gas prices

The Commodities Feed: Energy starts 2024 on a softer note

Energy markets started the new year weaker with both oil and gas prices coming under pressure yesterday. This is despite growing tensions in the Middle East.

 

Energy – Oil starts the year weaker

The oil market started the first trading day of 2024 on a softer note with ICE Brent settling almost 1.5% lower yesterday. Energy markets were unable to escape the broader pressure seen on risk assets with equity markets also weaker. The weakness in oil comes despite a ratcheting up in tensions in the Middle East. Iran has sent a warship to the Red Sea after the US sunk several Houthi boats in the region, following a number of attacks on commercial ships by the Houthis. While the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance over the first half of 2024 does help to ease some of these worries.

OPEC+ will hold a Joint Ministerial Monitoring Committee meeting in early February, according t

Central Banks' Rates Outlook: Fed Treads Cautiously, ECB Prepares for Hike

Gas Price Has Increased As The Transportation Had Been Limited Because Of The Ukrainian War, NYMEX WTI Went Below $100 Yesterday, But The End Fuel Crisis And Supply Chain Issues May Be Far From Now | ING Economics

ING Economics ING Economics 11.05.2022 15:01
Your daily roundup of commodities news and ING views Gas storage tank Energy Oil sold off with risk assets on Monday, but it failed to follow equities higher yesterday. Instead, downward pressure on the market continued, which saw NYMEX WTI settle below US$100/bbl. Growth concerns continue to weigh on commodities, and a stronger USD only adds further downward pressure to the complex. This weakness has continued in early trading this morning after the API reported that US crude oil inventories increased by 1.62MMbbls - the market was expecting a small draw. In addition, API numbers also showed an increase in refined product inventories. Gasoline and distillate fuel oil inventories increased by 823Mbbls and 662Mbbls respectively. If today’s EIA report shows similar numbers, it would be the first weekly increase for US gasoline inventories since late March and the first for distillates since early April. However, the middle distillate market is still very tight and so we would expect US heating oil cracks to remain well supported. In fact, middle distillate cracks around the world should remain well supported, given the tightness in the market and concerns over Russian gasoil exports. The EIA released its latest Short Term Energy Outlook yesterday. The report cut expectations for US oil production growth for 2022 from around 833Mbbls/d to 731Mbbls/d, which implies US oil output averaging 11.91MMbbls/d this year. However, for 2023, supply is expected to grow by 940Mbbls/d (largely unchanged from last month), which would see US output hitting a record 12.85MMbbls/d. Obviously, the biggest concern for the global oil market is around supply in the short to medium term, given the uncertainty over Russian supply. And the downward revisions to 2022 output estimates will do little to ease these concerns. European natural gas prices showed some strength yesterday. TTF rallied by more than 5%, settling close to EUR99/MWh. This strength came after Ukraine’s gas grid operator (GTSOU) declared force majeure on the transit of Russian gas through Sokhranivka, which accounts for about a third of Russian gas transited via Ukraine. GTSOU has said that it is not possible to continue operations through Sokhranivka due to Russia's military aggression in the region. GTSOU said that gas can be rerouted through Sudzha (another entry point), Gazprom has reportedly said that this is not technically possible. Dutch gas network operator, Gasunie has said that it has contracted a second FSRU (floating storage and regasification unit) for the next 5 years, which would allow it to regas LNG imports at Eemshaven in the north of Groningen. The FSRU is expected to arrive in the third quarter of this year, and along with another FSRU already contracted, would provide a total of 8bcm of regasification capacity at Eemshaven. This regasification capacity would exceed the roughly 6bcm of natural gas that the Netherlands imports from Russia every year. The big question though is if there is enough LNG supply to fully use this capacity, particularly with Germany also securing 4 FSRUs, with an annual capacity of as much as 29bcm. Some of this capacity in Germany is also expected to come into operation ahead of the next winter.   Metals Base metals continued to decline in London amid fragile market sentiment. Copper initially rallied but was unable to hold onto these gains at the close. Shanghai is going into the hardest phase of lockdowns, weighing heavily on sentiment as local authorities vow to bring the Covid wave under control at the community level by the end of this week. Meanwhile, the China Car Passenger Association (CAPM) confirmed that retail passenger vehicle sales plunged by 36% in April, its biggest monthly decline since March 2020. LME aluminium prices continue to fall and have largely ignored a steep decline in on-warrant stocks and a large number of cancelled warrants from Asia, signalling further declines. As of Tuesday, on-warrant stocks have fallen to a record low of 294kt, whilst total closing stocks dropped to 560kt - the lowest since 2005. Antaike has reported that China’s aluminium demand fell 5.5% YoY to 3.3mt last month (the biggest decline since March 2020), primarily impacted by the closure of auto producers due to Covid-related lockdowns. In contrast, the impact on Chinese supply has been rather limited so far, with operating capacity rising to 40.31mt by the end of April. As we also pointed out yesterday, Antaike also believes that the recent Covid outbreak has had a larger impact on demand than the early 2020 lockdowns. Agriculture Data from Brazil’s sugar industry group, UNICA show that sugar production in Center-South Brazil increased to 934kt over the 2nd half of April 2022 compared to only around 127kt over the first half of April as more mills started operations; although it is still significantly lower than the 1.52mt of sugar produced over the same period last season. Sugar cane crushing was down around 20% YoY to 23.8mt over the period with the sugar mix falling to 37.2% compared to 44.5% a year ago. Cumulative sugar production so far this season in CS-Brazil is down around 51% YoY to 1.1mt, reflecting a slow start to the crushing season. High energy prices continue to be supportive for ethanol production with mills allocating more cane towards biofuel supply. TagsSugar Russia-Ukraine Natural gas EIA Covid-19 China   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
Nasdaq 100 posted a new one year high. S&P 500 ended the day unchanged

Tomorrow Societe Generale, Allianz and Richemont reveal their earnings. Iranium in an uptrend

