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Today we have seen the first slowdown in annual inflation in seven months, but the data is better than expected. In January, consumer prices rose 0.4%, up 4.9% on the same month a year earlier. Analysts, on average, were expecting prices to fall by 0.2% and slow inflation to 4.3% YoY. The harmonized price index (adjusted for tax changes) shows an even more significant gap between expectations and reality. The index rose by 0.9% (a fall of 0.4% was expected). The figures clearly show that inflation has penetrated deeper into the economy and is increasingly taking on the features of permanent price increases. Sustained inflation raises the expectation that the ECB will also tighten its rhetoric and proceed with policy tightening more quickly than previously promised. The markets have priced in one rate hike of 0.25% by December. But with the Fed as an example, we can see how quickly things can change. These changes should be positive for the euro.

Here we are, it's monday and we're looking forward to all these releases around the world. On Tuesday (15/03/22) we meet some important indicators of Great Britain, the USA and Germany. Australia and China Shortly after midnight, RBA Meeting Minutes are published. At 2 a.m. Industrial Production is released (prev. 4.3%)  Great Britain Let's have a look at Britons' plan for the following day. At 7 a.m. Average Earning Index +Bonus (preb. 4.3%) and Claimant Count Change (-31.9K) indicators are presented. Germany, the US and the EU Coming up next - German ZEW Economic Sentiment (54.3) - 10. a.m Two and a half hours later the US PPI (MoM) is presented (prev. 1.0%). In the afternoon, at 3:15 p.m. everybody's attention is driven to European Union and ECB President Lagarde testimony.   Source: Investing.com Time: GMT  

German headline inflation came in at 7.4% year-on-year in April. The acceleration is slowing but a reversal is not in sight. Instead, inflationary pressure in Germany is broadening German headline inflation surged once again as the war in Ukraine pushed up energy and commodity prices and inflationary pressure broadens. According to a first estimate based on the regional inflation data, German headline inflation came in at 7.4% year-on-year in April, from 7.3% year-on-year in March. The HICP measure came in at 7.8% YoY, from 7.6% in March. Over the coming months, the conversation between experts and headline inflation will be: "I say jump and you say 'how high'?". German inflation continues to see only one trend: up. German inflation could enter double-digit territory in the summer We've stopped digging out illustrations of the times when inflation in Germany was at comparable levels. Let’s put it like this: most citizens and policymakers have hardly ever seen these kinds of inflation rates in their professional lives. Sure, the surge in headline inflation is still dominantly driven by energy and commodity prices. However, looking at available regional data, the pass-through of these higher prices to the broader economy is in full swing. In some regional states, food inflation was already at double-digit levels and prices for packaged holidays, leisure activities, hospitality and more general services have been accelerating in recent months. The inflation rate for these items is far above the European Central Bank's 2% target. In fact, in March only 21 out of the 94 main components of the German inflation basket had inflation rates of 2% or less. Looking ahead, with the war in Ukraine and continued tension and upward pressure on energy, commodity and food prices, headline inflation in Germany will accelerate further in the coming months. In this regard, it is interesting that the ECB today released an analysis of why its inflation forecasts have been so wrong over the last few years. The ECB blames it mainly on energy prices and the fact that the oil price futures the ECB uses as technical assumptions have not been good forecasters of actual energy price developments. What the ECB does not address in its analysis, however, is the pass-through of higher energy and commodity prices on other prices. We still think that the underestimation of these pass-through effects has been the main reason for the ECB’s misjudgement on inflation since the pandemic. The ECB simply underestimated that, post-lockdown, there would be so much demand that producers wouldn’t have to shrink profit margins to absorb higher costs. Instead, they have been able to pass through all of the higher costs to the consumer. With this in mind, we likely have not seen the last forecast error. We think that the pass-through to all kinds of sectors is still in full swing. Add to this the additional price mark-ups in the hospitality, culture and leisure sectors after the end of lockdowns and it is hard to see inflation coming down significantly any time soon. Against the backdrop of recent geopolitical events, we now expect German inflation to average at more than 8% this year with a chance that monthly inflation rates will enter double-digit territory in the summer. Pressure on the ECB to act increases For the ECB, increasing inflation numbers by the month add to the pressure to normalise monetary policy. Even though the ECB doesn’t target actual inflation and can do very little to bring down inflation imminently unless it starts producing oil, gas or microchips, it is hard to justify overly accommodative policies. With the last ECB meeting and recent comments by ECB officials, it is clear that a consensus view has emerged on ending the so-called unconventional measures, ie net asset purchases and negative deposit rates before the end of the year. The only open issue is the timing. An end to net asset purchases by the end of June seems a done deal but whether the first rate hike will really come in July or only in September remains very open. We wouldn’t put too much money on recent official comments regarding the data for a rate lift-off. Everything will depend on actual data until the June meeting. Up to now, there has been hardly any hard data available on the imminent impact of the war in Ukraine on the eurozone economy. By June, the ECB will have a new set of forecasts, plus the first hard data points for the months of March and April. The better these data are, the higher the likelihood of an early rate lift-off and vice versa. TagsMonetary policy Inflation Germany Eurozone ECB   DisclaimerThis publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more (link to: https://think.ing.com/about/content-disclaimer/)

