German inflation

  • German inflation dips to 6.1%

The data calendar is light on Friday and EUR/USD is trading at 1.0707 in Europe, up 0.09%. There are no tier-1 events out of the eurozone or the US, which means we can expect subdued movement from the euro for the remainder of the day.

The euro is poised to record a losing week for an eighth straight time. The euro has plunged about 500 points during that time, as the US dollar thrives over concerns that the Fed may have to keep hiking in response to the resilient labour market. The currency continues to struggle at 3-month lows and there aren’t any encouraging signs that the downturn is about to change.

The economic outlook in the eurozone remains weak. Recent eurozone numbers have been soft and Germany hasn’t resembled the locomotive which could always be trusted to lift the eurozone economy. German PMIs pointed to contraction in the services and manufacturing sectors in August, and today’s inflation report was a reminder that the largest ec

FX Daily: Eurozone Inflation Impact on ECB Expectations and USD

German Inflation Came In At 8.8%, Hitting Levels Not Seen In 50 Years

Rebecca Duthie Rebecca Duthie 30.08.2022 15:26
Summary: The rise in prices was led by those of food and energy. ECB interest rate decision. German inflation soars in the wake of rising energy prices Energy prices drove up inflation in August, pushing it to its highest level in over 50 years and surpassing a previous high set only three months earlier, statistics revealed on Tuesday. The acceleration of German inflation to a record level due to rising energy costs is supporting expectations for a sizable interest rate increase at the ECB meeting next week. Following an unexpected 8.5% increase in July, consumer prices, which are harmonised to be comparable with inflation data from other European Union countries (HICP), rose by 8.8% annually, according to the federal statistics agency. According to Germany's statistics office, the rise in prices was led by those of food and energy, however their effect was largely mitigated by temporary government aid, such as a fuel refund and incredibly inexpensive public transportation. According to the same statistics office, food costs rose 16.6% year over year in August compared to the same month the previous year, while energy prices rose 35.6% higher. The increase in August includes anti-inflationary measures like lower fuel taxes and cheaper public transportation tickets. These restrictions are about to expire, which suggests that price increase may pick up speed. Data on inflation in the eurozone are coming on Wednesday, and another record surge of 9% is anticipated. According to the Bundesbank, Germany's inflation percentage will reach around 10% in the fourth quarter of 2022, and the prognosis is very uncertain because of the "unclear situation" on the commodity markets, which is a result of Russia's conflict in Ukraine. The ECB is faced with not just the difficulty of extraordinary inflation but also the ensuing cost-of-living pressure that some analysts claim has already caused a recession in the 19-nation bloc. That is the biggest concern for the continent as a whole. While a half-point rate increase by the ECB is anticipated on September 8, some have suggested a larger 75 basis-point increase, similar to the more aggressive actions the Federal Reserve has recently taken. Positive news emerged on Tuesday as energy prices in Europe decreased as a result of the European Commission's plans to act quickly. Despite the risky nature of trading, nations in the region have been successful in filling natural gas storage facilities in time for the winter heating season. Sources: reuters.com, bloomberg.com
German labour market starts the year off strongly

Shocking Prediction! German Inflation May Near The Level Of 10%

ING Economics ING Economics 30.08.2022 16:09
The effect of the government's energy relief package was already waning ahead of the measures expiring tomorrow. Headline inflation increased in August on the back of higher gas and food prices as well as higher prices in the hospitality sector Inflation in Germany could reach 10%   On the penultimate day of the government’s energy relief support package, figures show headline inflation increased again, pushing inflation to 7.9% year-on-year in August, from 7.5% in July. The HICP measure increased to 8.8% YoY in August, from 8.5% in July. The fact that monthly inflation (0.3% month-on-month) is far above the historical average for August also illustrates that inflation is running red hot in Germany. Next stop for inflation could be 10% Judging from the available regional inflation components, the downward push from the government’s energy relief package and slightly lower oil prices was more than offset by higher gas and electricity prices, higher food prices and higher prices for leisure and packaged holidays. While the government is discussing a new energy relief package, the current one with gasoline rebates and cheap public transportation will come to an end tomorrow. Looking ahead, and awaiting any new government decisions, the status quo is that headline inflation will increase further. Even if pricing power in both industry and services seems to have peaked, we still expect the pass-through from higher costs to last for a few more months. The sharp rise in wholesale gas prices will be passed through to customers over the next few months and the announced gas levy will increase prices and push inflation higher. This is why we expect German inflation to get close to 10% by year-end. However, with faltering demand as consumers will increasingly be unable and unwilling to pay high prices, as well as negative energy base effects, headline inflation should start to come down over the course of 2023 and could even touch 2% by the end of 2023; as outrageous as such a call currently looks. It is very clear that hardly any current central banker has seen inflation rates as high as they are now in his or her professional life. This is why for the ECB, today’s increase in German headline inflation will further heat up the internal debate on what to do next. Judging from recent speeches, the ECB is willing to follow in the Fed’s footsteps and leave traditional monetary policy thinking behind. Instead of aiming at longer-term inflation developments and expectations, it is actual headline inflation which apparently must be brought down. Definitely not an easy task with inflation that is mainly driven by supply-side frictions. The ECB is under enormous pressure to act, and we expect the central bank to hike by another 50bp next week. Even with a looming recession, it currently looks as if the ECB is willing to hike even further. Read this article on THINK TagsMonetary policy Inflation Germany Eurozone ECB
Eurozone: On Thursday, September 29th, Germany Releases Its Inflation Print And It's Quite Important To Keep An Eye On It

