Hewson Michael Hewson 31.08.2023 10:25
Key inflation numbers set to tee up ECB for September pause?     By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets underwent a bit of a pause yesterday with a mixed finish, although the FTSE100 did manage to eke out a gain, hitting a two-week high as well as matching its best run of daily gains since mid-July. US markets continued to track higher, with the Nasdaq 100 and S&P500 pushing further above their 50-day SMAs, with both closing at a two-week high, for their 4th day of gains.   As we look towards today's European session, the focus today returns to inflation, and more importantly whether there is enough evidence to justify a pause in September from both the ECB as well as the Federal Reserve, as we get key flash inflation numbers from France, Italy, and the EU, as well as the latest core PCE inflation numbers for July from the US.   Over the course of the last few weeks there has been increasing evidence that the eurozone economy has been slowing sharply, with the recent flash PMIs showing sharp contractions in both manufacturing and the services sector. Other business surveys have also pointed to weakening economic activity although prices have also been slowing, taking some of the pressure off the ECB to continue to hike aggressively.   At the last ECB meeting President Lagarde suggested a pause might be appropriate at the September meeting, acknowledging that policy was starting to become restrictive. We've also seen some ECB policymakers acknowledging the risks of overtightening into an economic slowdown, while on the flip side head of the Bundesbank Joachim Nagel has insisted further rate hikes are likely.   Yesterday's Germany and Spain flash CPI numbers for August highlight the ECB's problem, with Spain CPI edging up in August to 2.4% with core CPI slowing modestly to 6.1%. Headline inflation in Germany only slowed modestly to 6.4% from 6.5%.   Today's headline EU flash CPI numbers are therefore expected to be a key test for the ECB, when they meet on 14th September especially if they don't slow as much as markets are pricing. French CPI is expected to accelerate to 5.4% in August while Italy CPI is forecast to slow to 5.6%.   EU headline CPI is forecast to slow to 5.1% from 5.3%, with core prices expected to slow to 5.3% from 5.5%, although given the divergent nature of the various CPI readings of the big four eurozone economies there is a risk of an upside surprise.    The weaker than expected nature of this week's US economic data has been good news for stock markets, as well as bond markets, in so far it has helped to reinforce market expectations that next month's Fed meeting will see US policymakers vote to keep rates on hold.   A slowdown in job vacancies, a downgrade to US Q2 GDP and a weaker than expected ADP jobs report for August appears to show a US economy that is not too hot and not too cold.   Even before this week's economic numbers the odds had already been leaning towards a Fed pause when the central bank meets in September, even if there is a concern that we might still see another rate hike later in the year.   These concerns over another rate hike are mainly down to the stickiness of core inflation which only recently prompted a sharp move higher in longer term rates, causing the US yield curve to steepen off its June lows. 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%.   Today's July inflation numbers could prompt further concern about sticky inflation if we get a sizeable tick higher in the monthly, as well as annual headline numbers, reversing some of the decline in bond yields seen so far this week.   When we got the July CPI numbers earlier this month, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. This could translate into a similar move today with a move higher to 3.3% in the deflator, and to 4.2% in the PCE core deflator.     Personal spending is also expected to rise by 0.7% in July, up from 0.5% in June. Weekly jobless claims are expected to remain steady, up slightly to 235k.       EUR/USD – the rebound off the 1.0780 trend line support from the March lows continues to gain traction, pushing up to the 1.0950 area. We need to push through resistance at the 1.1030 area, to signal a return to the highs this year.   GBP/USD – another day of strong gains has seen the pound push back above the 1.2700 area. We need to push back through the 1.2800 area to diminish downside risk and a move towards 1.2400.       EUR/GBP – the failure to push through resistance at the 0.8620/30 area yesterday has seen the euro slip back towards the 0.8570/80 area. While the 50-day SMA caps the bias is for a retest of the lows.   USD/JPY – the 147.50 area remains a key resistance. This remains the key barrier for a move towards 150.00. Support comes in at last week's lows at 144.50/60.   FTSE100 is expected to open 6 points higher at 7,479   DAX is expected to open 30 points higher at 15,922   CAC40 is expected to open 13 points higher at 7,377  
European Construction Markets: A Look at Poland, France, and Turkey's Prospects