Today we are looking at the GER30 daily as buyer momentum continues to drive forward this week, with price breaking the medium-term downtrend in today’s session. It’s been a  decent week so far for stock indexes. Buyers continue to hold sway with another solid rally in today’s session. Buying is widespread across the CFD indexes and is part of a broader risk on the move that has seen risk currencies and crypto coins pushing into the green. The GER30, after setting its last LL in March, has shown us a bullish signal with a new HL in May. Since that point, we have seen the current rally test and break the medium-term downtrend. These are good signs from buyers at the moment, but we would like to see the next step taken with a new HH put in. We would also like to see that HH hit above the last LH, which would continue to confirm the trend break. If buyers can achieve this, we would then like to see a new HL maintaining a new normal short-term uptrend. 14,555 could come in as resistance if reached, but new HLs after retracements will keep the idea in play. A failure to set a new HH and a slip back into the downtrend is a worry. A new move lower that breaks the last HL basically discounts the bullish signs we are watching and discussing above. GER30 D1 Chart The post CFD News: GER30 could be starting a new leg higher. appeared first on Eightcap.

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

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

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

Overview: The biggest development today in the capital markets is the jump in benchmark interest rates.  The US 10-year yield is up five basis points to 2.86%, which is about 10 bp above Monday’s low.  European yields are up 9-10 bp.  The 10-year German Bund yield was near 0.88% on Monday and is now near 1.07%.  Italy’s premium over German is near 2.18%, the most in nearly three weeks.  Although Asia Pacific equities rallied, led by Japan’s 1.2% gain, but did not include South Korea, European equities are lower as are US futures.  The Stoxx 600 is struggled to extend a five-day rally.  The Antipodeans are the weakest of the majors, but most of the major currencies are softer. The euro and sterling are straddling unchanged levels near midday in Europe.  Gold is soft in yesterday’s range, near its lowest level since August 5.  While $1750 offers support, ahead of it there may be bids around $1765. October WTI is pinned near its lows around $85.50-$86.00.  The drop in Chinese demand is a major weight, while the market is closely monitoring developments with the Iranian negotiations.  US natgas is edging higher after yesterday 6.9% surge to approach last month’s peak.  Europe’s benchmark is 4.5% stronger today after yesterday’s 2.7% pullback.  Iron ore fell (3.9%) for the fourth consecutive decline. The September contract that trades in Singapore is at its lowest level since July 22.  September copper is a little heavier but is still inside Monday’s range.  September wheat is extending its pullback for the fourth consecutive session.  It had risen in the first four sessions last week. It is moving sideways in the trough carved over the past month.    Asia Pacific   The Reserve Bank of New Zealand delivered the anticipated 50 bp rate hike and signaled it would continue to tighten policy    It did not help the New Zealand dollar, which is posting an outside day by trading on both sides of yesterday's range.  The close is the key and below yesterday's low (~$0.6315) would be a bearish technical development that could spur another cent decline.  It is the RBNZ's fourth consecutive half-point hike, which followed three quarter-point moves.  The cash target rate is at 3.0%.  Inflation (Q2) was stronger than expected rising 7.3% year-over-year.  The central bank does not meet again until October 5, and the swaps market has a little more than a 90% chance of another 50 bp discounted.    Japan's July trade balance deteriorated more than expected    The shortfall of JPY1.44 trillion (~$10.7 bln) form JPY1.40 trillion in June.  Exports slowed to a still impressive 19% year-over-year from 19.3% previously, while imports rose 47.2% from 46.1% in June.  The terms-of-trade shock is significant in both Japan and Europe.  Japan's ran an average monthly trade deficit of about JPY1.32 trillion in H1 22 compared with an average monthly surplus of JPY130 bln in H1 21.  The eurozone reported an average shortfall of 23.4 bln euros in H1 22 compared with a 16.8 bln average monthly surplus in H1 21.  The two US rivals, China, and Russia, have been hobbled by their own actions, while the two main US economic competitors, the eurozone and Japan are experiencing a dramatic deterioration of their external balance,     The 11 bp rise in the US two-year yield between yesterday and today has helped lift the US dollar to almost JPY135.00, a five-day high   It has met the (50%) retracement target of the downtrend since the multiyear peak in mid-July near JPY139.40.  The next target is the high from earlier this month around JPY135.60.  and then JPY136.00.  Initial support now is seen near JPY134.40.  After recovering a bit in the North American session yesterday, the Australian dollar has come under renewed selling pressure and is trading at five-day lows below the 20-day moving average (~$0.6990).  It has broken support in the $0.6970-80 area to test the trendline off the mid-July low found near $0.6965.  A break could signal a move toward $0.6900-10.  The gap created by yesterday's high US dollar opening against the Chinese yuan was closed today as yuan recovered for the first day in three sessions.  Monday's high was CNY6.775 and yesterday's low was CNY6.7825.  Today's low is about CNY6.7690.  For the second consecutive session, the PBOC set the dollar's reference rate a little lower than the market (median in Bloomberg's survey) expected (CNY6.7863 vs. CNY6.7877).  The dollar has risen to almost CNH6.82 in the past two sessions and still trading a little above CNH6.80 today but was sold to nearly CNH6.7755 where is has found new bids.      Europe   The UK's headline CPI accelerated to 10.1% last month from 9.4% in June    It was above market expectations and the Bank of England's forecast for a 9.9% increase.  Although the rise in food prices (2.3% on the month and 12.7% year-over-year) lifted the headline, the core rate, which excludes food, energy, alcohol, and tobacco rose to 6.2% from 5.8% and was also above expectations (median forecast in Bloomberg's survey was for 5.9%).  Producer input prices slowed, posting a 0.1% gain last month for a 22.6% year-over-year pace (24.1% in June).  