Eurozone: On Thursday, September 29th, Germany Releases Its Inflation Print And It's Quite Important To Keep An Eye On It

Jing Ren Jing Ren 27.09.2022 13:09
The ECB has only two more meetings for the rest of the year. Which means that the space to get inflation under control by the end of December is getting tight. The common bank is behind other major central banks in raising policy, which has kept the shared currency relatively weak. Therefore, there is a lot of expectation on what will happen with inflation. Though, it should be noted that the next ECB meeting isn't until late October, meaning that there is still another round of CPI data coming out before they meet. So, that is likely to have a much bigger impact on what the bank actually decides to do. On the other hand, the series of CPI figures expected later in the week are expected to shape interest rate expectations. And that, in the end, is the main driver of the currency. Restoring credibility A series of ECB officials have come out to talk in a way that suggests potentially stronger action. Rumors of a 75bps hike in October are starting to grow. This is because of the going theory among central bankers that inflation is shaped by the "credibility" of the central bank. That is, it's how confident the market is that it will raise rates as needed to get inflation down. Both Nagel and de Cos made comments to that effect yesterday. But they need to be contextualized within the ECB's Chief Economist Lane's views expressed also yesterday. That is, expecting a significant decrease in inflation through the course of next year. In other words, the ECB might be coalescing around the idea of a sharp rate hiking through the next couple of months to force CPI figures to turn around. It's out of their hands The thing is, while the ECB did expand the monetary base by around 10% during the pandemic, a larger chunk of the inflationary effects come from external factors. Higher energy costs, and increased cost of imported goods from China due to lockdowns, are the two main ones. That isn't something monetary policy can fix. On the other hand, China is seen relaxing some of the covid restrictions, and energy prices have been falling (although over fears of a pending global recession). That could contribute to lower inflation next year regardless of what the ECB does. So, it might come down to a matter of whether the ECB thinks it can control prices. What to look out for On Thursday, Germany reports Inflation figures, which are expected to set the tone for the rest of the shared economy. German September monthly inflation is expected to accelerate to 1.1% from 0.3% prior. That would contribute to annual inflation jumping to 9.5% compared to 7.9% prior. Then on Friday we get EuroZone headline inflation rate expected to move up to 9.6% from 9.1% in August. Of course what the ECB pays the most attention to is the core rate, which is also expected to accelerate, though not as sharply. Core September inflation is forecast at 4.7% compared to 4.3% prior.
"A notable risk facing credit markets next year is the potential for the European Central Bank (ECB) to reduce the size of its balance sheet via the tapering of the asset purchase programme"

Eurozone: German Inflation Shocks! What Could It Mean For The Euro And European Central Bank?

ING Economics ING Economics 29.09.2022 15:00
German inflation reached another peak in September, providing more ammunition for the ECB to hike by 75bp at the October meeting The inflation peak in Germany could be around 13%   German inflation just reached unprecedented double-digit levels coming in at 10.0% year-on-year in September, from 7.9% YoY in August. The HICP measure increased to 10.9% YoY, from 8.8% YoY in August and 8.5% in July. The fact that monthly inflation (1.9% month-on-month) is far above the historical average for September also illustrates that inflation is running red hot in Germany. Inflation will continue to increase We knew that the September numbers would be the first inflation reading without the dampening effect of the government’s energy relief package over the summer months. The end of the so-called €9 ticket for public transportation and the end of a gasoline rebate alone would have pushed up inflation. But inflationary pressure is all over the economy. Looking ahead, the only way for German inflation is up. With high wholesale gas prices now reaching people’s homes and pockets as well as more inflationary pressure in the industrial pipeline – with producer price inflation at 45% YoY – inflation will test even higher levels. It will take until next Spring before headline inflation could start to move down as negative base effects kick in. Based on today's numbers, peak inflation could come in at around 13%. ECB to hike by 75bp in October and more to come For the ECB, today’s German inflation data will add to the long list of arguments in favour of a 75bp rate hike at the October meeting. Since the late summer and probably marked by Isabel Schnabel’s Jackson Hole speech, the ECB’s reaction function has clearly changed. Following in the Fed’s footsteps, the ECB has increasingly focused on actual inflation and to a lesser extent on inflation expectations. It is hard to see how the ECB cannot move again by 75bp with headline inflation still on the rise. In this context, the discussion on whether or not the ECB can actually bring down headline inflation is no longer relevant for the central bank. Even if the unfolding recession is not enough to slow down the ECB’s process of rate normalisation. It clearly is an experiment with a risk of becoming a policy mistake, but for the time being the ECB looks fully determined to continue on the path of aggressive rate hikes. The first real test of how sustainable the consensus within the ECB is will only come at the December meeting. Then, a new round of staff projections is likely to show further downward revisions to growth and could show 2025 inflation at 2%, tempting some of the newly self-declared tough inflation fighters to blink. Unless we see more central banks performing a major U-turn as the Bank of England had to do this week, we expect the ECB to hike rates by some 150bp until early 2023 and the risk is currently rather tilted to more rather than fewer rate hikes. Still, it is not the ECB that can provide short-term relief against inflation, but governments. However, the idea that governments can completely offset all inflationary pressures should also be discarded after this week's developments in the UK. Read this article on THINK TagsInflation Germany Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The EUR/USD Pair Chance For The Further Downside Movement

Eurozone may find it hard to soak up big rate hikes. German PPI decreased by over 4%...