European Construction Markets: A Look at Poland, France, and Turkey's Prospects

ING Economics ING Economics 04.09.2023 15:57
Poland: Promising building start in 2023, but contraction aheadPolish contractors started the first half of 2023 with a growth rate of 1.3% compared to the same period in 2022. Order books are still well filled, with 8.6 months of work and have even increased slightly. The higher volumes are driven by the infrastructure sector, which showed an impressive increase of almost 10% in the first half year. We expect that the growth rate of the infrastructure sector will decrease as projects under the previous EU financial perspective will end in 2024. The EU Recovery and Resilience Facility has been delayed due to a judiciary dispute, but this should boost the construction industry once implemented. The building sector is performing less. Building permits for residential buildings decreased by 40% YoY in the first quarter of 2023. Overall, we anticipate that total Polish construction output will still marginally increase by 0.5% in 2023.   France: Zero growth in 2023After a 2.5% increase in French construction volumes in 2022, growth increased further in the first half of 2023 by 0.5% YoY. However, French contractors are slowly becoming more pessimistic. In August, the French construction confidence index (EC survey) was marginally negative, and order books are slowly becoming less well-filled. French contractors now have 7.8 months of work on average in their backlogs compared to 8.1 months in the first quarter of last year. The issuing of building permits for new houses is also decreasing, but at a slower pace than in many other countries. Material and labour shortages are less of an issue but are still relatively high. Government measures such as MaPrimRénov have supported renovation and sustainability activity. For 2023, the budget of this scheme has increased from €2.4 to €2.5 billion but remains lower than the €3.1 billion allocated in 2022. Overall, we expect that the French construction output will stabilise in 2023 and decrease by -0.5% in 2024.   Turkey: uncertainty trumpsIn August, the Turkish construction confidence indicator (EC survey) showed a negative reading of -13.0. However, order books recuperated slightly after the lowest level measured since 2011 was recorded in the first quarter of this year. Fewer contractors complain about low demand, and the issuing of building permits is pretty much stable. The earthquakes at the beginning of this year have caused massive damage to over 300,000 buildings. Our expectation is that reconstruction efforts in the form of higher public investment should generate growth in the construction sector from 2024. This will take place after a further small decline in construction output in 2023, marking six consecutive years of declining building output in Turkey.
AI Sparks a Rollercoaster Year: Surprising Upsides, Risks, and Market Implications

Services PMIs Confirm Contraction, RBA Holds Rates: Market Analysis for September 5th, 2023