However, output prices jumped 1.6% after a 1.4% gain in June.  This puts the year-over-year pace at 17.1%, up from 16.4% previously.  The bottom line is that although the UK economy contracted in Q2 and the BOE sees a sustained contraction beginning soon, the market recognize that the monetary policy will continue to tighten.  The market swaps market is fully pricing in a 50 bp hike at the mid-September meeting and is toying with the idea of a larger move (53 bp of tightening is discounted).    What a year of reversals for Germany    After years of pressure from the United States and some allies in Europe, Germany finally nixed the Nord Stream 2 pipeline with Russia.  Putin also got Germany to do something that several American presidents failed to achieve and that is boost is defense sending in line with NATO commitments. The energy crunch manufactured by Russia is forcing Germany to abandon is previous strategy of reducing coal and closing down its nuclear plants.  Ironically, the Greens ae in the coalition government and recognize little choice.  A formal decision on three nuclear plants that were to be shuttered before the end of the year has yet to be made, but reports confirm it is being discussed at the highest levels.     Germany's one-year forward electricity rose by 11% to 530.50 euros a megawatt-hour in the futures market years, a gain of more than 500%     France, whose nuclear plants are key to the regional power grid, is set to be the lowest in decades, according to reports.  France has become a net importer of electricity, while the extreme weather has cut hydropower output and wind generation is below seasonal norms.  The low level of the Rhine also disrupts this important conduit for barges of coal and oil. Starting in October, German households will have a new gas tax (2.4-euro cents per kilowatt hour for natural gas) until 1 April 2024. Economic Minister Habeck estimated that for the average single household the gas tax could be almost 100 euros a month, while a couple would pay around 195 euros.  Also, starting in October, utilities will be able to through to consumers the higher costs associated with the reduction of gas supply from Russia.  This poses upside risk to German inflation.     The euro held technical support near $1.0110 yesterday and is trading quietly today in a narrow (~$1.0150-$1.0185) range today    Yesterday was the first session since July 15 that the euro did not trade above $1.02.  The decline since peaking last week a little shy of $1.0370 has seen the five- and 20-day moving averages converge and could cross today or tomorrow for the first time since late July. We note that the US 2-year premium over German is testing the 2.60% area.  It has not closed below there since July 22.  Sterling held key support at $1.20 yesterday and traded to almost $1.2145 today, which met the (50%) retracement objective of the fall from last week's $1.2275 high.  The next retracement (61.8%) is closer to $1.2175.  The UK reported employment yesterday, CPI today, and retail sales ahead of the weekend.  Retail sales, excluding gasoline have fallen consistently since last July with the exception of October 2021 and June 2022.  Retail sales are expected to have slipped by around 0.3% last month.     America   The Empire State manufacturing August survey on Monday and yesterday's July housing starts pick up a thread first picked up in the July composite PMI, which fell from 52.3 to 47.7 of some abrupt slowing of economic activity  The Empire State survey imploded from 11.1 to -31.3.  Housing starts fell 9.6%, more than four-times the pace expected (median Bloomberg survey -2.1%).  It was small comfort that the June series was revised up 2.4% from initially a 2.0% decline.  The 1.45 mln unit pace is the weakest since February 2021 and is about 9% lower than July 2021.  However, offsetting this has been the strong July jobs report and yesterday' industrial production figures.  The 0.6% was twice the median forecast (Bloomberg's survey) and the June decline (-0.2%) was revised away. The auto sector continues to recover from supply chain disruptions, and this may be distorting typically seasonal patterns.  Sales are rose in June and July, the first back-to-back gain in over a year. To some extent, supply is limiting sales, which would seem to encourage production.  Outside of autos, output slowed (year-over-year) for the third consecutive month in July.     Today's highlights include July retail sales and the FOMC minutes     Retail sales are reported in nominal terms, which means that the 13% drop in the average retail price of gasoline will weigh on the broadest of measures.  However, excluding auto, gasoline, building materials, and food services, the core retail sales will likely rise by around 0.6% after a 0.8% gain in June.  The most important thing than many want to know from the FOMC minutes is where the is bar to another 75 bp rate hike.  The Fed funds futures market has it nearly 50/50.     Canada's July CPI was spot on forecasts for a 0.1% month-over-month increase and a 7.6% year-over-year pace (down from 8.1%)     However, the core rates were firm than average increased.  The market quickly concluded that this increases the likelihood that the central bank that surprised the market with a 100 bp hike last month will lift the target rate by another 75 bp when it meets on September 7.  In fact, the swaps market sees it as a an almost 65% probability, the most since July 20.  Canada reports June retail sales at the end of the week.  The median forecast in Bloomberg's survey is for a 0.4% gain, but even if it is weaker, it is unlikely to offset the firm core inflation readings.     The dollar-bloc currencies are under pressure today, but the Canadian dollar is faring best, off about 0.25% in late morning trading in Europe     The Aussie is off closer to 0.75% and the Kiwi is down around 0.5%.  US equities are softer. The greenback found support near CAD1.2830 and is near CAD1.2880.  Monday and Tuesday's highs were in the CAD1.2930-5 area and a break above there would target CAD1.2985-CAD1.3000.  However, the intraday momentum indicators are overextended, and initial support is seen in the CAD1.2840-60 area. The greenback has forged a shelf near MXN19.81 in recent days.  It has been sold from the MXN20.83 area seen earlier this month.  It has not been above MXN20.05 for the past five sessions.  A move above there, initially targets around MXN20.20.  The JP Morgan Emerging Market Currency Index is off for the third consecutive session. If sustained, it would be the longest losing streak since July 20-22.     Disclaimer   Source: Markets Look for Direction