Saxo Bank Saxo Bank 11.05.2023 13:52
Summary:  Equities churned back and forth yesterday after the release of a slightly softer than expected US headline CPI number, in the end perhaps celebrating the drop in Treasury yields as the Nasdaq 100 index posted a new high for the year, while the less megacap heavy S&P 500 remains rangebound. Focus today swings to the Bank of England and its policy guidance after a presumed further 25 basis points of tightening today. Sterling has posted new highs for the year against the US dollar and the euro. What is our trading focus? US equities (US500.I and USNAS100.I): equities liked the US April CPI report Equity traders were cheering yesterday over the US April CPI report that showed inflation came in line with estimates suggesting inflation continues to cool although one could argue that the trajectory for the core inflation is still slow. S&P 500 futures gained 0.4% and the index futures are extending their gains this morning to the 4,164 level. The Fed Funds forward curve dipped further suggesting the market is bolstering its bets that the Fed will be cutting 100 basis points by the January FOMC meeting. The VIX Index declined closing below the 17 level suggesting a very relaxed options market. Chinese equities (HK50.I & 02846:xhkg): market indices trade weak while EV extend gains Hang Sang Index shed around 0.5% and the CSI300 Index was nearly unchanged in the early Asian afternoon. Inflation in China softened further in April, with headline CPI growth slowed to 0.1% Y/Y (vs consensus 0.3%; March: 0.7%). Weakness was in both food prices and non-food items. Core CPI remained at 0.7% Y/Y in April, the same as in the previous month. PPI decelerated further to a year-on-year decline of 3.6% (Consensus: 3.3%; -2.5% in March). Investors have concerns about the sluggish performance in the inflation number as an indication of a lack of momentum in aggregate demand after the surge of pent-up demand for in-person services petered out. Bucking the decline today were EV names, led by a 15% surge in Li Auto (02015:xhkg) on an earning beat. FX: US yield drop post-CPI drives JPY gains As a softer US CPI print brought sharp decline in Treasury yields, that benefitted the Japanese yen with USDJPY sliding below 134 overnight before rebounding above that level. Elsewhere, the weaker USD reaction to the US inflation data was somewhat mixed, with no conclusion yet drawn by this market as both NZDUSD and AUDUSD initially rejected new cycle highs, although bouncing back overnight, particularly the kiwi, as AUDNZD eyes the lows for the year below 1.0600 (testing below 1.0630 overnight). GBPUSD is quiet ahead of the BOE meeting today and EURGBP trades near 0.8700 after hitting new lows for the year this week ahead of today’s Bank of England meeting (more below). Crude oil rangebound, with an upside move lurking Crude oil edged higher overnight following another bumpy day on Wednesday that saw resistance being challenged, supported by drop in supplies from Canada and Northern Iraq, and after an in-line CPI print supported the general level of risk sentiment, only to fall back after the EIA reported the first stock build in four weeks. However, the near 3-million-barrel build was being offset by a big 7.3m barrel drop in gasoline and distillates stocks. Also supporting prices were a big 25% jump in jet fuel implied demand, while gasoline implied demand also edged higher. Both Brent and WTI remains stuck in two-dollar ranges with resistance at around $77.50 and $73.80 respectively. Apart from US PPI the market will focus on OPEC’s Monthly Oil Market Report. Gold (XAUUSD) looks for the next catalyst Gold jumped to near resistance in the $2050 area after the US inflation report supported the market’s view of a Fed pause. However, the fact it fuelled further rate cut bets during the second half, currently around 80 bps, may end up being gold’s biggest short-term challenge. With core inflation unchanged at 5.5%, there is still a lot of work to be done before the FOMC can declare victory, unless a) they adjust higher their inflation target, currently at 2%, b) the US run into a recession that forces them to refocus their attention, or c) an economic shock of some kind hits the economy. Overall, we maintain our bullish outlook for gold, but just like the FOMC, traders will need to watch incoming data for the next catalyst. Support at $2007 followed the $1986 while resistance remains firm above $2050. US Treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) drop after US CPI The slightly softer year-on-year CPI figure saw US treasury yields consolidating back lower as treasuries found support. The 2-year benchmark fell back 10 basis points to 3.92% this morning and the 10-year benchmark trades near 3.43%. The SOFR interest rate futures jumped (rates down) by around 15bps in the 2024 contract months, pricing in more aggressive rate cuts next year. The SOFR Jun-Dec 2023 spread widened 8bps to -82.5, adding to rate cut expectations for the second half of 2023 as well.  An auction of 10-year US treasuries provided little drama, with a slight improvement on the prior month’s weak bidding metrics. A 30-year T-bond auction is up later today. What is going on? Trump calls for US debt default. House Republican Santos arrested The House GOP spending bill that recently passed and would lift the debt ceiling only by gutting many of President Biden’s recent initiatives only passed by a vote of 217-215 with the help of George Santos, a newly arrived Republican in the House who was widely accused of a string of lies about his background and of misappropriation of campaign funds. The Department of Justice yesterday arrested Santos on related charges, including money laundering. Santos posted bail after his arrest and refuses to resign. Elsewhere, former president Donald Trump urged Republican lawmakers allow a default on US debt unless Democrats were to agree on massive spending cuts. US earnings: Disney, Robinhood, Sonos Disney reported FY23 Q2 (ending 31 March) revenue and earnings in line with estimates, but the Disney+ subscriber figures were only 157.8mn vs est. 163.1mn. On the positive side Disney+ losses came in better than expected at $-659mn but would widen again in Q3 q/q, and management said on the conference call that the company is on track to deliver $5.5bn cost reductions. Disney is reducing its capital expenditures to $5.6bn from previously $6bn suggesting Disney is under pressure. Shares were down 5% in extended trading. Robinhood reported Q1 net revenue of $441mn vs est. $423mn and adjusted EBITDA at $115mn vs est. $94mn suggesting the retail trading business is stabilising after a tough period for cryptocurrencies. Robinhood shares were up 3% in extended trading. Sonos, the maker of wireless home sound systems, spooked the market guiding FY23 revenue of $1.63-1.68bn vs est. $1.7-1.8bn suggesting consumer electronics continue to be the weakest part of consumer markets. Sonos shares were down 24% in extended trading. Read next: Expect the ECB to keep increasing rates at the short-term, at least until the summer| FXMAG.COM China inflation slows more than expected China reported April inflation overnight, with the CPI reported at +0.1% YoY vs. +0.3% expected (yes, year-on-year) and +0.7% in March, while the April PPI dropped –3.6% YoY vs. -3.3% expected and –2.5% YoY in March. US CPI cools, reinforcing market’s view of a Fed pause The April CPI was broadly in line with the consensus. The headline was slightly below expectations at 4.9 % year-over-year. This is the first time it has been below 5 % in two years. But this is too early to declare victory over inflation. Indeed, the core CPI – which better shows underlying inflationary pressures – was at 0.41 % month-over-month and 5.5 % year-over-year. This is still too hot. However, this is unlikely to force the U.S. Federal Reserve to hike in June. Expect the monetary pause to last, perhaps even beyond the timeframe forecasted by the market. Obviously, today’s figures do not in any way corroborate the possibility of rate cuts this year. On a yearly basis, the main drivers of inflation are: transportation (+11 %), food away from home (+8.6 %) and electricity (+8.4 %). EU gas prices continue their month-long decline The Dutch TTF gas contract, the European benchmark, settled below €35 for the first time since July 2021 on Wednesday. Down more than 50% year-to-date, the price trades near the five-year average with the risk of further losses amid slowing demand and a record amount of LNG waiting at sea to offloaded. The volume of liquefied natural gas on the water for more than 20 days worldwide this week jumped to the highest seasonal level since at least 2017, data compiled by Bloomberg show. With the 2023/24 winter contract still stuck around €55 in anticipation of strong demand, the storage arbitrage is wide open, thereby supporting a speedy refilling of storage sites with relatively cheap gas that can be stored and sold at higher prices during winter. What are we watching next? Uranium in an uptrend Our Technical Analyst has confirmed that Uranium, both physical and Uranium producing companies are on the move after Physical Uranium has confirmed technical uptrend with U308 at a one-year high around $53/lb. Some nuclear companies could benefit too. Canada's Cameco trades up 12.2% during the past month while the URA ETF has gained 7.7% and the Sprott Physical Uranium Trust some 9.6%. Nuclear remains one of the key long-term solutions to the energy shortage issues. For inspiration, Saxo’s Nuclear Power equity theme basket is worth a consideration. Bank of England meeting on tap with guidance eyed Some of the sterling outperformance over the last week has been on reports from at least one private recruiting firm that wage inflation has reached 10%, although the official figures have flattened out below 7% YoY in recent months. Still, UK economic data has positively surprised on balance for months and UK yields at the front of the curve have outperformed EU counterparts by more than 20 basis points over the last several weeks and sterling over the last week has traded at new highs for the year versus both the US dollar and the euro  The Bank of England is expected to hike rates 25 basis points to bring the policy rate to 4.50% and another 40+ basis points of further tightening are priced through the November meeting, in contrast to the US Federal Reserve, which is fully priced for a rate cut by the September FOMC. Earnings to watch Today’s US key earnings to watch is JD.com reporting Q1 earnings before the US market open. JD.com, which is one of China’s largest e-commerce retailers, is expected to report Q1 revenue growth of 0.4% y/y and EBITDA of $7.8bn unchanged compared to a year ago. With the latest signs that the Chinese reopening is progressing much slower than anticipated JD.com earnings will be watched closely for clues about the outlook for the Chinese consumer. Thursday: Verbund, Coloplast, Engie, Deutsche Telekom, Merck, Bayer, Hapag-Lloyd, RWE, Takeda Pharmaceuticals, Honda Motor, 3i Group, ING Groep, JD.com Friday: Societe Generale, Allianz, Richemont Economic calendar highlights for today (times GMT) 1100 – UK Bank of England Bank Rate Announcement 1230 – US Weekly Initial Jobless Claims 1230 – US Apr. PPI 1245 – US Fed’s Kashkari (Voter 2023) speaking During the day: OPEC’s Monthly Oil Market Report 1415 – US Fed’s Waller (Voter) to discuss financial stability and climate. 1430 – EIA's Natural Gas Storage Change 1700 – US Treasury to auction 30-year T-bonds 0300 – New Zealand Q2 Inflation Expectations Source: Global Market Quick Take: Europe – May 11, 2023 | Saxo Group (home.saxo)
Examining the Inflation Outlook: Anticipating a Summer Turnaround and its Impact on Bank of England's Monetary Policy

Examining the Inflation Outlook: Anticipating a Summer Turnaround and its Impact on Bank of England's Monetary Policy