Michael Hewson Michael Hewson 05.09.2023 11:35
06:15BST Tuesday 5th September 2023 Services PMIs set to confirm contraction, RBA leaves rates unchanged  By Michael Hewson (Chief Market Analyst at CMC Markets UK)     European markets struggled for gains yesterday in the absence of US markets, as the initial boost of a China stimulus inspired rally in Asia faded out, even though basic resources outperformed. This late weakness in the European day looks set to continue this morning.      The day began brightly when Asia markets rallied on signs that China's recent stimulus measures were helping to boost the property sector, after a jump in China home sales in two major Chinese cities helped to propel the Hang Seng to 3-week highs. This followed on from the Friday boost of a US jobs report, which added to the argument that the Federal Reserve would be able to keep rates on hold when they meet later this month.     The return of US markets after yesterday's Labour Day holiday should offer a bit more depth to today's price action in Europe with the focus today set to be on the services PMIs for August, after the RBA left Australian interest rates unchanged at 4.10% earlier this morning, and the latest Chinese Caixin services PMI slipped back to its weakest this year at 51.8. No surprises from the RBA keeping rates on hold for the 3rd time in a row, with little indication that rates will be cut in the future, with the central bank insistent that inflation remains too high, and that it will take until late 2025 for prices to return to the 2-3% target range.     For most of this year it has been notable that services PMIs on both sides of the Atlantic have managed to offset the weakness in manufacturing in the form of keeping their respective economies afloat. The strength of services has been a major factor behind the hawkishness of central banks in their efforts to contain inflation with prices and other related costs proving to be much stickier than other areas of the economy, due to high levels of employment and tight labour markets.       In the last couple of months there has been rising evidence that this trend has started to shift with the August flash PMIs from Germany and France seeing a sharp drop off in economic activity. This weakness translated into a sharp slide in services sector activity in both France and Germany during August to 46.7 and 47.3, with Italy and Spain also set to show a similar slowdown, although given the size of their tourism sectors they should be able to avoid a contraction, with Italy expected to slow to 50.4 and Spain to 51.5.     Today's numbers could well be the final piece of the puzzle when it comes to whether the ECB decides to pause its rate hiking cycle, even as August inflation saw an unwelcome tick higher. Further complicating the picture for the ECB is the fact that PPI has been in negative territory for the last 3 months on a year-on-year basis and looks set to slide even further into deflation territory in July. On a month-on-month basis we can expect to see a decline of -0.6% which would be the 7th monthly decline in a row. On a year-on-year basis prices are expected to fall by -7.6%.   On the PMI front the UK services sector is expected to confirm a fall to 48.7 from 51.5 in June, in a sign that higher prices are finally starting to constrain consumer spending.     EUR/USD – holding above the August lows at the 1.0760/70 area for now, as well as the trend line from the March lows. A break of the 1.0750 area potentially opens up a move towards the 1.0630 level. Resistance remains back at the highs last week at 1.0945.     GBP/USD – currently holding above the support at the August lows at 1.2545, after last week's failure to push above the 1.2750 area. We need to push back through the 1.2800 area to diminish downside risk or risk a move towards 1.2400, on a break below 1.2530.         EUR/GBP – the bias remains for a move back towards the August lows at 0.8500, while below the 0.8620/30 area, where we failed last week. We also have resistance at the 50-day SMA, and while below that the bias remains to sell into rallies.     USD/JPY – having found support at the 144.50 area on Friday, the bias remains for a return to the 147.50 area. A break above 147.50 targets a move towards 150.00. Below support at 144.50 targets a move back towards 142.00.     FTSE100 is expected to open 22 points lower at 7,430     DAX is expected to open 34 points lower at 15,790     CAC40 is expected to open 12 points lower at 7,267  
Rates Surge: US Service Sector Strengthens Yields

Rates Surge: US Service Sector Strengthens Yields

ING Economics ING Economics 08.09.2023 10:30
Rates Spark: Service sector oomph We continue to view the dominant market tilt as one point towards upward pressure on market rates. Resilience is the simplest explainer. It will give eventually, but has not done so as of yet. The latest US ISM services report pushes in the same direction.   Another ratchet up in US Treasury yields, and for good reason Another leg higher in US Treasury yields, this time driven by ISM services. New orders and prices paid in the high 50s were the standout contributors. An interesting outcome was the re-inversion of the curve as the front end began to raise the discount for one more 25bp rate hike. It’s still priced for no further hikes but has moved closer to a balanced probability. A more neutral to downbeat Beige Book later in the day tempered enthusiasm, but not by enough to materially take yields off their highs. It still appears to us that the marketplace is not getting a green light to re-test lower, and we continue to read the path of least resistance as pointing higher for market yields. The market discount for the funds rate is now up to 4.3% for January 2025. Remember that was at 2.5% when Silicon Valley Bank went down in March this year. The market continues to discount rate cuts, but nowhere near to the extent they once were. The US 10yr Treasury yield is also at 4.3% and does not look wrong there. There is still a greater likelihood that it heads to the 4.5% area than the 4% one in the weeks ahead. Ultimately there is much more room to the downside for yields when something actually breaks, but for now, things are very much holding together – or at least there is enough constructiveness in the service sector to support ongoing elevation in official rates and market yields.   Resilience keeps the Fed discount elevated   Today's events and market views The goldilocks scenario is a narrow path; things can easily break precipitating a sharper downturn, or stay too hot and keep inflation elevated. The services ISM moved the needle a little to the latter scenario, bear flattening the curve as markets also pushed the implied probability for a Federal Reserve hike before year-end to 50%. The Fed Beige Book however was more downbeat, arguing for a Fed pause this month. Today’s calendar features the weekly initial jobless claims data, a more contemporaneous read of job market conditions than the payrolls data. Markets will also be confronted with another busy slate of Fed speakers.     In Europe, we will get the final reading for second quarter GDP growth. The list of scheduled European Central Bank speakers is long, but the black-out period has started. Yesterday Klaas Knot suggested markets were underestimating the chances for a hike this month, nudging rates higher to now discount a one-in-three chance.   A greater focus will be on the Bank of England publishing the results of the decision-maker panel survey on price expectations. Yesterday Governor Andrew Bailey remarked the Bank was probably “near the top of the cycle”, causing markets to pare their hike expectations. Two more hikes are fully priced, but we think chances still are we get one less.   In government bond primary markets, France and Spain will be active with auctions. Source: Refinitiv, ING
Sygnity Stock Faces Headwinds Despite New Government Contracts