Germany, the UK, and perhaps Belgium will launch new green bonds this autumn. This jump in supply comes as the greenium on sovereign and SSA curves is shrinking, which we link to worsening liquidity conditions in sovereign bond markets Greenium takes it on the chin in illiquid markets As is the case in many markets, 2022 has proved a bruising year for green bonds. There remains a frustrating heterogeneity in how the greenium trades across sovereign and SSA (Sub-sovereign, Supranational, and Agencies) curves. As we have highlighted in previous reports, we find a greenium, ie a tendency for green bonds to trade with lower yields than their peers, exists on most curves but this hides discrepancies between green bonds within the same curves, and there's no uniform way of pricing greenium from one curve to the next. And yet, ironically, the 2022 market turmoil has, for the first time shown, the beginning of an analytical solution to this green bond pricing conundrum. 2022 has brought a reduction in greeniums, and greater dispersion Source: Refinitiv, ING   The UK, Germany, and in our view Belgium, will soon find themselves in the headlines due to new green bonds issuance. All three have seen their greeniums shrink over the past few months, albeit by varying degrees. As is often the case, some markets bucked that trend, for instance, the Netherlands, but we find this an interesting development nonetheless given the lack of correlation between greeniums, and given the worsening liquidity conditions that have recently characterised markets. Various indicators of market liquidity have gradually worsened this year As regular readers know, we have repeatedly stressed the worsening trading conditions in government bond markets this year, owing to both macroeconomic uncertainties and a change in market structure with central banks stopping their QE programmes and, in some cases, going into reverse. Even in markets where balance sheet reduction isn’t yet a reality, recent comments by ECB officials Isabel Schnabel and Joachim Nagel confirmed that this should be on investors’ radars over the medium term. The upshot is that various market liquidity indicators have gradually worsened this year, with summer trading conditions also adding to existing problems. Finally some explanation for greenium changes That worsening of liquidity conditions and shrinking of sovereign greeniums is more than a mere coincidence. We find that bid-ask spreads and realised volatility, our two proxies for liquidity, have the greatest explanatory power when trying to model the greenium on sovereign and SSA curves. The contribution of each factor varies from issuer to the next but the signs and relevance are consistent. This is a remarkable result given the lack of uniformity in pricing greeniums. For instance, the correlation between each bond’s greenium on the same curve is very weak, and the greenium across curves is also insignificant. Green German bonds seem to be less liquid than their non-green peers Source: Refinitiv, ING   The tendency of the greenium to shrink when liquidity worsens is not a reflection of the liquidity of green bonds specifically, but rather an effect of trading conditions across all bonds on a curve, green or not. We find that green bonds are sometimes more and sometimes less liquid than their non-green peers depending on the curve. In Germany for instance, notably with a ‘managed’ greenium, green bonds aren’t more liquid than their peers, but the reverse is true for KFW, the large German SSA issuer. Higher bid-ask spreads and realised volatility caused a lower German greenium Source: Refinitiv, ING   None of this means liquidity conditions are to blame for the existence of a greenium in the first place. An imbalance between supply (possibly slowing this year, see below) and demand (with green reserve management a new potential driver for future growth) remains the prime suspect. Liquidity is a key driver of day to day greenium changes As an aside, it still doesn’t look like supply has caught up enough for demand for greeniums to disappear, although we can argue that a better balance between the two could have allowed secondary factors to play a more significant role. For now, liquidity is a key driver of day-to-day greenium changes. It is notable that a change in market regime characterised by higher volatility and less generous liquidity conditions has upended the way many markets behave; green bonds are no exception. Masked by volatile Supra issuance, overall EUR denominated SSA ESG supply is still gaining traction Germany and likely Belgium are the next large eurozone sovereign issuers that will become active in the green bond space. Germany has just kicked off investor meetings for the upcoming launch of a new 5Y green bond via syndication which should take place in September. Markets are also still awaiting Belgium’s new green bond which had been flagged in the funding outlook, and given the issuer's typical pattern it also looks likely to come in September. It is anticipated that the new green bond could again be a 15Y following up on the existing 2033 maturity, which was launched in 2018, but also only reopened this month in a small scale. The eventual maturity will probably only be decided after gauging where investor demand lies. Year-to-date EUR sovereign green issuance stands close to €30bn, compared to €35bn In 2021 The two aforementioned deals would likely already constitute close to €10bn of new green EUR sovereign issuance for September.  While alone that's still behind what has been observed in the previous two years, it appears to follow a seasonal pattern where activity notably picks up after the summer. Year-to-date EUR sovereign green issuance stands close to €30bn, only somewhat lower than the €35bn at a similar stage last year and eventually a total of more than €61bn for 2021. But the EUR green sovereign market has only started to mature over the past few years with new major eurozone issuers entering the market with prominent deals, Italy and Spain in 2021 and Austria only this year. EUR sovereign green issuance pattern still marked by prominent deals Source: Debt agencies, ING   Wider sovereign-related and supranational ESG issuance (excluding aforementioned central government bonds) currently stands at nearly €80bn year to date. €112bn had been issued at the same stage last year, and in total eventually more than €150bn. Year-to-date EUR SSA ESG issuance currently stands at €80bn, compared to €112bn in 2021 However, social bond issuance over the course of the pandemic particularly led to some distortion of the headline figure given the prominent role of the EU’s SURE programme. It alone raised close to €92bn over a brief timespan from late 2020 to early 2021. This masks an underlying trend where especially green issuance has steadily increased. The EU is of course also a driver of green issuance - we've had the NGEU since last year. That should last longer than the SURE programme,  The EU issued €50bn for the NGEU in the first half of 2022 and has flagged another €50bn for the second. Of the amount issued so far €16bn has been in green bonds, thus slightly more than 32%. This is slightly ahead of the 30% which the EU has still flagged as a funding share for green bonds.  EUR denominated SSA ESG issuance Source: ING   There's a chance that this year's green sovereign and SSA issuance will outweigh that of previous years but it seems the phase of rapid acceleration seems to be over. Lower, or at least slower growth in supply comes as greeniums shrink and display greater volatility. There is still a case to be made for demand exceeding supply in the long run but the past few months have proven that general market conditions matter. In phases of low market liquidity, a steady greenium can no longer be taken for granted. Read this article on THINK TagsInterest Rates Green Bonds 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 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