ING Economics ING Economics 16.06.2023 15:49
The inflation story should start to turn over the summer Then there’s the inflation data itself. The dividing line on the committee right now seems between those hawks that are seeing persistent ‘second-round effects’ of higher energy/food prices, and the doves that think headline/core CPI is simply just lagging behind the wider fall in input and product price inflation over recent months (see a speech by BoE’s Dhingra). Elements of both are true. April’s CPI figures were undeniably ugly, though some of the drivers – higher vehicle and alcohol prices, for example – are unlikely to form long-lasting trends. We agree with the doves that food inflation should begin to ease back in line with producer prices, while services inflation (particularly hospitality) should come under less pressure now gas prices are so much lower. The BoE’s own Decision Maker Panel survey of chief financial officers suggests pay and price expectations have also eased noticeably over recent months. If nothing else, hefty base effects should ensure that the headline inflation rate comes down over the summer months and fluctuates around 6%, and to a lesser extent the same is true of the core rate. Barring some further unpleasant and consistent surprises in the services inflation figures over the coming months, we think a 5% peak for Bank Rate seems reasonable. That implies rate hikes on Thursday and again in August.  However, as we discussed in more detail in a separate piece, we think the downtrend in wage growth is going to be slow – even if it has probably peaked. Labour market shortages look at least partly structural, and we suspect wage growth could end the year above 5% (7% currently). While that doesn't necessarily require the Bank to take rates much higher, it does suggest rate cuts are unlikely for at least a year, not least given the mortgage market structure discussed earlier.   Sterling trade-weighted index pushes back to early 2022 highs   Sterling can hold onto gains in the near term Sterling continues to ride high. On a trade-weighted basis, it is returning to levels last seen in early 2022 before Russia's invasion of Ukraine. Barring a surprisingly soft May UK CPI on Wednesday, 21 June, it looks like sterling can largely hang onto those gains if the Bank of England does not push back against very aggressive tightening expectations. Our strong preference has been that sterling will enjoy more upside against the dollar than the euro. Currently, we have a 1.33 end-year forecast for GBP/USD and the near-term bias is for 1.30 given what seems to be bearish momentum building against the dollar. EUR/GBP has been weaker than we had expected. And next week's BoE meeting may be too soon to expect a bullish reversal here. Yet, consistent with our house view that the Bank Rate will not be taken as high as the 5.65% level currently priced by investors for the end of this year, we suspect that EUR/GBP ends the year closer to the 0.88 area, meaning that current EUR/GBP levels should make a good opportunity to hedge sterling receivables for euro-based accounts. 
US Corn and Soybean Crop Conditions Decline, Wheat Harvest Progresses, and Weaker Grain Exports

CEE Central Banks Set for Monetary Policy Meetings: Positive Outlook and Rate Expectations

ING Economics ING Economics 19.06.2023 09:53
CEE: Good news for the region This week will see several central bank meetings in the region. Tomorrow, the Hungarian National Bank will meet for its monetary policy decision. We expect another 100bp cut in the overnight deposit rate, as in May, from 17% to 16%, in line with expectations. The forward guidance and the tone will remain unchanged as well, in our view. This means that the approach remains cautious and gradual and the decisions ahead are still data- and sentiment-driven. On Wednesday, we will see the Czech National Bank meeting leaving rates unchanged. The main question here is what the vote split will be. In May, three of the seven members voted for a rate hike. Since then we have seen lower inflation and wage growth numbers, which could change the outcome of the vote, but we expect the CNB to continue its hawkish tone. We will also see industrial and labour market data from Poland on Wednesday. The Central Bank of Turkey is scheduled to meet on Thursday, the first since the appointment of new economic names. We expect a big jump in interest rates from 8% to 20% and see upside risks.   On the FX market, the higher EUR/USD is clearly good news for the CEE region, and on top of that market remains in a positive mood and the drop in gas prices, which jumped last week to the highest levels since April, should play into the hands of HUF and CZK. And we should see positive news for FX at the local level as well. Markets like the story of monetary policy normalisation in Hungary and we believe the market will take the opportunity of a weaker forint as an opportunity to build new HUF positions and benefit from the significant carry. Thus, we expect the forint to return to 370 EUR/HUF. In the Czech Republic, the market is currently pricing in a first rate cut as early as September. In our view, the CNB governor will try to postpone the dovish market pricing, which, together with global factors, should help the koruna back to stronger levels below 23.70 EUR/CZK.
CEE: Busy Week Ahead Drives FX Strength

CEE: Busy Week Ahead Drives FX Strength

ING Economics ING Economics 03.07.2023 09:41
CEE: Busy week should lead to slightly stronger FX The region has a busy week ahead. PMI numbers across CEE countries will be released today. In Poland and the Czech Republic, we expect industrial sentiment to deteriorate again more than the market expects. Later today, we will see the Czech Republic's state budget result for June, which should finally show a reduction in the record deficit. The National Bank of Romania will meet on Wednesday and we expect interest rates to be stable in line with the market. Then on Thursday, data from industry, retail sales and the state budget in Hungary will be published. In the case of industry, we expect a higher decline than the market forecasts. Later, we will see a decision from the National Bank of Poland. Rates remain unchanged, but this time a new forecast will be published. Given the lower inflation last week, we can expect a dovish tone pointing to rate cuts after the summer months. June inflation in Hungary will be published on Friday. We expect a further decline from 21.5% to 19.9% year-on-year due to a favourable base effect and a fall in food, durables and energy prices. Also on Friday, Czech industrial data will be published and S&P will release a rating review in Hungary. Given the downgrade to BBB- this January, we do not expect any changes this time. In the FX market, the region should benefit today with a delay from Friday's upward movement of EUR/USD as well as the positive sentiment in Europe from the end of last week. On the other hand, the bad news for the Hungarian forint and the Czech koruna is the renewed rise in gas prices, which is once again becoming a strong player in this part of the region. A dovish NBP in the second half of the week should not come as a surprise to the market and therefore we do not expect much pain for the Polish Zloty. So overall, we are slightly bullish on FX in the CEE region this week. If gas prices calm down again, EUR/CZK should return below 23.70 and EUR/HUF to 370 EUR/HUF. EUR/PLN should stay below 4.450.
USD/JPY Breaks Above 146 Line: Bank of Japan's Core CPI in Focus

Gas Prices and Forint Outlook: Temporary Depreciation Presents Buying Opportunity

ING Economics ING Economics 04.07.2023 09:21
CEE: Gas prices as a window to a cheaper forint Today's calendar in the region is basically empty and thanks to the US holidays we can expect lower activity in the CEE region as well. Yesterday's trading ended with a weaker forint and flat koruna despite our expectations. As we mentioned yesterday, gas prices have once again become a strong driver for HUF and CZK in recent weeks. Yet, at the end of yesterday's trading, a decline in gas prices was already observed after the end of some seasonal work in Norway which limited the capacity of flow. Gas flow is thus slowly returning to normal and in our view it is too early to worry about storage levels in import-dependent countries such as Hungary and the Czech Republic ahead of the upcoming winter. We thus see the current depreciation of the HUF and CZK as temporary and, especially in the case of Hungary, we expect the market to take the opportunity to buy the forint at a discount and benefit from the still massive carry. In addition, June inflation in Hungary will be published on Friday, which we think has a good chance to surprise to the downside compared to market expectations. Yet, in the last three months, lower inflation has been a signal for the market to buy the forint as confirmation that things are returning to normal in the country with the highest inflation in Europe. Overall, we still expect the forint to return to 370 EUR/HUF by the end of this week.
Market Analysis: EUR/USD Signals and Trends

Growth Shifts to Services Amid Weakening Industry, Consumption Benefits from Employment and Decelerating Inflation