Kenny Fisher Kenny Fisher 21.11.2022 15:50
EUR/USD has resumed its downswing and is in negative territory on Monday. In the North American session, the euro is trading at 1.0238, down 0.81%. The ECB holds its final policy meeting of the year on December 15th, and it’s practically a given that the ECB will raise rates. But by how much? The current benchmark rate of 1.50% is low compared to other central banks, but the ECB is well aware that a weak eurozone economy will have trouble absorbing further oversize hikes. The ECB’s rate-tightening cycle has been steep, with an increase of 200 basis points in just three months. Still, inflation continues to soar, hitting 10.6% in October, up from 9.9% a month earlier. With inflation in double-digits, there is strong pressure to deliver a 50-bp increase next month. However, policy doves would like to see slower rates of 25-bp in order to minimize an economic slowdown. Read next: NVIDIA (NVDA) Q3 earnings results outperformed part of the markets forecasts| FXMAG.COM German PPI slides There was a surprise from Germany’s PPI today, which fell by 4.2%, its first decline since May 2020. The consensus stood at 0.9%. Is the sharp decline a mere blip, or does it point to lower inflation in the eurozone’s largest economy? We’ll get a look at German and eurozone CPI reports next week, and a drop in inflation will raise speculation that inflation may have finally peaked. The Federal Reserve’s barrage of hawkish statements from Fed members has chilled risk appetite and hopes of a Fed pivot. The US dollar has bounced back after taking a beating following the soft inflation report earlier this month. The Fed has long insisted that one or two reports showing inflation is lower does not make a trend, although risk sentiment has soared on every soft inflation report. If November’s inflation data is lower than anticipated, we can expect risk appetite to jump at the expense of the US dollar. The markets have priced in a 50-bp hike next month, although some Fed members have stated that a 75-bp move remains on the table. EUR/USD Technical 1.0359 and 1.0447 are the next resistance lines EUR/USD is testing support at 1.0238. Below, there is support at 1.0150 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Euro drops below 1.03 as risk aversion climbs - MarketPulseMarketPulse
Rates Spark: Nothing new on the dovish front

Germany: inflation decreases by about 1.5% thanks to lower oil and gas prices

ING Economics ING Economics 03.01.2023 15:05
Lower oil and gasoline prices and the first phase of the government's gas price cap have pushed down headline inflation in December. Still, at current levels, inflation remains a major concern in 2023 Source: Shutterstock Leaving the peak behind The first estimate of German headline inflation came in at 8.6% year-on-year in December, down from 10% in November. The HICP measure also dropped, to 9.6% YoY, from 11.3% YoY in November. This inflation reading brings some relief as the trend of ever-rising inflation rates has been reversed. However, at 8.6% YoY, inflation remains one of the biggest economic concerns of the new year.   Long and complicated path towards lower inflation Available regional data suggests that the drop in headline inflation was mainly driven by lower oil and gasoline prices and the first phase of the government’s gas price break. Food price inflation is still above 20% YoY. If anything, core inflation will have remained unchanged or slightly higher than in November, when it was 5% YoY. Looking ahead, headline inflation in Germany seems to have reached its peak and, unless there is another large surge in energy prices again, double-digit inflation numbers should be behind us for a long while. However, the path towards substantially lower inflation rates won’t be easy. For the time being, it is lower energy prices and hence base effects, as well as government interventions that are pushing down headline inflation. In fact, the German and European inflation outlook is highly affected by two opposing drivers. Lower-than-expected energy prices due to the warm winter weather could, if they remain at current levels, push down headline inflation faster than recent forecasts suggest. In its December forecasts, for example, the European Central Bank used technical assumptions for gas and oil prices in 2023 that were clearly above current prices. On the other hand, there is still significant pipeline pressure stemming from energy and commodity inflation pass-through. For example, many households will only face the sharp gas and electricity price increases this month. Also, despite some recent weakening, companies’ selling price expectations are still high, suggesting that the pass-through of higher production costs is not over, yet. Also, the ongoing war and new price negotiations in the agricultural sector are likely to keep food price inflation high. Finally, the downside of government support schemes is that they could extend inflationary pressures, though at a lower level. All of this means that it is a safe bet to claim that German headline inflation has seen the peak and double-digit inflation rates are over, but the pace and size of the inflation retreat in the course of the new year remain highly uncertain. For now, we expect German inflation to come in at around 6% for the entire year 2023 but unfortunately, the lessons of the last two years have taught us that new revisions could be in the offing…. For the ECB, today’s drop in German headline inflation is another reminder that an energy price shock can actually turn around almost as quickly as it has emerged. At least based on current energy prices, headline inflation in the entire eurozone could come down faster than the ECB had forecast in December. However, the past experience of energy price shocks has also shown that headline inflation can come down quickly, while core inflation remains stubbornly high and can even continue to increase. Therefore, today’s inflation numbers are not a relief, yet, only a reminder that eurozone inflation is still mainly an energy price phenomenon. The ECB cannot and will not base its policy decisions on highly volatile energy prices. Instead, the central bank will, in our view, hike interest rates at the next two meetings by a total of 100bp. Only at the second meeting in March will we see updated macro forecasts. If energy prices have remained at their current levels by then, the ECB will have to revise down its own inflation forecasts, and calls for at least a pause in the current hiking cycle will grow louder. Read this article on THINK TagsInflation Germany Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The delayed release of Germany's inflation data should confirm the slowdown seen across the rest of the continent amidst falling energy prices due to a relatively mild winter