Distribution Network and Advantages of XTPL's Ultra-Precise Deposition Method

GPW’s Analytical Coverage Support Programme 3.0 GPW’s Analytical Coverage Support Programme 3.0 08.09.2023 14:55
Distribution network The company distributes its equipment through its own points and through intermediaries in specific markets. Currently, there is cooperation with five distributors: • Bandi Consortia - South Korea - partner officially represents XTPL and supports the introduction of XTPL technology in the Flat Panel Display (FPD) and semiconductor industries. • YI XIN - China and Hong Kong - distributor has a rich network of relationships with China's largest research institutions and industrial manufacturers in the display, touch panel and semiconductor industries. • Semitronics - UK and Ireland - Introducing the technology to the UK and Ireland market with the intention of increasing adoption among players. increasing awareness and recognition of innovative solutions. • Merconics - Germany, France, Austria, Switzerland - support for XTPL solutions in several countries, distributor operating in the area of advanced manufacturing equipment for semiconductors from the portfolio of brands, i.e. Bruker, Veeco, NovaCentrix or Opromec. • Vertex - India - a company specializing in providing technology solutions for the display, semiconductor and organic PV cell industries.     Ultra-precise deposition method vs. other technologies available on the market XTPL technology excels over other additive methods in terms of viscosity and size of structures (no competing methods on the market). Additive methods have advantages over subtractive methods in terms of: • application (more precise application, no need to remove unnecessary material) • efficiency (is less time- and material-intensive) • environmental impact (no need for highly corrosive solutions) • application capabilities (ability to apply to most substrates in the additive method, including curved surfaces vs. only flat substrates in the subtractive method)   The ultra-precise deposition (UPD) method developed by XTPL offers, among other things: • the ability to print from high viscosity materials at small structure sizes • the ability to print on a wide variety of materials • covering complex substrate topographies with a single continuous conductive path • printing at very high resolution on virtually any substrate (flat or curved)    
Renewable Realities: 2023 Sees a Sharp Slide as Costs Surge