ING Economics ING Economics 12.07.2023 14:07
The weakening in industry temporarily leaves the onus of growth on services. Demand-wise, expect consumption to benefit from resilient employment and decelerating inflation. Investments will reflect better progress (or the lack thereof) in the implementation of the European Recovery and Resilience funds. First quarter consumption driven by a strong recovery in purchasing power The surprisingly strong 0.6% quarter-on-quarter GDP growth between January and March this year was driven by domestic demand. The relative strength of consumption was due to a 3.1% quarterly rebound in households’ real purchasing power, which benefited from the slowdown in inflation dynamics. The resilient labour market, with employment up and unemployment and inactivity down on the quarter, was apparently a decisive factor. Conditions were there for household saving ratios to reach 7.6% (from 5.3% in the fourth quarter of 2022), close to the pre-Covid 8% average, without penalising consumption.     Weakening industry points to softer growth in the second quarter Data for the second quarter suggests that the very good performance of the first will be hard to replicate. Industry just managed to propel value-added in the first quarter, but this seems highly unlikely in the second after a very disappointing -1.9% industrial production reading in April. Business confidence data for May and June and the relevant PMIs point to manufacturing softness through the rest of the second quarter and, possibly, into the third. For the time being, the decline in gas prices has failed to provide any relevant supply push for manufacturers, outweighed by deteriorating order books and stable stocks of finished goods. Services are also signalling some fatigue, but still look to be a decent growth driver, helped by a strong summer tourism season.     The fall in producer prices will bring goods disinflation down the line in CPI The flipside of industrial weakness is a sharp deceleration in producer price dynamics. Courtesy of declining energy prices, PPI inflation entered negative territory in April, anticipating further decelerations down the line in the goods component of headline inflation. Services inflation is proving relatively stickier, though, possibly reflecting in part a re-composition of consumption patterns out of interest rate-sensitive durable goods into services as part of the last bout of the re-opening effect. With administrative initiatives on energy bills still in place at least until the end of the summer, and with big energy base effects yet to play out, the CPI disinflation profile is still exposed to temporary jumps, but the direction seems unambiguously set.   Stickier services inflation to slow the decline in core inflation  
The Service Sector Driving Growth in Italy

The Service Sector Driving Growth in Italy

ING Economics ING Economics 13.07.2023 09:05
The service sector is driving Italy’s growth The weakening in industry temporarily leaves the onus of growth on services. Demand wise, expect consumption to benefit from resilient employment and decelerating inflation. Investments will reflect better progress (or the lack thereof) in the implementation of the European Recovery and Resilience funds.   First quarter consumption driven by a strong recovery in purchasing power The surprisingly strong 0.6% quarter-on-quarter GDP growth between January and March this year was driven by domestic demand. The relative strength of consumption was due to a 3.1% quarterly rebound in households’ real purchasing power, which benefited from the slowdown in inflation dynamics. The resilient labour market, with employment up and unemployment and inactivity down on the quarter, was apparently a decisive factor. Conditions were there for households’ saving ratio to reach 7.6% (from 5.3% in the fourth quarter of 2022), close to the pre-Covid 8% average, without penalising consumption.   Weakening industry points to softer growth in the second quarter Data for the second quarter suggests that the very good performance of the first will be hard to replicate. Industry just managed to propel value-added in the first quarter, but this seems highly unlikely in the second after a very disappointing -1.9% industrial production reading in April. Business confidence data for May and June and the relevant PMIs point to manufacturing softness through the rest of the second quarter and, possibly, into the third. For the time being, the decline in gas prices has failed to provide any relevant supply push for manufacturers, outweighed by deteriorating order books and stable stocks of finished goods. Services are also signalling some fatigue, but still look to be a decent growth driver, helped by a strong summer tourism season.
Securing Battery Metal Supply Chains: Challenges and Opportunities Amid the Global Energy Transition

CEE Region: Economic Outlook and FX Performance

ING Economics ING Economics 17.07.2023 10:46
CEE: Global conditions boost the region This week in the region offers only secondary data and should bring some calm. Today we will see core inflation in Poland. We expect a drop from 11.5% to 11.1% year-on-year. Tomorrow in the Czech Republic, PPI numbers for June will be released. With the August CNB meeting also approaching, we can expect the first comments from board members trying to fight dovish market pricing. Thursday will see the release of wage and industrial production statistics in Poland. IP fell by 2.2% YoY according to our estimates, more than the market expects. Nominal wage growth has stabilised at low double-digits at 12.1% YoY. Poland's retail sales numbers will be released on Friday and we expect a 5.5% YoY decline, also slightly more than the market expects. CEE FX showed a strong rally last week – especially the Hungarian forint due to global conditions. We expect the same story this week. The region should still benefit today from EUR/USD's move higher late last week. Sentiment remains open to risk and the renewed fall in gas prices to the lowest levels since early June is playing into the hands of the Hungarian forint in particular. The calendar in the region has little to offer and so the main focus will be on the global story. Overall, we expect further gains across the region albeit at a slower pace. The Hungarian forint remains our favourite in the CEE region. We expect the forint to strengthen further below 373 EUR/HUF. However, we also expect further gains from the Polish zloty and Czech koruna with moves below EUR/PLN 4.40 and EUR 23.70/CZK.
China's Ninth Straight Month of Gold Holdings Increase; Oil Resilient Despite Russian Tanker Incident; Dollar Supported by Bond Supply Concerns

UK Inflation Data Holds the Key for August Rate Hike Decision

ING Economics ING Economics 18.07.2023 08:26
UK inflation data to make-or-break a 50bp August rate hike After some unexpectedly strong wage data last week, Wednesday's services inflation data will determine whether the Bank of England implements another aggressive 50bp rate hike in early August.   Services inflation is key for the Bank of England Whether or not the Bank of England repeats June’s 50 basis-point rate hike in two weeks comes down to one number in the UK inflation data due on Wednesday. That number is services inflation, and it’s likely to stay at 7.4%, its highest level in over 30 years. This is the bit of the inflation basket that the Bank of England is most interested in – it tends to exhibit the most persistent trends, and is generally less volatile than the likes of energy or goods. Until now our base case has been for a 25bp rate hike when the BoE meets in early August. But unexpectedly strong wage data last week has moved the dial closer to a 50bp move, and that would be further cemented if Wednesday’s services inflation figure rises once again.   Hospitality has been a key driver of higher services inflation   If various surveys are to be believed though, services inflation should be at its peak. Indeed if we look at hospitality – a key driver of services inflation over recent months – there are already signs of disinflation, which could be linked to the sharp fall in gas prices. Data from a January ONS survey of businesses showed that energy prices, much more than wage costs, was the primary driver of higher consumer prices in hospitality through winter. By that logic, lower gas prices should help ease service sector price pressure over the coming months, and indeed the latest version of that ONS survey shows the percentage of hospitality firms that are expecting to raise prices has tumbled from 46% in April to 26% now. That signals disinflation in the services sector through the rest of the year, albeit stubbornly-high wage growth will ensure that’s a slow process. Admittedly we might have to wait until later in the summer before this trend becomes more apparent, and for now the Bank of England appears sceptical that improvements in forward-looking inflation indicators are translating into better actual CPI figures. Like us, the BoE expects services inflation to flatline in the near-term, and any deviation above or below last month’s reading will be what helps cement either a 25bp or 50bp hike in early August.    
UK Inflation Data Boosts Chances of August Rate Hike

UK Inflation Data Boosts Chances of August Rate Hike

ING Economics ING Economics 19.07.2023 10:05
Good news on UK inflation bolsters chances of a 25bp August hike UK inflation fell more than expected in June, owing in part to an encouraging decline in service-sector CPI. The August Bank of England meeting is going to be a close call, but we think this latest data makes a 25bp hike more likely than a repeat 50bp increase. Finally, we have some good news on UK inflation. Headline CPI has dropped back to 7.9%, below consensus and almost a full percentage point lower than in May. Much of that can be put down to petrol and diesel prices, which fell by 2.6% across the month – a stark difference to the same period last year, where we saw a near-10% spike amid the ongoing fallout of the Ukraine war. But encouragingly, we also saw a marked slowdown in food inflation. These prices increased by 0.4% on the month, which looks like the slowest month-on-month increase since early 2022. This is a trend that should continue, given that producer prices for food products are now falling on a three-month annualised (and seasonally-adjusted) basis, as the chart below shows.   Producer prices point to further improvements in food inflation   The good news continues for services What matters most to the Bank of England is services inflation, and the good news continues here too. Service-sector CPI slipped back from 7.4% to 7.2%, contrary to both the Bank of England’s and our own forecasts for this to remain unchanged in the near term. As always, we caution that one month doesn’t make a trend, but our expectation is that services inflation should gradually nudge lower through the remainder of this year. While stubbornly high wage growth will ensure that the journey back towards target is a long one, surveys have shown that price rises among service-sector firms (most notably hospitality) can be traced in large part back to higher energy prices. Now that gas prices are dramatically lower, the impetus for firms to continue to raise prices quite as aggressively should fade. Indeed, the proportion of hospitality firms expecting to raise prices over the next few months has tumbled from 46% in April to 26% now, according to ONS survey data.   Has UK services inflation finally peaked?   All in all, we now expect headline inflation to dip back to 6.6% in July, owing to the near-20% fall in household energy prices. Core inflation should slip back to roughly the same level too. Is this enough to convince the Bank of England to opt for a 25bp rate hike in August? We think it probably will – but it's going to be a close call. The Bank will also be looking at the recent wage data, which was stronger than expected but came alongside figures showing a renewed cooling in the jobs market and improvements in worker supply. The risk is that the BoE applies a similar logic to that seen in June. This could mean that if it expects to hike again in September, then it might as well opt for a larger 50bp hike in August. We certainly wouldn’t rule this out.    
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CEE Inflation Update: Czech Republic Faces Downside Inflation Surprises Amid Stable FX Market