Softer German inflation print could underpin capital inflow to the euro

Alex Kuptsikevich Alex Kuptsikevich 04.01.2023 14:32
Inflation data from Germany yesterday and today reinforce hopes that the inflation wave is rolling back faster than expected. Whilst the early success does not promise a quick win, it does raise prospects that high inflation expectations have been avoided. According to a provisional estimate, consumer prices for December in Germany fell by 0.8% after falling by 0.5% the month before. Notably, we are seeing a fall rather than simple exhaustion of growth. Vendors have begun to reduce prices actively following the fall in raw materials and energy costs. Annual inflation has slowed from 10.4% in October to 8.6%. However, the high-base effect will begin to be felt in February. Import prices, an early indicator of inflation, accelerated their fall in November, losing 4.5% after decreasing by 1.2% and 0.9% in the previous two months. Import prices are 14.9% higher than a year earlier - a significant retreat after staying close to 20% y/y for the seven months to September. Read next: Investors should look for new stars in long-term portfolios, realising that the world began a new period in the long-term macro cycle last year says FxPro's analyst| FXMAG.COM Generally, weak inflation figures are bearish news for the currency as they suggest a sluggish economy and lead to lower interest rate forecasts. In this case, however, such an essential sigh of relief could support capital inflows into the euro. With lower inflation, the single currency retains more purchasing power. Furthermore, assuming less shock therapy from the ECB, investors may look more closely at purchases of European assets, expecting less dramatic degradation of local company earnings and not so steep a rise of debt service costs.
German ZEW index adds to recent growth worries

German inflation drops but there’s no sign of broader downward trends

ING Economics ING Economics 31.03.2023 09:21
German headline inflation dropped in March to the lowest level since last summer. However, there are still no signs of any broader disinflationary trend outside energy and commodity prices Promotional signs in a supermarket in Stuttgart, Germany 7.4% German headline inflation 8.7% YoY in February   Has the disinflationary process started? We don't think so. German March headline inflation came in at 7.4% Year-on-Year, from 8.7% YoY in February. The HICP measure came in at 7.8% YoY, from 9.3% in February. The sharp drop in headline inflation is mainly the result of negative base effects from energy prices, which surged in March last year when the war in Ukraine started. Underlying inflationary pressures, however, remain high and the fact that the month-on-month change in headline inflation was clearly above historical averages for March, there are no reasons to cheer.  No signs of broader disinflationary process, yet Today’s sharp drop in headline inflation will support all those who have always been advocating that the inflation surge in the entire eurozone is mainly a long but transitory energy price shock. If you believe this argument, today’s drop in headline inflation is the start of a longer disinflationary trend. As much as we sympathised with this view one or two years ago, inflation has, in the meantime, also become a demand-side issue, which has spread across the entire economy. The pass-through of higher input prices, though cooling in recent months, is still in full swing. Widening profit margins and wage increases are also fueling underlying inflationary pressure, not only in Germany but in the entire eurozone. The pass-through of higher input prices is still in full swing Available German regional components suggest that core inflation remains high. While energy price inflation continued to come down and was even negative for heating oil and fuel, food price inflation continued to increase. Inflation in most other components remained broadly unchanged. Given that energy consumption is more sensitive to price changes than food consumption, it currently makes more sense for the European Central Bank to only look at headline inflation that excludes energy but includes food prices when assessing underlying inflationary pressure. All this means is that just looking at the headline number is currently misleading; there are still few if any signs of any disinflationary process outside of energy and commodity prices. Headline inflation to come down further but core will remain high Looking ahead, let’s not forget that inflation data in Germany and many other European countries this year will be surrounded by more statistical noise than usual, making it harder for the ECB to take this data at face value. Government intervention and interference, whether that's temporary or permanent or has taken place this year or last, will blur the picture. In Germany, for example, the Bundesbank estimated that energy price caps and cheap public transportation tickets will lower average German inflation by 1.5 percentage points this year. And there is more. Negative base effects from last year’s energy relief package for the summer months should automatically push up headline inflation between June and August. Beyond that statistical noise, the German and European inflation outlook is highly affected by two opposing drivers. Lower-than-expected energy prices due to the warm winter weather could are likely to push down headline inflation faster than recent forecasts suggest. On the other hand, there is still significant pipeline pressure stemming from energy and commodity inflation pass-through and increasingly widening corporate profit margins and higher wages. Even if the pass-through slows down, core inflation will remain stubbornly high this year. ECB has entered final phase of tightening As long as the current banking crisis remains contained, the ECB will stick to the widely communicated distinction between using interest rates in the fight against inflation and liquidity measures plus other tools to tackle any financial instability. The fact that there are still no signs of any disinflationary process, discounting energy and commodity prices, as well as the fact that inflation has increasingly become demand-driven, will keep the ECB in tightening mode. The risk of something breaking increases with every ECB rate hike The turmoil of the last few weeks has been a clear reminder for the ECB that hiking interest rates, and particularly the most aggressive tightening cycle since the start of monetary union, comes at a cost. In fact, with any further rate hike, the risk that something breaks increases. This is why we expect the ECB to tread more carefully in the coming months. In fact, the ECB has probably already entered the final phase of its tightening cycle. It's a phase that will be characterised by a genuine meeting-by-meeting approach and a slowdown in the pace, size and number of any further rate hikes. We're sticking to our view that the ECB will hike twice more - by 25bp each before the summer - and then move to a longer wait-and-see stance. Read this article on THINK TagsMonetary policy Inflation Germany Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Prolonged Stagnation: The Impact of Fiscal and Monetary Austerity