Dampening Business Optimism in France Signals General Economic Slowdown

ING Economics ING Economics 19.10.2023 14:35
Business sentiment darkens in France, signalling a general loss of economic dynamism The business climate in France darkened in October across all sectors. Business leaders are less optimistic about past and future activity. Economic growth is likely to slow further.   The business climate in France darkened in October, dropping two points over the month to 98. The fall is visible in all sectors, signalling a widespread loss of economic dynamism. Business leaders everywhere are less optimistic about past production and activity but also about future activity and production prospects. Order books are judged to be less full in the retail and construction sectors, though they improved slightly in industry. This indicator, the first available for the fourth quarter of 2023, suggests that the French economy is likely to continue to slow. After a third quarter in which economic activity probably softened markedly (we forecast quarterly growth of 0.1% in Q3 compared with 0.5% in the second quarter), business sentiment suggests that a rebound in the fourth quarter is unlikely. Against a backdrop of persistently poor order books in industry, weakening demand, particularly from international markets, and a waning catch-up effect in some sectors, the outlook for the industrial sector is weak and a rebound is not expected before 2024. The construction sector, for its part, is likely to see a further fall-back in activity due to higher interest rates, which are having an increasing impact on credit demand. Household consumption is also likely to remain subdued over the coming months. While wages have risen, allowing households to regain a little purchasing power, the labour market is showing the first signs of weakening, consumer confidence remains low, and inflation proves to be stickier than expected. Recent rises in oil prices linked to geopolitical tensions will keep energy inflation buoyant in France until the end of the year and into 2024, which will continue to depress household purchasing power and limit consumer spending. Retail and services are, therefore, likely to face weak demand. Ultimately, this data suggests the French economy is likely to slow further in the fourth quarter. We expect GDP to stagnate in the coming three months, which would bring average growth for 2023 to 0.8%. We believe the recovery in 2024 will be slow, weighed down by a sharp global economic slowdown and by a very restrictive monetary policy. Because of a negative carry-over effect, we forecast average GDP growth of only 0.6% in 2024.
The December CPI Upside Surprise: Why Markets Remain Skeptical About a Fed Rate Cut in March"   User napisz liste keywords, oddzile je porzecinakmie ChatGPT

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.
National Bank of Romania Maintains Rates, Eyes Inflation Outlook

The French Labour Market Struggles: Q3 Unemployment Rate Hits 7.4%

ING Economics ING Economics 16.11.2023 11:28
The French labour market weakens still further France's unemployment rate rose in the third quarter to 7.4% of the active population, confirming the weakening of the labour market. And that weakening is set to continue in the coming months due to weak growth and the rise in the active population.   Unemployment rate up more than expected France's unemployment rate rose slightly more than expected in the third quarter to 7.4% of the active population. This represents an increase of 0.2 points over the quarter, or 64,000 more unemployed people. The unemployment rate nevertheless remains well below its pre-pandemic level (8.2%). The employment rate also fell slightly over the quarter, by 0.2%, to 68.3% of people aged 15 to 64. The decline was most marked in the 50-64 age group. This data confirms that the labour market is indeed weakening in France and that the weakening is even happening a little faster than expected. This is probably a turning point. For two years, employment growth in France had been much more dynamic than economic growth. Now, weak growth (French GDP rose by 0.1% in the third quarter) and a gloomy outlook appear to be leading to a weakening of the labour market. What's more, the leading indicators suggest that this is only the beginning of a rise in unemployment, which is likely to continue over the coming quarters. Payroll employment in the private sector fell in the third quarter, and hiring intentions are down in most sectors, signalling that the decline in the workforce could continue. Temporary employment, generally considered to be a good leading indicator of the labour market as a whole, fell sharply and is now back below its pre-pandemic level. In addition, the lack of labour is much less of a constraint on production for companies in all sectors than it was a few quarters ago. Added to this is the expected impact of pension reform on the active population. With the increase in the retirement age, older people will be working longer than before, and a marked increase in the active population is therefore expected in 2023 and 2024 (the effect of the reform on the active population being estimated at 0.2 points in 2023 and 0.4 points in 2024). There would have to be a very strong dynamic of job creation for such an increase in the active population not to lead to an increase in the unemployment rate. However, under current conditions, job destruction is more likely in the coming quarters.
GBP/USD 5M Analysis: Navigating a Minor Downward Correction and Volatility

PMI Indices Signal Lingering Inflationary Pressures and Economic Slowdown in France