ING Economics ING Economics 10.08.2023 09:16
CEE: Another dovish message for CNB Today's calendar includes the publication of July inflation in the Czech Republic. We expect a further fall from 9.7% to 8.7% YoY in the headline number. The market expects 8.8% and the CNB's new forecast paints 8.9% YoY. Previously released inflation in Poland and Hungary confirmed food prices dropped by 1.2% and 1.4% MoM in July, implying a drop in the Czech Republic as well. At the same time, core inflation, in particular, has surprised to the downside in recent months. Overall, we think the bar for hawkish surprises is high and see the potential for further downside surprises in the Czech Republic today. In the FX market, EUR/CZK has been surprisingly stable since last week's CNB meeting, when the Board ended the intervention regime. One may wonder if the CNB is not active in the market again. The available central bank balance sheet data only shows us last week. However, these numbers imply zero CNB activity as expected. Thus, we think today's inflation numbers may open the way for the market to test higher EUR/CZK above 24.30 and confirm that the central bank is fine with a weaker koruna. Elsewhere in the region, we are curious to see what impact yesterday's jump in gas prices up nearly 40% will have. For now, the CEE FX reaction has been muted, but in any case, this is not good news for the region. US inflation will also come into play today, while EUR/USD has been the main driver for HUF and PLN in recent days. Overall, we are on the bearish side for CEE FX today.
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US Retail Sales Strength Boosts Inflation Expectations Amid Fed Hawkishness

Ipek Ozkardeskaya Ipek Ozkardeskaya 16.08.2023 11:14
Resilient US retail sales fuel inflation expectations, Fed hawks  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Americans continue spending and that's bad news for the entire world. Announced yesterday the July retail sales data came in better-than-expected in the US. Sales grew 0.7% on a monthly basis and more than 3% on a yearly basis - the biggest figure since January, when sales soared by 3% as well. Amazon's Prime day apparently helped boost online sales, while demand for bigger items including furniture and auto parts declined. But all in all, the American consumer spent 3% more compared to a year ago, Home Depot reported small earnings beat yesterday and its CEO confirmed that 'fears of a recession have largely subsided, and the consumer is generally healthy... while adding that 'uncertainties remain'. Uncertainties remain, yes, but the resilience of the US consumer spending sapped investor sentiment by fueling inflation expectations and Federal Reserve (Fed) hawks, yet again. The US 2-year yield spiked above the 5% mark, but bounced lower, certainly helped by a big drop in Empire State manufacturing in August, the 10-year yield flirted with 4.30%, while major stock indices fell. The S&P500 closed below the 50-DMA, which stands at 4446, Nasdaq 100 remained offered below its own 50-DMA, at 15175, while Russell 200 slipped below the 50-DMA.  In the FX, the strength of the US consumer spending is reflected as a stronger US dollar across the board. The US dollar index remains bid, while Cable bulls resist to the bears around the 1.27, and above the 200-DMA, which stands near 1.2620, as the data released yesterday showed that wages in Britain accelerated at a record pace. Happily, this morning's inflation data poured some cold water on the fire, as the CPI fell from 7.9% to 6.8% in July, as expected, yet core inflation remained steady at 6.9%, while the core PPI came in higher than expected. On the food front, grocery prices also fell more than 2 percentage points to 12.7%. But 12.7% is still a very high number. As a result, odds for a 50bp hike at the Bank of England's (BoE) September meeting is given a 1 over 3 chance, the 2-year gilt yield is back above 5%, and looks like it's there to stay, as the peak BoE rate is seen at 6%.       Across the Channel, the 10-year bund yield is also pushing higher near a decade high, and all eyes are on the European GDP and industrial production data this morning. The European economy is weakening due to the rising rates, tightening credit conditions and high energy prices, but the fact that the labour market remains tight in Europe as well remains a major concern for inflation expectations for the European Central Bank (ECB), which will let the economy sink further if it doesn't take further control over inflation. Therefore, the EURUSD will certainly react negatively to a weak European data set today, and the pair could re-test the minor 23.6% Fibonacci retracement level, at 1.0870, but figures more or less in line with expectations should not change the ECB's hawkish tilt. The problem is, there is nothing the ECB could do - other than restricting financial conditions - regarding the energy and gas prices – which move parallel to completely external factors like the Ukrainian war and labour strikes in Australia.   In this sense, the Dutch TTF futures were again up by 12% yesterday, while US crude tanked near the $80pb level, pressured lower by 1. the surprise Chinese rate cut's inability to spark interest in risk assets, 2. news that China's imports of sanctioned Iranian hit a record high of 1.5mbpd this month - that oil trading at around $10 discount to Brent and 3. the latest data from the API hinting at an almost 7mio barrel decline in US crude inventories last week. The more official EIA data is due today, and the consensus is a 2.4 mio barrel fall. US crude could well slip below the $80pb on slow growth concerns, but Saudis will fight to keep the price above $80pb in the medium run.     Back to the inflation talk, the recent rise in energy and food prices is concerning for the euro area's inflation in the next readings. Therefore, the falling inflation trend remains in jeopardy, as the discussion of an ECB pause on rate increases.     The Reserve Bank of New Zealand (RBNZ) held its cash rate unchanged for the 2nd consecutive month but warned that there is a risk that activity and inflation measures do not slow as much as expected, and that they won't be cutting rates until the Q1 of 2025. The kiwi extended losses against the greenback, but the selloff remained contained.      Due today, the FOMC minutes will likely show that the Fed officials remain cautious despite the latest fall in inflation numbers, for the same reasons: rising energy and food prices that are sometimes driven by geopolitical events and that the Fed could only watch and adopt. The Fed is expected to hold fire on its rates in the September meeting, but nothing is less guaranteed than the end of the tightening cycle before the year end.      
Europe's Economic Concerns Weigh as Higher Rates Keep US Markets Cautious

PLN Faces Challenges: GDP Data and Market Reopening Amidst FX Uncertainty

ING Economics ING Economics 16.08.2023 11:22
PLN: Damage control after a closed market We have GDP data in the region with second-quarter results across the board. We expect -0.3% year-on-year in Poland, -1.2% YoY in Hungary and +2.4% YoY in Romania, all more or less in line with market expectations. To complete the picture, the Czech Republic reported -0.6% YoY earlier. Also later today, core inflation in Poland will be released. We estimate that core inflation moderated to 10.5% YoY from 11.1% YoY in the previous month. The Polish market opening after yesterday's holidays and Monday's limited trading will be especially interesting. By comparison, Czech rates have strictly followed core rates in the last two days and the Polish market should catch up today. But at the same time, yesterday the Polish zloty almost touched the upper boundary of the long-term range of 4.40-4.50 EUR/PLN, which we last saw in early July. As we mentioned earlier, for the entire CEE region, the US dollar still seems to be the main driver, indicating weaker values across the board. At the same time, yesterday we saw gas prices jump back to 40 MWh/EUR following news from Australia, again not signalling positive conditions for CEE FX. On the other hand, the interest rate differential is starting to play a role in the region again after some time and if PLN rates catch up after the close of trading, EUR/PLN should stave off touching the 4.50 level and return to 4.46. But a stronger US dollar on more negative news for EM FX is a clear risk here.
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UK Services Inflation Rises on Transient Factors, Bank of England's Rate Hike Prospects