German inflation: This seven-month low for the annual figure could suggest that inflation in the eurozone's largest economy has peaked

Michael Stark Michael Stark 14.04.2023 13:07
German inflation for March came in at 7.4% meeting expectations. Michael Stark from Exness comments on the print. Michael Stark (Exness): German annual non-core inflation for March was confirmed at 7.4%, the same as the preliminary figure and in line with the consensus. The monthly figure at 0.8% also matched expectations. This seven-month low for the annual figure could suggest that inflation in the eurozone's largest economy has peaked and the effect of the ECB's strong tightening is starting to become clear.However, there hasn't yet been a consistent decline in the rate of inflation in Germany. Annual inflation held at 8.7% in February and even 7.4% is nearly quadruple the ECB's usual target of 2%, so hailing the central bank's success would be premature. It seems more likely that the ECB will stay the course and that the main refinancing rate will reach around 4-4.25% in July. It seems more likely that the ECB will stay the course and that the main refinancing rate will reach around 4-4.25% in July Michael Stark (Exness): With the situation seemingly under control for now and the ECB gradually catching up to the Fed's funds rate, the euro might have more room to gain against other major currencies, but the technical situation for euro-yen near a possibly strong resistance might make buying that particular pair now risky. Traders are looking ahead to ZEW sentiment on Tuesday 18 April and final eurozone-wide inflation the next day for upcoming significant drivers. Read next: Raw sugar traded in NY and White sugar in London both trade near a decade high on persistent worries about tight global supplies | FXMAG.COM
German Inflation and US Q1 GDP Awaited: Market Focus Shifts

German Inflation and US Q1 GDP Awaited: Market Focus Shifts

Michael Hewson Michael Hewson 29.06.2023 09:24
German inflation in focus, ahead of US Q1 GDP       Having stopped the rot on Tuesday, ending a 6-day losing streak, European markets saw another positive session yesterday, although gains were tempered by remarks from Fed chairman Jay Powell who warned that several more rate hikes could be expected in the coming months, in comments made in an ECB panel discussion in Sintra, Portugal.     US markets finished the day mixed with little in the way of direction, as they digested the various remarks from central bankers, as they all peddled a similar narrative, of further rate rises to come. The Japanese yen continued to decline, already at record lows on a trade-weighted basis, Bank of Japan governor Kazuo Ueda gave little indication that officials were any close to stemming the recent losses. The subdued finish in the US is likely to translate into a flat European open.     There is the hope that upcoming data could prompt a softening of this hawkish message starting today with the latest June inflation numbers from Germany. We've seen a sharp deceleration in the last few months, falling from 7.6% in April to 6.3% in May. Today's June numbers could see a modest increase to 6.8%, which will do little to assuage ECB concerns that inflation is falling back sharply. In the UK the sharp rise in gilt yields in the wake of surging inflation is prompting concerns about the housing market, and more specifically the ability of consumers to pay their existing mortgage or take out new ones.        Since the start of the year, we've seen a modest improvement in mortgage approvals, after they hit a low of 39.6k back in January. The slowdown towards the end of last year was due to the sharp rise in interest rates which weighed on demand for property, as well as weighing on house prices.     As energy prices have come down, along with lower rates at the start of the year, demand for mortgages picked up again with March approvals rising to 51.5k, before slipping back to 48.7k in April. This could well be as good as it gets for a while with the renewed increase in gilt yields, we've seen in the past few weeks, prompting weaker demand for new borrowing. Similarly net consumer credit has also started to improve after similar weakness.     Although inflationary pressures are starting to subside, the increase in wages is unlikely to offset concern over higher rates and higher mortgage costs in the coming months. Given current levels of uncertainty, consumer credit numbers could well increase further, while net lending could see a further decline after April lending fell by -£1.4bn, the weakest number since July 2021.     We also have the final iteration of US Q1 GDP, which was revised up to 1.3% from 1.1% a few weeks ago. The main drag was down to a bigger than expected scaling down in inventories, as well as an upward revision to personal consumption to 3.8%, which was a significant improvement from 1% in Q4, as US consumers went out on a New Year splurge.     Slightly more concerning was rise in core PCE over the quarter, from 4.4% in Q4 to 5%. We're not expecting to see much of a change in today's revisions, although headline might get revised to 1.4%, while most of the attention will be on the core PCE number for evidence of any downward revisions, as more data gets added to the wider numbers. Weekly jobless claims are expected to come in unchanged at 265k.   EUR/USD – holding above the 50-day SMA and support at the 1.0870/80 area, but unable to move through the 1.1000 level. The main resistance remains at the April highs at 1.1095. Below 1.0850 signals a move towards 1.0780.   GBP/USD – slid back sharply below the 1.2670 area, now opens a move towards the 50-day SMA at 1.2540. If this holds, we remain on course for a move towards the 1.3000 area.    EUR/GBP – broken above 0.8630, heading towards the 50-day SMA at 0.8673, which is the next resistance area. Support comes in at the 0.8580 area.   USD/JPY – continues to edge higher towards the 145.00 area. We have support at the 142.50 area, which was the 61.8% retracement of the 151.95/127.20 down move. A fall below this support area could see a deeper fall towards 140.20/30.    FTSE100 is expected to open 2 points higher at 7,502   DAX is expected to open 7 points higher at 15,956   CAC40 is expected to open 10 points higher at 7,296   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Growing Strike Risk in Australian LNG Industry Spurs Commodities Market Volatility