ING Economics ING Economics 23.11.2023 13:28
PMI indices point to continued strong inflationary pressures The PMI indices for November, also published this morning, also point to a deterioration in the economic outlook. The composite index fell in November to 44.5, compared with 44.6 in October. For the sixth month in a row, the index is below the 50 threshold. According to the survey, it was manufacturing that was the main drag on activity, with manufacturers recording their sharpest fall in production since May 2020. Order books and business expectations are down in both the services and manufacturing sectors. Worryingly, the survey continues to point to significant inflationary pressures, particularly in the services sector, where inflation has accelerated compared with October.   This is obviously bad news for the European Central Bank as this indicates that disinflation will take time in France. Inflation is likely to remain close to 4% for the next few months, and it will probably be 2025 before consumer price inflation in France returns to 2%. We expect inflation, according to the harmonised index, to be 2.5% at the end of 2024 and 1.9% at the end of 2025.      GDP expected to stagnate in the fourth quarter Ultimately, the activity indicators published so far for the fourth quarter are weak and suggest that French economic growth is likely to continue slowing at the end of 2023. After GDP growth of +0.1% quarter-on-quarter in the third quarter, a rebound in the fourth quarter seems highly unlikely. We expect GDP to stagnate over the quarter, which would bring average growth for 2023 to 0.9%.   We believe that the recovery in 2024 will be slow, weighed down by a sharp global economic slowdown and by monetary policy that remains very restrictive. Given the low starting point for the year, average growth in 2024 is likely to be weak, and well below the government's forecast of 1.4%. Our forecast for average French GDP growth in 2024 is 0.6%.
Timing Woes: Czech Koruna Faces Pressure Amid US Inflation Surprise

Unexpected Rise in US Unemployment Claims Sparks Attention, While Fed Remains Cautious Amid Strong Labor Market

Kenny Fisher Kenny Fisher 02.01.2024 13:12
US unemployment claims higher than expected US unemployment claims, released earlier today, climbed unexpectedly to 218,000, up from an upwardly revised 206,000 a week earlier. The reading was higher than the consensus estimate of 210,000. The higher-than-expected release may garner some headlines but the Fed won’t be too concerned, as the four-week moving average, which smooths out week-to-week moves, remained almost the same as the previous four-week moving average. The US labour market has remained strong despite the Federal Reserve’s steep rate-tightening cycle. The US economy is in good shape and there is growing confidence that the Fed will be successful in guiding it to a soft landing. The markets have priced in an 86% probability of a rate hike by March but the Fed is showing more caution, with some Fed members warning that rate cuts are not necessarily imminent. Still, the fact that the Fed is on board for rate cuts next year has lifted risk appetite and sent the US dollar in retreat against the major currencies. Spain kicks off inflation releases on Friday, with Germany, France and the eurozone to follow next week. Inflation has been heading lower in the major eurozone economies and the markets have priced in up to six rate cuts next year. ECB President Lagarde has pushed back against these expectations, saying that rate cuts were not discussed at the December meeting. Spain’s CPI is expected to rise in December, with a market consensus of  3.4% y/y and 0.3% m/m. In November CPI eased to 3.2% y/y and -0.4% m/m. . EUR/USD Technical EUR/USD tested resistance at 1.1086 earlier. Above, there is resistance at 1.1144 1.1050 and 1.0992 are providing support
FX Daily: Lower US Inflation Could Spark Real Rate Debate

European Staffing Sector Faces Varied Hiring Prospects in 2024 Amid Economic Challenges