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

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

The list of arguments why the German economy is sliding into recession is getting ever longer. The question isn't about whether there'll be a recession but rather how severe and how long it will be Germany Economy Minister, Robert Habeck, speaking about energy at a news conference in Berlin yesterday   Germany’s most prominent leading indicator, the Ifo index, just dropped for the third month in a row, coming in at 88.5 in August, from 88.7 in July. This is the lowest level since June 2020. The positive interpretation is that the weakening of the Ifo index is slowing down. The negative interpretation is obviously that no improvement is currently in sight. Expectations remain close to their all-time lows and were only worse in December 2018 and April 2020. Earlier this morning, the details of German GDP growth in the second quarter brought some positive surprises. Growth was slightly revised upwards to 0.1% Quarter-on-Quarter, from zero in the first estimate, which finally brought the German economy back to its pre-crisis level. Private consumption surprised to the upside (+0.8% QoQ) and even more importantly was revised upwards significantly in the first quarter to +0.8% QoQ, from initially -0.1% QoQ. It was net exports and the construction sector which weighed on economic activity in the second quarter. Ifo index provides more recession evidence Looking ahead, however, it is hard to see private consumption holding up when inflation is high, energy invoices will be doubling or tripling in the coming months and consumer confidence is at all-time lows. Tuesday’s PMI readings already suggested that the economy is in contraction territory and we are afraid that this time around the indicators are right. The Germany economy is quicky approaching a perfect storm In fact, the German economy is quickly approaching a perfect storm. The war in Ukraine has probably marked the end of Germany’s very successful economic business model: importing cheap (Russian) energy and input goods, while exporting high-quality products to the world, benefitting from globalisation. The country is now in the middle of a complete overhaul, accelerating the green transition, restructuring supply chains, and preparing for a less globalised world. And these things come on top of well-known long-standing issues, such as a lack of digitalisation, ageing infrastructure, and an ageing society, to mention a few. In the coming weeks and months, these longer-term changes will be overshadowed by shorter-term problems: high inflation, possible energy supply disruptions, and ongoing supply chain frictions. In recent weeks, these shorter-term problems have become larger as low water levels and the new gas levy have added to inflation and recession concerns. There are some upsides. Surprisingly strong consumer spending in the first half of the year is one. The fact that the filling of the national gas reserves is actually ahead of schedule is another. Gas reserves are currently back to their average levels of 2016-2021. However, it remains far from certain whether gas reserves at 95% in November, as targeted by the government, can get energy consumption through an entire winter without Russian gas. There are simply too many unknowns like the severity of the winter season and the potential reductions in gas consumption by households and corporates. In any case, even without an energy supply disruption, the economy would be facing high energy costs. This alone, combined with the disruption from the low water levels for industry, ongoing geopolitical uncertainty and supply chain frictions, should be enough to push the German economy into a winter recession. Today’s Ifo index adds to the long list of evidence that the German economy is sliding into a winter recession. The question no longer seems to be if it will be a recession. The only question is how severe and how long that  recession will be. Read this article on THINK TagsIfo index Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Industrial orders continued their downward trend in July. Concerns about growth in German industry are increasing by the month German data probably don't make economists happy At the start of the year, German industrial order books were richly filled and provided decent anti-recession insurance. Since the start of the Ukraine war, however, this insurance has lessened by the month. Monthly industrial orders have been dropping since February and the latest release is, unfortunately, no exception. In July, German industrial orders dropped by 1.1% month-on-month, from -0.3% MoM in June. On the year, orders were down by almost 14%; although admittedly the July 2021 numbers were exceptionally strong due to major orders. Domestic new orders as well as orders from other eurozone countries were down significantly. The only silver lining was the monthly increase in new orders from non-eurozone countries. Shrinking order books add to current recession fears. With surging energy prices and fading new orders, the outlook for the German industry is anything but rosy. Read this article on THINK TagsIndustrial propduction Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Production in the construction sector prevented industrial activity from falling further in July. At the same time, high energy prices are leaving their mark on German industry   Is this the first gust of wind preluding a perfect storm? In July 2022, production in industry in real terms was down by 0.3% on the previous month on a price, seasonally and calendar adjusted basis, from an upwardly revised 0.8% MoM in June. On the year, industrial production was down by 1.1%. According to the statistical office, the relatively small number of school holidays and holiday leave prevented an even larger decrease in production compared with July last year. On the month, production in industry, excluding energy and construction, was down by 1.0%. Outside industry, energy production in July was up by 2.8% and production in construction by 1.4% from the previous month. Compared with developments in the second quarter, industrial production is down, while the construction sector shows some resilience. High energy prices have become biggest concern German industry is clearly suffering from disrupted supply chains on the back of the war in Ukraine, the aftermath of pre-summer lockdowns in China, low water levels in the main rivers and increasingly, higher energy prices. The statistical office released additional data showing that production in the energy-intensive industrial segments declined by more than the broader industry (-1.9% year-on-year). Production in this area has dropped by 6.9% since February 2022. For Germany’s industrial backbone, small and medium-sized enterprises, higher energy prices look like a ticking time bomb. With ongoing pressure on consumers’ disposable incomes, companies’ pricing power is fading. In this regard, it is remarkable that the government’s third relief package presented on Sunday provided only very limited support for this segment of the economy. Looking ahead, shrinking order books since the start of the Ukraine war, the well-known supply chain problems (both international and domestic) plus high uncertainty, high energy and commodity prices and potential energy supply disruptions will not make life any easier. Judging from the first macro data for the third quarter, the German economy has not fallen off a cliff at the start of the third quarter but is rather sliding into recession. Read this article on THINK TagsIndustrial propduction Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