Fed's greenlight for more rate hikes after stress test. Crude oil jumps on decline in US inventories, resistance at $70pb

Ipek Ozkardeskaya Ipek Ozkardeskaya 29.06.2023 09:28
Fed's got the greenlight for more hikes. US and European stocks were up on Wednesday. The US chipmakers dampened appetite across the Atlantic Ocean on news that the Biden Administration will bring more restrictions to the US chipmakers' exports toward China, but Nasdaq still eked out gains.     Unfortunately for Nvidia, its A800 chips which were launched as a response to last year's export ban could be included in the new set of restrictions. Nvidia stock fell yesterday, but not as bad as premarket trading suggested. Taking a closer look to Nvidia's revenue per region, revenue slowed by around $2bn in China amid the chip export ban last year, but the fall in Chinese revenue was compensated with a doubling revenue for the US. This means that, even though the Chinese growth potential is weakened, there is potential to grow business for Nvidia. For others, AMD was almost flat, and Micron was up following an upbeat forecast for the current period amid the easing chip glut.     Same, same  The major central bankers' speeches were the same background music. The Federal Reserve's (Fed) Powell, the Bank of England's (BoE) Bailey, and the European Central Bank's (ECB) Lagarde agreed that their fight against inflation wasn't done yet, and that more rate hikes are on the pipeline.   What was interesting however was that the Bank of Japan's (BoJ) Ueda didn't necessarily think that the Fed, the BoE and the ECB overtightened, while he, on his end, didn't move an inch to fight back inflation. What's even funnier is, Powell, Bailey and Lagarde acknowledged that their policy actions come with a lagging effect, but BoJ's Ueda joked saying that because Japan hasn't started hiking yet, the lag effect could be 'at least 25 years'. I don't know if it makes you laugh or cry, but it made the central bankers, and the yen shorts laugh.  The dollar yen is now at the highest levels since November last year, a touch below the 145 mark, and on its way toward higher waters. Yet, a rapid and extended period of yen depreciation remains concerning for Japanese officials and could end up with direct FX intervention to halt bleeding. That's one risk that the short yen positions carry right now, as the yield differential plays clearly in favour of further yen selling.   Elsewhere, sentiment in euro was weak yesterday on the back of a mixed set of data. The Italian PPI fell much slower than expected in May, but consumer price inflation eased more than expected. The ECB's money supply slowed, and loans to the private sector grew slower than expected as a sign of tighter credit due to higher rates. Germany will reveal its own inflation figures today, and we could see an uptick in German inflation according to a consensus of analyst expectations. It would be bad news for the ECB. So many hikes, and so many more promised by the ECB, and inflation is hanging around.   It is because the Fed, ECB and BoE's balance sheets remain the elephant in the room, and they are the reason why economies don't react efficiently to interest rate hikes, and inflation doesn't slow at the desired speed. Yes, the Fed, ECB and BoJ's combined balance sheet size has been shrinking since last year, but total assets remain indisputably HIGH - almost 50% higher than pre-pandemic levels. So, you bet, the higher rates don't do much harm to the economy, except for those who have to renew their mortgages.  For the ECB however, the fact that the cheap loans are drying out could achieve some faster results. But it could trigger a divergence between core and periphery, widen the spread between Germany and the periphery and the latter could slow down the euro's appreciation.     Fed's stress test gives the greenlight for more hikes  The US banks passed the Fed's stress test, giving a greenlight to the Fed for more rate hikes. The US banks gained in the afterhours trading, with Bank of America and Wells Fargo leading gains, but the new regulations regarding capital requirements will likely hold back investors from full heartedly going back to banks.     Crude jumps  Crude oil jumped off below the $67pb level on the back of an almost 10mio barrel decline in US crude inventories last week. There is now a triple bottom formation at around the $67pb level, and that could throw a floor under any short-term selloff in crude oil. But the $70pb resistance remains strong, and more offers are waiting into the 50-DMA, a touch below the $72pb level. The chances are that we will see some back and forth between $67 and $72 range, until one side gives in. 
Turbulent Times Ahead: ECB's Tough Decision Amid Soaring Oil Prices