ING Economics ING Economics 16.08.2023 11:28
UK services inflation nudges higher on surging social rents The surprise pick-up in UK services inflation was driven by factors that are unlikely to meet the Bank of England's definition of 'persistent'. We expect a September rate hike, but November is still more of a question mark.   UK services inflation, the part of the CPI data the Bank of England is most concerned about, has picked up again from 7.2% to 7.4%. That’s higher than the Bank had forecast (7.3%), but importantly it was down to two factors that are unlikely to meet the BoE’s definition of “persistent” trends. The most eye-catching change was rents, which rose by 1.7% between June and July, which we make out to be comfortably the highest month-on-month change in this category since 2005. The ONS puts this down to social rentals, and the jump seems unlikely to be repeated. We also saw a larger increase in airfares at the start of the summer holidays than we did last year, which also helped to drive services inflation higher. This is a highly volatile category, which the BoE itself typically removes from the index when it looks at "core services". The bottom line is that the figures don’t carry huge implications for the Bank of England, and certainly, the unexpected pick-up in services inflation isn’t as broad-based as it has been in previous months when we’ve had unpleasant surprises. Indeed if we look at catering, which has been a key driver over recent months, the annual rate is gradually coming down. We think this is a trend that will continue, with ONS business surveys suggesting that firms in hospitality (and elsewhere in the service sector) are raising prices less aggressively, partly on account of the sharp fall in gas prices. For this reason, we still expect some moderate improvement in the services inflation numbers over the coming months.   UK services inflation picked up again in July   Elsewhere, headline CPI came down to 6.8%, having fallen by more than a percentage point on account of the near-20% fall in household electricity/gas bills in July. We’ll get another such fall in October. Meanwhile, the news on food inflation continues to improve, and it's now clearly following the path laid out by producer prices, which are now falling in level terms. Consumer food prices rose just 0.1% in July from June, compared to 2.2% a year ago. Bundle those factors together, and we think inflation will end the year at roughly 5% (and should get there, or near enough, by October).   Food inflation finally following producer prices   For the Bank of England, today’s figures will help cement a September rate hike, especially after yesterday’s stubbornly-high wage growth figures. It’s worth saying we get another set of both price and wage data before the September meeting, and another round of numbers before November’s meeting. While we don’t rule out another rate hike in November, the committee appears to be slowly laying the ground for a pause. Barring unpleasant data surprises before November, our base case is that September’s hike will be the last.
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Canadian Inflation Surges, European Natural Gas Soars, and Market Trends Dominate

Ed Moya Ed Moya 16.08.2023 11:39
Headline Canadian inflation surges above BOC’s 1-3% target range Mixed report as core inflation falls to 9-month low European Natural Gas skyrockets on fears Aussie labor strikes could disrupt 10% of global LNG exports Canadian CPI The Canadian dollar initially rallied after the July inflation rose back the Bank of Canada’s inflation-control target range of 1% to 3%. ​ This was not entirely hot as both core readings remained subdued. This report means that the BOC will remain data-dependent and that the odds of one more rate hike might be growing. Global growth concerns appear to be dominating the macro theme here and that is why the Canadian dollar is softer. The USD/CAD weekly chart is showing price action is tentatively breaking out above key trendline resistance and the 50-week SMA.   If bullishness remains, upside targets include the 1.3675 region.  To the downside, the 1.3200 remains critical support.   ​​Gas Prices European natural gas futures are surging as the risk for Australian LNG workers to strike grow. ​ If talks collapse, the world could see about 10% of global LNG exports at risk. Europe has bolstered their inventories, but a hot end to summer could lead to a surge in cooling demand. ​ Inventories are not a concern right now, but if we get further disruptions and if weather trends in the summer and winter lead to many spikes in demand, we could see natural gas surge significantly higher. ​   Jackson Hole ​We are a week away from Jackson Hole and Wall Street is not expecting any major surprises. ​ Fed Chair Powell will remain upbeat regarding the progress with bringing inflation down. July PCE data to be sticky and keep risk of one more hike on the table. Given the US economic resilience backdrop, the Fed will want to keep optionality here, so an end of tightening will not be signaled. ​   Oil Crude prices continue to pullback after both disappointing Chinese industrial production data and the German ZEW survey that showed concerns with recovery are elevated. The oil market might remain tight, but most of the headlines are turning bearish for the demand side. ​ Oil’s pullback might need to continue a while longer before buyers emerge. ​   Gold Gold prices are falling as real yields continue to rise. ​ Gold could be stuck in the house of pain a little while longer if the bond market selloff does not ease. ​ The 30-year Treasury yield rising above 2% is a big red flag for some traders. ​ We haven’t seen yields on the 30-year at these levels since 2011, which is making non-interest bearing gold less attractive even as China’s property market rattle markets.      
Market Reaction to Eurozone Inflation Report: Euro Steady as Data Leaves Impact Limited

Rates Reach New Highs: Implications for Markets and Central Banks

ING Economics ING Economics 22.08.2023 08:45
Rates Spark: Kicking off with new highs The week has started with new yield highs for the cycle, with 10Y USTs having topped 4.34%. The bearish set-up with a waning Fed cut discount prevails, and with the 20Y Treasury sale and the Jackson Hole symposium looming large later this week, the appetite to take the other side is small.   The bearish set-up for rates persist The week has kicked off with rates selling off again. The 10Y UST yield has in fact hit a new cycle high of 4.35%, surpassing the previous peak seen last October. One now has to look back to November 2007 to find yields at similar levels. It is not clear where the impulse came from this time around. There were no data releases of note, although risk assets had stabilised somewhat. There is of course the anticipation of the Jackson Hole symposium, which may be the reason for market participants' reluctance to take the opposite side of the trade. The general consensus appears to be for a slightly hawkish leaning tone from the Fed Chair, not necessarily with regards to where the terminal rate should be, but with a pushback against the discount of rate cuts further out. We have cautioned for some time now that the waning discount of Fed cuts with the Fed funds strip pricing a trough not materially below 4% would even support 10Y UST yields at 4.5% accounting for a term premium. Looking to Europe, we note that Bunds also sold off, but the 10Y Bund yield has not managed to rise beyond last week’s highs, holding around 2.7%. The expectations of weaker flash PMIs tomorrow may provide some tailwind to Bunds. However, we did see the 30Y push to new cycle highs at 2.8%. With the macro outlook bleak, the eurozone narrative for higher rates is still more centred around inflation risks. Energy, and in particular gas prices, remain volatile. And more generally the German Bundesbank yesterday warned in its monthly bulletin that inflation could stay above target for longer. The Bundesbank presented a survey that showed the European Central Bank’s 2% target has gradually lost relevance in wage negotiations, and highlighted the risk of higher inflation expectations becoming entrenched.     
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US Labor Market Update: JOLTS Job Openings Slip, Consumer Confidence Falls

Craig Erlam Craig Erlam 30.08.2023 10:09
JOLTS job openings slip to 8.827m (9.465m expected, 9.165m previously) Consumer confidence also falls but the survey is volatile Is last week’s breakout stalling?   As we near the end of the summer, activity will start to pick up again and that may begin this week in the build-up to Friday’s jobs report. With Jackson Hole behind us, and not really living up to the usual hype, the focus now switches to the September central bank meetings and the key data releases that could sway them one way or another as policymakers ask themselves whether they’ve already done enough. From the Fed’s perspective, the week is off to a promising start with the JOLTS job opening report much softer than expected, alongside downward revisions to the previous month. The Fed needs to see a softer labor market to be confident that price pressures aren’t just abating but substantially and sustainably and this report is a move in the right direction. Job openings are now back at levels last seen in the summer of 2021 and not too far from where they were pre-pandemic. Further softness over the next few months looks very plausible which could contribute to a cooler labor market and sustainably lower wage growth. The CB consumer confidence number also suggests households are still wary, although the survey can be quite volatile and correlated with factors such as stock markets and gas prices, as we’ve seen the last couple of months alone.   Breakout to gather pace? Cable had been threatening to break lower throughout August and it finally happened at the end of last week, with the price moving below 1.26 and closing below the 55/89-day simple moving average band.       That could be viewed as a very bearish moving coming soon after a brief 38.2% retracement – July highs to early and mid-August lows – and a repeated test of that support. While it has consolidated a little higher since, that US data did briefly push it lower once more although it has since pared those moves. What’s interesting is the momentum indicators at the bottom as while the pair hasn’t accelerated lower following the breakout in a significant way, the MACD and stochastic look fairly healthy. There’s a lot of economic data this week though from the US that could sway this one way or another.      
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Navigating Energy Prices: Analyzing Trends, Risks, and Impacts on Inflation

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

Assessing Energy Price Dynamics and Their Impact on Inflation in the Short and Medium Term