At the start of the year, we singled out the German economy as one of the eurozone’s shining growth stars. The war in Ukraine has changed everything. Recession is the new base case In this article Low water levels Gas levy and high energy prices Recession has become inevitable The German economy is quickly approaching a perfect storm. The war in Ukraine has probably marked the end of Germany’s very successful economic business model: importing cheap (Russian) energy and input goods, while exporting high-quality products to the world, benefitting from globalisation. The country is now in the middle of a complete overhaul, accelerating the green transition, restructuring supply chains, and preparing for a less globalised world. And these things come on top of well-known long-standing issues, such as a lack of digitalisation, tired infrastructure, and an ageing society, to mention a few. In the coming weeks and months, these longer-term changes will be overshadowed by shorter-term problems: high inflation, possible energy supply disruptions, and ongoing supply chain frictions. Last but not least, since the summer the shorter-term problems have become larger as low water levels and a new gas levy have added to inflation and recession concerns. Low water levels Like many parts of Europe, Germany has been hit by a long, unprecedented drought. Water levels have been dropping continuously over the summer and last week. Barges can no longer be loaded at full capacity but at a maximum of one-third and some routes will be cancelled. But there's more: industry facilities on the Rhine River shores will increasingly have problems using water for cooling. Back in 2018, low water levels shaved off some 0.3 percentage points of German GDP growth over two quarters. However, back then, the low water period only came in late September. This time around, low water levels have come earlier and there is little rain relief in sight. To make things worse, waterways are essential for coal transportation, which in turn is needed to offset less gas from Russia. This means that unless the weather brings any substantial relief, the low water levels will do more economic harm than in 2018. We expect the low water levels to shave off at least 0.5 percentage points of GDP growth in the second half of the year. Gas levy and high energy prices The German government announced a gas levy for households and businesses, which will come into effect in October. This levy is meant to cover the additional costs incurred by gas providers, as higher wholesale gas prices couldn’t be passed through to consumers. Almost half of all German households are heated using gas and it remains an important energy source for industry. According to government estimates, the levy will lead to an additional cost of around 500 euros per year for a four-person household. However, don’t forget that next winter, energy providers will be able to pass through higher energy prices to consumers as they can adjust prices once a year. Households and corporates will be facing energy bills two to four times that of recent years. The government is currently discussing additional compensation measures for lower-income households, possibly an increase in child benefits, income tax reductions or direct financial support. Recession has become inevitable An economic recession in Germany was already our base-case scenario at the start of the summer, due to high energy and commodity prices, ongoing supply chain frictions, and the war in Ukraine. With these latest developments, the question is no longer whether the economy will enter a recession; the only question is how deep it will be.         Germany   Source: https://think.ing.com/articles/monthly-euro-focus-germany-is-facing-a-perfect-storm/?utm_campaign=September-01_monthly-euro-focus-germany-is-facing-a-perfect-storm&utm_medium=email&utm_source=emailing_article&M_BT=1124162492 Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Inflation in Germany continues its hike far beyond the charts. The deceleration of the monthly price growth rate in May and June proved deceptive, followed by a surge of 5.3% for July and 7.9% for August. The annual rate of producer price growth soared to 45.8% from 37.2% a month earlier, contrasting with the expected slowdown to 37.1%. However, over the last couple of months, the ECB's stance has drastically changed from trying to "talk up inflation" to unprecedented (for euro-area history) rate hikes of 50 and then 75 points over the last two meetings. From a currency market perspective, high inflation figures are not weighing on the euro but can support it, as the ECB has moved on from contemplation to data-driven moves. Read next: The Global Household Wealth Report, A Hacking Attack And More| FXMAG.COM The euro cannot yet boast of the same reaction to the inflation reports as the dollar did a week earlier. However, the EURUSD closed the previous four sessions with gains, mainly benefiting from the demand during the New York trading session. The pair appears to have decided to stay close to parity, finding support for the third consecutive month of declines. However, breaking the downtrend now requires more than just technique, but a lower rate hike in the US and a simultaneous acceleration in Europe.