Inflation Numbers Take Center Stage as Quarter Comes to a Close

Michael Hewson Michael Hewson 30.06.2023 09:50
Inflation numbers a key focus as we round off the quarter       European markets continued their recent patchy performance, as we come to the end of the week, month, quarter, and half year, with the FTSE100 sliding back while the likes of the DAX and CAC40 were slightly more resilient, after German inflation came in slightly higher than expected in June.   US markets were slightly more positive, but even here the Nasdaq 100 struggled after a sizeable upward revision to Q1 GDP to 2%, and better than expected weekly jobless claims numbers sent US yields sharply higher to their highest levels since March, while the US dollar also hit a 2-week high.   The surprising resilience of US economic data this week has made it an absolute certainty that we will see another rate increase in July, but also raised the possibility that we might see another 2 more rate increases after that.   The resilience of the labour market, along with the fact that core inflation remains sticky also means that it makes the Federal Reserve's job of timing another pause much more difficult to time. Today's core PCE Deflator and personal spending numbers for May could go some way to making that job somewhat easier.   Core PCE Deflator is forecast to remain unchanged at 4.7%, while personal spending is expected to slow from 0.8% to 0.2%. While the Federal Reserve isn't the only central bank facing a sticky inflation problem, there is evidence that it is having slightly more success in dealing with it, unlike the European Central Bank which is seeing much more elevated levels of headline and core prices. Yesterday, we saw CPI in Germany edge higher from 6.3% in May to 6.8%, while in Spain core prices rose more than expected by 5.9%, even as headline CPI fell below 2% for the first time in over 2 years.   Today's French CPI numbers are expected to show similar slowdowns on the headline rate, from 5.1% to 4.6%, but it is on the core measure that the ECB is increasingly focussing its attention. Today's EU flash CPI for June is forecast to see a fall to 5.6% from 6.1%, however core prices are expected to edge back up to 5.5% after dropping to 5.3% in May. Compounding the ECB's and other central banks dilemma when it comes to raising rates is that PPI price pressures are falling like a stone and have been since the start of the year, in Germany and Italy. In April French PPI plunged -5.1% on a monthly basis, even as the year-on-year rate slowed to 7% from 12.8%.   If this trend continues today then it might suggest that a wave of deflation is heading our way and could hit sometime towards the end of the year, however while core prices remain so resilient central banks are faced with the problem of having to look in two different directions, while at the same time managing a soft landing. The Bank of England has an even bigger problem in getting inflation back to target, although it really only has itself to blame for that, having consistently ignored regular warnings over the past 18 months that it was behind the curve. The risk now is over tightening just as prices start to fall sharply.   Today's Q1 GDP numbers are set to confirm that the UK economy managed to avoid a contraction after posting Q1 growth of 0.1%, although it was a little touch and go after a disappointing economic performance in March, which saw a monthly contraction of -0.3% which acted as a drag on the quarter overall.   The reason for the poor performance in March was due to various public sector strike action from healthcare and transport, which weighed heavily on the services sector which saw a contraction of -0.5%. The performance would have been worse but for a significant rebound in construction and manufacturing activity which saw strong rebounds of 0.7%.   There is a risk that this modest expansion could get revised away this morning, however recent PMI numbers have shown that, despite rising costs, business is holding up, even if economic confidence remains quite fragile.     One thing we do know is that with the recent increase in gilt yields is that the second half of this year is likely to be even more challenging than the first half, and that the UK will do well to avoid a recession over the next two quarters.       EUR/USD – slid back towards and below the 50-day SMA, with a break below the 1.0850 area, potentially opening up a move towards 1.0780. Still have resistance just above the 1.1000 area.     GBP/USD – continues to come under pressure as we slip towards the 50-day SMA at 1.2540. If this holds, the bias remains for a move back to the 1.3000 area. Currently have resistance at 1.2770.       EUR/GBP – currently being capped by resistance at the 50-day SMA at 0.8673, which is the next resistance area. Behind that we have 0.8720. Support comes in at the 0.8580 area.     USD/JPY – briefly pushed above 145.00 with the November highs of 147.50 beyond that.  Support remains at the 142.50 area, which was the 61.8% retracement of the 151.95/127.20 down move. A fall below this support area could see a deeper fall towards 140.20/30.    FTSE100 is expected to open 18 points higher at 7,489     DAX is expected to open 12 points higher at 15,958   CAC40 is expected to open 8 points higher at 7,320      
CHF/JPY Hits Fresh All-Time High in Strong Bullish Uptrend

EU Inflation Slows in July Amid Economic Uncertainty: ECB's 'Pause' Considered

Michael Hewson Michael Hewson 31.07.2023 15:50
EU inflation set to slow further in July Last week saw another positive week for markets in Europe, the third in a row with the FTSE100 pushing up to a 2-month high before slipping back, while the DAX managed to close at a new record high, despite the German economy stagnating in Q2.     With price pressures in Germany and the US showing signs of slowing more than expected in the last couple of months there is a sense that last week's rate hikes by the Federal Reserve and the ECB may well have been their last. We've heard several ECB policymakers expressing increasing caution over the growth outlook, which appears to be tempering enthusiasm for more aggressive rate action, while some US policymakers are becoming more optimistic about the glide path for inflation, with Minneapolis Fed President Neel Kashkari commenting at the weekend that the US could avoid a recession, although he was careful not to sound too dovish.   For now, stock markets appear to be buying into a soft-landing narrative when it comes to the US economy, with US markets closing higher for the 3rd week in a row with the Dow, S&P500 and Nasdaq 100 all posting their highest weekly closes since January 2022.     As we come to the end of another positive month for both US and European markets there is still little sign of the sharp move lower that many have been expecting over the last few months. This so-called "wall of worry" that has characterised most of the gains since the big March sell-off has thus far shown little sign of coming to end, despite bond yields which have as yet remained close to their highest levels since 2007. Even Friday's move by the Bank of Japan in tweaking its yield curve control policy failed to have a lasting impact, with the yen finishing the day lower, after losing ground initially, although yields on JGB's did hit their highest levels in 9 years. The US dollar also had another positive week rallying for the 2nd week in a row, benefitting largely due to the US economy's ability to withstand the higher rates that have been pushed through by the Federal Reserve over the last 16 months.   With the ECB indicating that a "pause" might be coming when the governing council next meets in September, today's latest flash EU CPI for July could go further in reinforcing that narrative after Friday's slowdown in German inflation. Headline CPI is expected to slow to 5.3% from 5.5%, while core prices are forecast to slow to 5.4%.     On the growth front EU Q2 GDP is expected to move back into positive territory to 0.2%, after two negative quarters. It's also a big week for the pound with Thursday's Bank of England rate meeting, where we can expect to see another rate hike of 25bps at the very least, with an outside chance of a 50bps move. Markets are still expecting a much higher terminal rate for the BOE, well above the current 5%, although it is now well off the peaks of a few weeks ago when it was well above 6%. Even at current estimates of just below 6%, it still seems way too high.   Much could depend on the strength of today's consumer credit and mortgage lending data for June which is expected to show further weakness. Mortgage approvals are expected to slip back below 50k to 49k, while net consumer credit is forecast to remain steady at £1.1bn. Given current levels of wage growth a hold from the Bank of England is unlikely, even if many people think they should pause. If the Bank of England is sensible this week, they will temper any reaction to over-react and we will probably see a hawkish hike of 25bps, given the uncertainty ahead of the July CPI numbers which are due 16th August. Current expectations are for a sharp slowdown which in turn could future rate expectations fall further.     This week also has the July Friday's US payrolls report to look forward to along with a whole host of US labour market data with the ADP report also in focus after June's bumper 497k number, as well as June JOLTs job openings.        EUR/USD – found support at the 1.0940 area last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150. GBP/USD – slipped back from the 1.3000 area, last week with next support at trend line support at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact.     EUR/GBP – struggling to rally, finding resistance at the 0.8600 area, with the risk of a return to the recent lows at 0.8500/10. Above the 0.8600 area targets the July highs at 0.8700/10. USD/JPY – Friday's rebound from the 138.00 area and cloud support could extend back towards the 142.00 area. While below the bias remains for a move lower, however a move back through 142.20 could trigger a move back to the 145.00 area. FTSE100 is expected to open 30 points lower at 7,664 DAX is expected to open 32 points lower at 16,437 CAC40 is expected to open 14 points lower at 7,462  
FX Markets React to Rising US Rates: Implications and Outlook