ING Economics ING Economics 01.09.2023 08:52
Energy prices Energy must be the starting point when thinking about a second wave. Our base case sees oil edging higher this year, and the risk is that we continue to see a lack of investment in upstream production while demand continues to move higher. That would point to an increasingly tight oil balance in the years ahead. Stricter legislation on new US oil/gas drilling, though unlikely, would be a key source of upside risk given America has been a major driver of supply growth over the last decade. That aside though, the US is largely energy-independent and that makes it far less exposed to 1970s-style shocks. Europe is more vulnerable, though the situation is evolving. National gas reserves are currently well filled and the eurozone looks better prepared to enter the winter heating season. Russian gas exports to Europe are marginal now, so any further supply cuts would be unlikely to take us back to 2022 highs. We’d also argue that natural gas demand has peaked and suspect it will be gradually lower over the next decade. RePowerEU, the bloc’s flagship energy strategy, puts emphasis on moving aggressively towards renewables. At the same time, last winter’s price spike appears to have resulted in a permanent demand loss in energy-intensive industries. Still, in the short to medium term, the continent is more reliant on liquefied natural gas (LNG). The combination of strike action at Australian producers and a colder-than-usual European winter could prompt a significant price response. So, too, would any disruption to Norwegian natural gas supply. For inflation though, remember that in Europe electricity/gas prices are still more than 50% higher than they were in 2021 in Germany, and roughly double in the UK, according to CPI data. Even if we got another 2022-style shock to wholesale prices, arithmetically, the scope for a similar shock to inflation at this point is more limited.  
UK Monetary Policy Outlook: A September Hike Likely, but November Uncertain

UK Monetary Policy Outlook: A September Hike Likely, but November Uncertain

ING Economics ING Economics 01.09.2023 09:47
Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. Markets have been reassessing Bank of England rate hikes Rewind to the start of the summer, and the view that the UK had a unique inflation problem had become very fashionable. At its most extreme, market pricing saw Bank Rate peaking at 6.5%, some 125bp above its current level. Since then, this story has begun to lose traction. The differential between USD and GBP two-year swap rates, a gauge of interest rate expectations, has halved. That reflects the growing reality that the UK inflation story looks less of an outlier than it did a few months back. Like most of Europe, food inflation has begun to slow, and further aggressive falls are likely judging by producer prices. Consumer energy bills fell by 20% in July, and another 5% decline is baked in for October. The Bank of England itself is now describing the level of interest rates as “restrictive” – a statement of the obvious perhaps, but nevertheless tells us that policymakers think they’ve almost done enough with rate hikes.   UK and US rate expectations have narrowed   A September hike is likely but November is less certain Still, we’re not quite there yet, and recent inflation data has continued to come in on the upside. Private sector wage growth – measured on a three-month annualised basis – is running at a cycle-high of 11%. Services inflation also edged higher in July, although this was partly attributable to some unusual swings in specific categories rather than broad-based moves. A September hike is therefore highly likely. Whether markets are right to be pricing another hike for November is less certain. We’ll only get one round of CPI and wage data between the September and November meetings. Wage growth is unlikely to have slowed much, but we’re hopeful for early signs that services inflation is inching lower. Various surveys suggest few service-sector firms are raising prices, and we think that reflects the sharp fall in gas prices. A lot also hinges on whether we continue to see signs of weakness in economic activity. Like Europe, the UK’s PMIs look worrisome and will have prompted some pause for thought at the Bank of England. The jobs market is also cooling, and the vacancy-to-unemployment ratio – which BoE Governor Andrew Bailey has consistently referenced – is closing in on pre-Covid highs. There’s also been an ongoing improvement in worker supply. We’re now at a point where survey numbers and various bits of official data suggest that both economic growth and inflation are losing steam. The inflation and wage growth figures aren’t there yet, but these are lagging perhaps most out of all economic indicators. A November pause isn’t guaranteed, but it remains our base case. To some extent, we’re splitting hairs. In the bigger picture, the Bank is becoming much more focused on how high rates need to go – and instead, the central goal will increasingly become keeping market rates elevated long after it stops hiking. Any further rate hikes should be seen as a means to that end.      
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The Commodities Feed: Oil Strengthens, LNG Labor Talks Escalate

ING Economics ING Economics 05.09.2023 11:26
The Commodities Feed: Oil spreads strengthen Sentiment in the oil market remains constructive. Price direction in the immediate term will be dictated by what Saudi Arabia and Russia decide to do with their supply cuts.   Energy- Further escalation in LNG labour talks The oil market managed to edge higher yesterday with ICE Brent settling at US$89/bbl, although trading volumes were relatively subdued owing to a public holiday in the US. Sentiment in the oil market remains largely constructive, particularly with a largely bullish narrative coming out of the ongoing APPEC week in Singapore. In addition, the oil market is waiting and expecting Saudi Arabia to extend its additional voluntary supply cut, while Russia is also expected to extend its cuts. Given market expectations, it is unlikely that the two producers would stray away from an extension and so risk a sell-off in the market. The strength that we have seen in the flat price over the last week has been accompanied by stronger time spreads, with the prompt spread strengthening to a backwardation of US$0.75/bbl, up from US$0.39/bbl at the start of last week. Meanwhile, the Dec’23/Dec’24 spread is now trading above US$6/bbl. These stronger spreads suggest that we will continue to see a tightening in the physical market, something which our balance sheet also shows through until the end of this year. Given that the market is only expected to tighten further, this suggests that there is room for further upside in both the flat price and time spreads. As for natural gas, negotiations between Chevron and unions do not appear to be progressing well. Partial strike action at the Gorgon and Wheatstone LNG facilities in Australia is set to commence on 7 September. However, the Offshore Alliance has now said it has served Chevron with a further notice for full rolling stoppages from 14 September. This is likely to provide some support to gas prices today and comes at a time when there is ongoing maintenance work at the Norwegian gas field, Troll, which has seen flows from Norway falling to around 130mcm/day, compared to more than 300mcm/day in mid-August.
The ECB to Hike, But Euro Rally May Be Short-Lived as Dollar Strength Persists

US CPI Data Indicates Hawkish Stance Remains, Dollar Strengthens

Craig Erlam Craig Erlam 14.09.2023 10:11
September still a hold, while swap contracts suggest odds a 49.3% chance of a hike at the November 1st FOMC meeting Supercore inflation rate rises most since March Two-year Treasury drifts lower by 2.1 bps to 4.999% Inflation is not easing enough for the Fed to abandon their hawkish stance.  The upside surprises might be small, but that should keep the hawks in control.  Core inflation heated up for the first time in six months and that should have markets leaning towards one more Fed rate hike in November.  Inflation will likely still be running well above the Fed’s 2% target for the rest of the year, but a weaker consumer supports the case the disinflation process will remain intact. ​   US CPI   Source: BLS This was a complicated inflation report. Everyone knew that gas prices were sharply higher and that the housing market is still seeing elevated prices(house prices are now rising, while rents have eased).  The headline inflation read showed CPI increased 0.6% in August from a month ago, which was the highest reading since June 2022.  The annual inflation reading rose from 3.2% to 3.7%, a tick above expectations.   Market reaction A weakening US consumer will continue as they battle surging gasoline prices, stubborn shelter prices, and increasing medical costs. US stocks are wavering as this inflation report will keep the Fed pushing the ‘higher for longer’ narrative. If Wall Street remains convinced that the labor market is cooling, that will do the trick for getting inflation closer to the Fed’s target. The US dollar and Treasury yields were initially higher given the core CPI delivered an upside surprise, but once traders digested the entire report, the bond market reversed course. Core inflation rose 0.3%, which was due to the rounding of 0.278% which somehow makes it a lot less hot.  Rent makes up 40% of Core PCE and prices posted the smallest gain since the end of 2021. Expectations are elevated for the consumer to be significantly weaker and that we could have a soft holiday spending season, which should support the disinflation process.   Dollar  5-minute Chart The dollar is wavering as Wall Street wasn’t able to come up with any definitive stances on when the Fed will signal the all clear that policy is restrictive enough.  The dollar’s strength is most notably against the Japanese yen, while the euro will likely react to Thursday’s ECB rate decision.  Following yesterday’s Reuters report that the ECB will have inflation projections above 3%, markets appear to be leaning towards a rate hike.          
US Dollar Weakens as Inflation Expectations Hit 2-Year Lows; Fed's November Rate Hike Odds Remain Uncertain