Today, mainly important reports from the United States will appear. The report on inflation and the number of requests for unemployment insurance may significantly affect traders and give a picture of the condition of the US economy. On the old continent, we will mainly focus on the result of the German CPI. German CPI The monthly change and the annual consumer price index met expectations. The monthly change in the German CPI reached 1.9% and rose from 0.3%. Similarly, there was an increase in the annual change of the CPI from the level of 7.9% to the level of 10.0%. Switzerland Producer Price Index There were no forecasts for the Switzerland Producer Price Index. The monthly price of the change in the price of goods sold by manufacturers rose from -0.1% to 0.2%. After weak readings in July and August, this is a positive signal for this sector. On the other hand, the PPI YoY fell by 0.1%, thus reaching the level of 5.4%. BOE Credit Conditions Survey The Bank of England (BoE) will published the results of their Credit Conditions Survey for Q3, 2022. The bank conducts such research every quarter. As part of the Bank of England mission to maintain monetary and financial stability, the bank conducts research to understand credit trends and changes. Today's quarterly survey of construction banks and lenders contributes to this work. The survey covers: Secured and unsecured loans to households. Loans for non-financial corporations, small businesses and non-bank financial companies. Speeches of the day At 8:00 CET the first speech of the day was the speech from Germany. The speaker was President Nagel. He is also voting member of the ECB Governing Council. He's believed to be one of the most influential members of the council. For this reason, his speech may significantly affect the monetary situation of the euro zone. The next speech will be from the Bank of England which is set at 13:00 CET. Dr Catherine L Mann serves as a member of the Monetary Policy Committee (MPC) of the Bank of England. Her public engagements are often used to drop subtle clues regarding future monetary policy. US Core CPI The Core Consumer Price Index (CPI) measures the changes in the price of goods and services, excluding food and energy. The current reading of the indicator is expected to decline by 0.1% to 0.5%. The previous reading was at 0.6% and it was an increase from the July drop (0.3%). On the other hand, the annual change in the index is forecasted at 6.5%. And it may mean an increase from the level of 6.3%. US CPI Today the US inflation report will be published. This report can significantly impact the foreign exchange market. Read more about forecasts for the current level: https://www.fxmag.com/forex/inflation-report-ahead-what-might-it-look-like-in-the-united-states-u-s-cpi US Initial Jobless Claims There will also be a weekly report on the number of unemployment insurance applications today. The previous reading was negative as it rose to a higher level than expected. Current forecasts show a further increase in this number from 219K to 225K. The expected further negative results in a row may translate into deterioration of the economy in this sector. Crude Oil Inventories The weekly report about change in the number of barrels of commercial crude oil held by US firms will be published at 17:00 CET. Forecasts for this period show an increase from -1.356M to 1.750M. The increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices. Summary 8:00 CET German Buba President Nagel Speaks 8:00 CET German CPI (YoY) (Sep) 8:00 CET German CPI (MoM) (Sep) 8:30 CET Switzerland PPI (MoM) (Sep) 10:30 CET BOE Credit Conditions Survey 13:00 CET BoE MPC Member Mann 14:30 CET US Core CPI (MoM) (Sep) 14:30 CET US Core CPI (YoY) (Sep) 14:30 CET US CPI (MoM) (Sep) 14:30 CET US CPI (YoY) (Sep) 14:30 CET US Initial Jobless Claims 17:00 CET Crude Oil Inventories Source: https://www.investing.com/economic-calendar/

Summary: Q3 GDP for Europe's largest economy came in higher than expected. The German economy is now predicted to contract by 0.3% in 2023. The initial market reaction in the wake of the release of this data. German QoQ, YoY GDP figures Both the QoQ and YoY Q3 GDP for Europe's largest economy came in higher than expected, beating market expectations. The QoQ reading for German inflation in Q3 came in at 0.3%, beating the market forecast of 0.2%. Q3 YoY GDP, which was originally forecasted at 0.7%, came in at 1.1%. According to a prediction from the Ifo Institute in Munich, the German economy will decrease in 2023, primarily as a result of rising inflation eating away at private consumer spending. According to a statement released by the research firm on Monday, the biggest economy in Europe is now predicted to contract by 0.3% in 2023 rather than grow by an expected 1.6% in 2022. As energy suppliers raise prices to offset rising procurement costs brought on by decreasing Russian gas supplies, inflation is expected to increase to 9.3% in 2023, with the number peaking at about 11% in the first quarter in particular. Despite the GDP reading, which in theory should indicate bullish signals for the German economy, when compared to Ifo's previous prediction, the forecast is "much" lower. While inflation expectations were elevated by 6 percentage points, real GDP estimates were reduced by 4 percentage points. According to Ifo, the German economy will be primarily driven by manufacturing in the ensuing quarters as ongoing supply chain restrictions start to loosen as a result of slowing global growth. An increase in interest rates will also increase the cost of financing for enterprises in the construction industry, which will have an adverse effect on the sector as a whole. Initial market reaction The initial market reaction for the EUR/GBP currency pair saw the Euro weaken against the GBP, and the EUR/USD currency pair also weakened below parity, The DAX Index also dropped in the wake of the release of the GDP data. According to Ifo, the German economy won't "return to normal" until 2024, when growth will be 1.8% and inflation will be 2.5%. Ifo identified a number of risks to its prediction, including changes in energy prices, issues with the supply chain, and limitations on public life brought on by a projected rise in Covid-19 cases. Sources: investing.com