Rates Spark: Different Focus, Different Outcomes

ING Economics ING Economics 31.08.2023 10:29
Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 
FX Markets React to Rising US Rates: Implications and Outlook

Rates Spark: Different Focus, Different Outcomes - 31.08.2023

ING Economics ING Economics 31.08.2023 10:29
Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 
Assessing the Resilience of the US Economy Amidst Rising Challenges and Recession Expectations

ECB at a Crossroads: Inflation Concerns and the Prospect of a Final Rate Hike

ING Economics ING Economics 01.09.2023 09:29
European Central Bank Macro developments over the summer have caused further complications for the ECB. While the rapid worsening of the economy should come as a surprise, at least judging from overly optimistic ECB growth forecasts so far, the speed with which headline inflation is coming down should still leave the central bank uncomfortable. Core inflation also remains too high and wage growth up until now signals that even without excessive wage settlements core inflation could stay higher for longer. We still expect headline inflation to come down significantly after the summer, mainly on the back of German headline inflation falling. However, if the ECB sticks to its stance of putting more emphasis on actual data rather than on expected data, the current inflation picture still argues in favour of another rate hike. After 425bp of rate hikes in slightly more than a year, a pause in the ECB’s hiking cycle at the September meeting would make perfect sense. However, the worsening economy and our expectation of an acceleration of disinflationary risks after the summer could easily transform a pause into an actual full stop. The question is whether everyone at the ECB could live with a terminal rate of 3.75%. We think that the hawks would prefer 4% and will therefore push for one final rate hike at the September meeting. A last one for the road, even if it remains a very close call.  
Euro-dollar Support Tested Amidst Rate Concerns and Labor Strikes

German Inflation Holds Steady at 6.1% Amid Economic Weakness, ECB's Dilemma Looms

Craig Erlam Craig Erlam 11.09.2023 11:33
German inflation dips to 6.1% The data calendar is light on Friday and EUR/USD is trading at 1.0707 in Europe, up 0.09%. There are no tier-1 events out of the eurozone or the US, which means we can expect subdued movement from the euro for the remainder of the day. The euro is poised to record a losing week for an eighth straight time. The euro has plunged about 500 points during that time, as the US dollar thrives over concerns that the Fed may have to keep hiking in response to the resilient labour market. The currency continues to struggle at 3-month lows and there aren’t any encouraging signs that the downturn is about to change. The economic outlook in the eurozone remains weak. Recent eurozone numbers have been soft and Germany hasn’t resembled the locomotive which could always be trusted to lift the eurozone economy. German PMIs pointed to contraction in the services and manufacturing sectors in August, and today’s inflation report was a reminder that the largest economy in Europe is grappling with high inflation and weak growth. German CPI remained unchanged in August for a third straight month. On a yearly basis, CPI was confirmed at 6.1% y/y, down a notch from 6.2%, while core CPI remained unchanged at 5.5% y/y. Food and energy prices rose but there was a bit of good news as services inflation ticked lower to 5.1%, down from 5.2% in July. The ECB meets next week and it remains unclear what Lagarde & Co. will decide. Inflation, which is at 5.3%, remains much higher than the ECB target of 2%. The ECB wants to lower inflation but further rate increases could tip the weak economy into a recession. The markets have priced in a pause at the September meeting at around 70%, which means that a rate hike still remains on the table despite weak economic conditions.   EUR/USD Technical EUR/USD is testing resistance at 1.0716. Above, there is resistance at 1.0831 There is support at 1.0658 and 1.0593        

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