ING Economics ING Economics 03.01.2024 14:51
Strongest hiring plans in the Netherlands While the economic environment is deteriorating, most employers still have modest hiring intentions as we begin 2024. In fact, most employers in the Netherlands, Belgium and Germany are more optimistic about their hiring plans at the start of this year than they were at the end of 2023. In France, Switzerland and Sweden, hiring plans are weaker for the first quarter of 2024 compared to the end of 2023.    Employers in the Netherlands, Belgium and Germany are more optimistic about their hiring plans in 2024 Percentage of employers planning to hire minus the percentage of employers expecting a reduction in staffing levels     Less demand for temporary workers 2024 will be another challenging year for the temporary employment sector. Economic growth forecasts for most European economies remain weak for 2024, ranging from a mild contraction in Sweden and Germany to a lingering 0.7% GDP growth in Belgium and the Netherlands. As a result, unemployment could rise slightly.  The sluggish economic outlook also has consequences for the employment services industry. Companies are reluctant to invest now that the market remains highly uncertain. This softens the demand for temporary agency workers. That's particularly true for the manufacturing sector, an important industry for temp workers, where new orders continue to decline, as does capacity utilisation. But employment prospects for temp workers are also deteriorating in the services sector. Taken together, market volumes in the employment services sector are expected to decline in most European economies next year.   Staffing sector forecast: volumes are likely to decline in most European economies Volume output (value added) employment services industry, year-on-year, indices (2019=100)     Belgium - Shorter duration of temporary work GDP growth in Belgium is expected to be relatively high at 0.7% in 2024, compared to other European economies. This is mainly due to automatic wage indexation, which means that income increases with the inflation rate (excluding alcohol, tobacco and fuels). Higher purchasing power stimulates consumer spending and, thus, economic growth. Nevertheless, higher hourly labour costs will negatively impact labour demand, including the demand for temporary agency workers. We, therefore, expect a decline in market volumes in the temporary employment sector in 2024. Despite a slow economic growth, Belgium's labour market remains very solid. This is largely due to the country's tight labour market. One of the consequences of talent scarcity is that the duration of temporary work is becoming shorter because temp workers are more often hired on a permanent basis.    France - Hiring plans on hold Economic growth is expected to slow further, from 0.9% in 2023 to 0.6% in 2024. The outlook for both the French services and manufacturing sectors remains bleak. Both sectors are facing lower demand, high inflation and greater uncertainty. In addition, the French labour market is showing the first signs of cooling down, resulting in a rise in unemployment in 2024. The deterioration of the employment climate is mainly due to the services sector. Because almost half of the temps actually work in the service sector, this will also have a negative impact on the demand for temporary agency workers and the number of hours worked. We, therefore, expect a further contraction in employment activities in 2024.    Germany - Hiring freeze over recession fears Weaker global demand, high interest rates, energy uncertainty and persistently high inflation are hitting the German economy this year. This will have consequences for the demand for temporary agency workers. Adverse macroeconomic developments are putting pressure on the German automotive industry, an important sector for employment agencies. In addition, production is also declining substantially in other subsectors of the manufacturing industry. Another factor negatively affecting the temporary employment sector is the shortage of temp workers due to demographic developments. Overall, we expect a further decline in the volume of employment activities in 2024.    The Netherlands - Self-employment is an attractive alternative As a result of a weakening economy, the number of temporary employment hours in the Netherlands is expected to decrease further in 2024. We anticipate a decrease in the number of temporary agency hours by approximately 5% by 2024, mainly due to continued relatively low economic growth. In manufacturing, temp workers are the first to be laid off due to a rapid decline in production and the number of orders.  A major challenge for the staffing industry in the Netherlands is the impact of stricter regulations, which make agency workers more expensive and less flexible. As a result, other forms of employment contracts become more attractive for hiring companies, such as self-employed professionals.    More self-employed people, less flexible employment in the Netherlands in 2023 Share of labour position in the labour force in the Netherlands, third quarter    Sweden - The job market is cooling down Sweden is among the European economies expected to enter a recession in 2023, mainly due to high inflation and higher interest rates. We expect economic activity to stagnate this year. There are already signs that the job market is cooling down. As a result, consumer and business confidence remains low. The economic situation is likely to weaken demand for temp workers, especially in the construction and manufacturing sectors. Overall, we expect market volumes for the temporary employment sector to decline again in 2024.    Switzerland - Another year of negative volume growth in employment activities Like many other European countries, the Swiss economy became more challenging in 2023 due to high inflation, higher interest rates and weakening global demand. GDP growth is expected to slow from 2.2% in 2022 to around 0.6% in 2023 and 2024. The Swiss manufacturing industry, with a relatively large weight of the cyclical chemical and pharmaceutical sectors, is shrinking. The staffing market is also negatively affected by staff shortages, making it difficult to find suitable candidates. In short, we expect another year of negative volume growth in employment activities in Switzerland in 2024.    Manufacturing and construction are the most important sectors for the Swiss staffing industry Percentage of industries that used temporary agency work in Switzerland in 2022   The United Kingdom - Weak outlook for the employment activities sector Economic activity in the UK is expected to grow only modestly in 2024, similar to most other European economies. The sluggish economy will lead to a decrease in the number of vacancies and an increase in the unemployment rate. However, given the ongoing staff shortages, this increase is expected to be limited. Nevertheless, we expect the demand for temporary agency workers to weaken further in 2024. 
EUR/USD Rejected at 1.1000: Anticipating Rangebound Trading and Assessing ECB Dovish Bets