US Dollar Weakens as Inflation Expectations Hit 2-Year Lows; Fed's November Rate Hike Odds Remain Uncertain

Ed Moya Ed Moya 18.09.2023 15:39
US dollar weakness emerges on as inflation expectations fall to lowest levels in over two year; November Fed rate hike odds remain a coin flip Oil rallies for a third straight week on tightness concerns US oil rig count rises by 2 to 515 The one-way move with oil prices has finally started to provide some underlying support for the Canadian dollar.  The Canadian currency however is starting to show some signs of exhaustion as short-term risks to the outlook grow.  The short-term crude demand outlook might be poised to take a big hit but it won’t matter as the global market supply deficit will keep oil above the $90 level throughout the rest of the year.  Unless sentiment deteriorates significantly for the Canadian economy, loonie strength could persist. USD/CAD should have decent support from the 200-day SMA which resides at the 1.3465 level. Canadian Economic Data/News: Canadian house prices declined again as the impact from the BOC’s tightening cycle continues to weigh on the housing market.  Existing Canadian home sales dropped 4.% in August from July, much worse than the expected 0.2% dip.  Housing shortages however kept home prices supported, rising 0.4% to C$757,600. The Canadian economy will likely see greater efforts by the PM Trudeau to address affordability concerns.  On Thursday, the PM unveiled plans to cut federal sales tax on construction of new apartment buildings.  Canada’s economy is softening, but optimism still remains weakness will happen in an orderly fashion.       Oil After a third week of gains, crude prices are not seeing the typical profit-taking as the short-term crude demand outlook gets a boost from improving US and Chinese economic data.  Oil is surging but so far it really has been passed on to the consumer as gas prices are still below $3.90 a gallon. $100 oil is not that far away, but that might not be a one-way trade as short-term risks to the outlook could shift consumer views and attitudes. The oil market is going to stay tight a while longer, but we might need to see a fresh catalyst to send oil to triple digits.    
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Market Insights: CFTC Report Reveals Stable Futures Market, Dollar Maintains Strong Positioning

InstaForex Analysis InstaForex Analysis 17.10.2023 15:34
According to the latest CFTC report, the past week was relatively calm in the futures market. One notable change was the value of the net short yen by position, which corrected by 1.2 billion, while changes in other currencies were minimal. The US dollar's net positioning, after sharply rising the previous week, saw a 0.3 billion correction, bringing it to 8.5 billion, indicating a firm speculative positioning for the dollar. Other factors that supported the greenback are the drop in the number of long positions in oil and especially gold, with a weekly change of -4.8 billion, implying further declines. This often signifies growing bullish sentiment for the US dollar.   The University of Michigan's Consumer Sentiment Index fell to 63.0 in October, the reading was below the forecast of 67.2, reaching the lowest level since May. This marks the third consecutive decline and can be largely attributed to rising gas prices and a decline in the stock market. However, consumer spending remains at a good level despite weaker sentiment in recent months. China's consumer price index remained flat from a year earlier in September, while the Producer Price Index fell by 2.5% as concerns linger about weak demand. Both figures were slightly below consensus estimates. This week's data on industrial production, retail sales, and third-quarter GDP will provide a clearer picture of the impact of the government's additional stimulus measures. The conflict between Israel and Hamas has quickly escalated into the bloodiest clash in the past 50 years from both sides. As both Israel and Iran are minor natural gas exporters, European natural gas prices rose by about 40% last week. Oil markets remain calmer due to reduced demand and excess production capacity. US consumer price inflation for September shows headline prices rose 0.4% month-on-month (consensus 0.3%), and the core index slowed down from 4.3% year-on-year to 4.1% year-on-year, which is a positive sign for the Federal Reserve. There is growing confidence that the Fed's rate hike cycle is coming to an end.   The British pound corrected slightly above the resistance level at 1.2305 and then resumed its decline. It is assumed that the local peak has been formed, and the sell-off will continue, with the nearest target being 1.2033 (the low from October 4). In case it breaks below this level, selling pressure may intensify, with the long-term target being 1.1740/90.  
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BP Faces Share Price Struggles Despite New CEO and Quarterly Buyback Announcement

Michael Hewson Michael Hewson 02.11.2023 12:06
By Michael Hewson (Chief Market Analyst at CMC Markets UK)   With sector peer Shell's share price hitting record high over the last quarter, BP's share price has struggled to keep up although it did manage to get close to its February highs of earlier this year in the middle of this month.   Like Shell, BP also has a new CEO although not for the same reasons as Shell. Previous incumbent Bernard Looney was forced to step down after failing to disclose details of past relationships with colleagues.   A few weeks after Looney stepped down the boss of BP's US operation Dave Lawler also resigned, which while it has created a sense of uncertainty at the top of the business shouldn't have that much of an impact on the company's day to day operations in the short term. Nonetheless this uncertainty at the top of the UK's second biggest oil company may help to explain why BP's share price has underperformed relative to Shell in the last 3 months, however it doesn't explain why it has underperformed year to date.     That's down to management and it rather begs the question as to whether any new CEO will persevere with the "Performing while Transforming" of Bernard Looney, because while it is clear that BP is transforming, it certainly isn't performing, with the shares sharply lower, after missing on Q3 profits in its numbers released today. When BP reported in Q2 the numbers were clearly expected to come in short of expectations, and while the bar was low, they still somehow failed to clear it. Today's Q3 numbers appear to have followed the same playbook with underlying replacement cost profit coming in at $3.3bn, falling well short of expectations of $4.05bn. The underperformance appears to have come from its gas and low carbon energy division where profits were lower compared to Q2 at $1.25bn, while oil production and operations saw an increase from Q2, coming in at $3.13bn, although both numbers were sharply lower from the levels last year due to lower oil and gas prices. One of the reasons for the sizeable drop in profits in the gas and low carbon energy division is the decision to take a $540m charge in respect of its joint share with Equinor in a US offshore wind farm off the coast of New York.     In a carbon copy of Q2 BP have taken the decision to try and sweeten today's disappointment by announcing another $1.5bn buyback, while announcing a dividend of 7.27c a share. Despite the disappointment the headline numbers are an improvement on Q2 and appear to be in line with the misses last week from its US peers Chevron and Exxon, however these two US oil majors are magnitudes of size bigger so the bar for them is higher. Reported oil production levels are also higher from the same quarter a year ago, up by 5%     On the plus side BP has managed to cut the level of its debt by $1.3bn to $22.3bn, however this only partially reverses the decision to increase it in Q2 by $2bn to fund an increase in the dividend and announce another buyback.     For Q4 BP said it expects upstream production to be broadly flat compared to Q3, while also saying it expects to see lower volumes as well as pressure on refining margins.  
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Turbulence in the Energy Sky: 2024 Kicks Off with Oil and Gas Softness Amid Middle East Tensions

ING Economics ING Economics 03.01.2024 14:36
The Commodities Feed: Energy starts 2024 on a softer note Energy markets started the new year weaker with both oil and gas prices coming under pressure yesterday. This is despite growing tensions in the Middle East.   Energy – Oil starts the year weaker The oil market started the first trading day of 2024 on a softer note with ICE Brent settling almost 1.5% lower yesterday. Energy markets were unable to escape the broader pressure seen on risk assets with equity markets also weaker. The weakness in oil comes despite a ratcheting up in tensions in the Middle East. Iran has sent a warship to the Red Sea after the US sunk several Houthi boats in the region, following a number of attacks on commercial ships by the Houthis. While the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance over the first half of 2024 does help to ease some of these worries. OPEC+ will hold a Joint Ministerial Monitoring Committee meeting in early February, according to Bloomberg. The group will be keen to discuss the state of the oil market, particularly given the price action seen following the announcement of deeper cuts last month from a handful of members. However, given the scale of cuts we are already seeing, it will be increasingly difficult for the group to cut more if needed over the course of 2024. Already, the last few rounds of cuts have been driven by voluntary reductions from individual members rather than group wide cuts – a sign that it is becoming more difficult to get all members on board to cut. European gas prices have come under significant pressure, with TTF settling 5.5% lower yesterday and at its lowest levels since August. This weakness comes despite forecasts for colder weather later in the week. However, storage remains very comfortable with it a little more than 86% full, which is above the 83.5% seen at the same stage last year. In the absence of any supply shocks or demand surge, it is looking likely that European storage will finish the 2023/24 heating season around 50% full, which suggests limited upside for prices.

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