EUR/USD Rejected at 1.1000: Anticipating Rangebound Trading and Assessing ECB Dovish Bets

ING Economics ING Economics 12.01.2024 15:28
EUR: Rejected at 1.1000 Yesterday, EUR/USD was rejected at the 1.1000 key resistance level, and in line with our dollar view, we now expect some more days of rangebound trading, with some modest downside risks for EUR/USD. One factor that we wish to keep highlighting, though, is the rather wide potential for the euro to benefit from an unwinding of ECB dovish bets in the coming months. Markets continue to price in 140bp of easing by year-end, while our economics team only forecasts 75bp. We expect to see those benefits to the euro more clearly in pairs such as EUR/CHF in the short term rather than in EUR/USD, at least until a clearer dollar downtrend emerges (in our view, a 2Q story). Other than some final December CPI reads in France and Spain (which shouldn’t move the market), the eurozone calendar is empty today. The next key data input for the euro is the German ZEW on Tuesday. We’ll keep monitoring ECB speakers to make sense of what is the “consensus” degree of rate-cut pushback the bank wants to convey to markets. Today, we’ll hear from Chief Economist Philip Lane. Elsewhere in Europe, Sweden’s Riksbank releases FX sales figures for the week around Christmas today: expect a low number, or even zero, due to low liquidity conditions. In a piece we published this week, we discuss how we expect the end of Riksbank FX sales by early February, hurting SEK in the crosse
Eurozone PMIs: Tentative Signs of Stabilization Amid Ongoing Economic Challenge

Eurozone PMIs: Tentative Signs of Stabilization Amid Ongoing Economic Challenge

ING Economics ING Economics 25.01.2024 15:11
Eurozone PMIs show very tentative signs of bottoming out The eurozone economy continues to trend around 0% growth and there are no signs of any imminent recovery. Price pressures are still increasing for the service sector, which provides another argument for the ECB not to hike before June. How you read today’s PMI release for the eurozone reveals whether you’re an optimist or a pessimist. The increase from 47.6 to 47.9 in the composite PMI for January cautiously shows signs of bottoming out but also still indicates contraction. We also note that France and Germany saw declining PMIs, making the increase dependent on the smaller markets. Manufacturing price pressures remain moderate despite the Red Sea disruptions, but the service sector indicates another acceleration in input costs. To us, this shows that the eurozone economy remains in broad stagnation and that risks to inflation are not small enough to expect an ECB rate cut before June. The eurozone continues to be plagued by falling demand for goods and services, although new orders did fall at a slower pace than in recent months. Current production and activity were weaker than in recent months, though, suggesting that January started with contracting output still. The slowing pace of contracting orders does suggest that there is a bottoming out happening though. Whether this is enough to show positive GDP growth in the first quareter depends on February and March. In any case, GDP growth is so close to zero that we still qualify the current environment as broad stagnation anyway. The PMI continues to show some concern around inflation. Even though demand remains lacklustre, services cost pressures are on the rise again due to higher wage costs which are being transferred to consumers. Cost pressures on the goods side remain low despite Red Sea disruptions as energy prices trend lower and demand overall remains weak. This also means that goods inflation continues to trend down according to the survey. So, despite Red Sea problems prominently featuring in the news, inflation concerns currently stem more from services than goods, interestingly. For the ECB, enough worries about inflation not trending down to 2% quickly still remain. We think that makes a first cut before June unlikely.

currency calculator