Summary: In the most drastic layoff in company history, Meta has fired almost 11,000 workers. No major market shifts are expected in the wake of US midterm elections. Germany should think about raising taxes on the wealthiest citizens. Meta implemented its most drastic layoff in its history In the most drastic layoff in company history, Meta has fired almost 11,000 workers, cutting its employment by around 13% as it fights declining revenue and escalating competition. Employees were notified of the layoffs through email on Wednesday morning by CEO Mark Zuckerberg. “I want to take accountability for these decisions and for how we got here. I know this is tough for everyone, and I’m especially sorry to those impacted,” he added. Current economic climate weighing on tech companies In a climate of economic slump and greater competition, Zuckerberg claimed that revenue growth experienced during the epidemic had not been sustained, advertising performance was down, and e-commerce had decreased. There is no cap on the 16 weeks of basic salary and two additional weeks of compensation that US employees will receive as part of their severance package. The email also stated that overseas employees' packages would be comparable and would be announced soon. Except for email, affected employees' access to Meta systems will be terminated on Wednesday "so everyone can say farewell," according to Zuckerberg. On Wednesday, Meta stock increased 3% in pre-market trading. Reducing budgets and personnel benefits are two further cost-saving strategies, it was said. The company's "real estate footprint" will "shrink," presumably resulting in the closure of a few offices. The majority of the remote-working staff will be asked to desk share. In the upcoming months, more improvements, according to Zuckerberg, will be disclosed. *META IS LAYING OFF 11,000 EMPLOYEES, ABOUT 13% OF THEIR WORKFORCE$META pic.twitter.com/Ego722RjCR — Investing.com (@Investingcom) November 9, 2022 US midterm elections are not expected to shift the markets majorly Wall Street experts predict that the markets won't experience a significant shift after the much anticipated completion of the midterm elections. A bullish tilt in the market is justified, according to historical evidence, in the month before the midterm elections. According to data from US Bank, the S&P 500 has historically outpaced the market in the twelve months following a midterm election, returning an average of 16.3%. Particularly for the one and three months following midterm elections, this outperformance is present. However, investing experts may be right to be ready for a post-election hangover in the stock market given that the economy is still coping with high levels of inflation and an unfriendly Federal Reserve rising interest rates. "You've got to think about some of these big challenges that we have," Roland explained. "The economy is clearly decelerating right now. We're contending with inflation. I think the inflation data that we get on Thursday is probably much more important than the political backdrop right now. So we want to be careful about sort of overplaying politics and making cross-asset decisions right now." Why the stock market may see minimal impact from the midterm elections https://t.co/hK6PJvE86V by @BrianSozzi $DJI $GSPC $IXIC — Yahoo Finance (@YahooFinance) November 9, 2022 Germany suggested to raise taxes on wealthy citizens As part of its €200 billion plan to restrict gas and electricity prices, Germany should think about raising taxes on the wealthiest citizens, a committee of top economic advisers to the government said on Wednesday. One of the five members of Germany's council of economic experts, Ulrike Malmendier, stated that the nation should "look at the more uncomfortable side" of how to finance its energy assistance program because it cannot simply benefit the most vulnerable. She stated that the council had proposed three solutions to this problem, including hiking the top tax rate, enacting a "solidarity fee" on high earnings, or delaying the government's plan to lower tax rates to protect households from skyrocketing inflation. The council's suggestions on tax policy are likely to spark a heated discussion inside the ruling coalition, which has eight weeks to issue a formal response. Germany should raise taxes on rich to fund €200bn energy plan, advisers say https://t.co/aMx9wS0EEP — Financial Times (@FT) November 9, 2022 Sources: finance.yahoo.com, ft.com, twitter.com

It is busy day. Reports will be from many economies CPI from European countries and PPI from America. And also Asian countries shared their GDP and Industrial Production reports. Japan GDP Events on the global market started with the publication of GDP in Japan. The results turned out to be negative. GDP fell from 1.1% to -0.3% quarter on quarter, while GDP y/y fell even more sharply, from 4.6% to -1.2%. Both results were below zero, which proves that the recession is starting in this country. RBA Meeting Minutes From Australia came a summary of the economic situation, i.e. Minutes of the Monetary Policy Meeting of the Reserve Bank Board. Members commenced their discussion of international economic developments by observing that inflation abroad. Members also noted that Australian financial markets had followed global trends. Such a summary can help to assess the condition of the country and its sub-sectors and determine next steps. Industrial Production in China and Japan China and Japan have published reports on their Industrial Production. Comparing October this year to October last year, a decrease was recorded in China. The current Industrial Production level was 5.0%, down 1.3% from the previous reading. In Japan there was also a decline, but in Industrial Production M/M. The indicator fell from 3.4% to -1.7%. Which means that the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities has dropped drastically. This is a consequence of high inflation and, as far as China is concerned, the fight against the Covid pandemic. UK data The UK released the reports at 9am CET. Two of them were positive. Only the unemployment rate turned out to be negative as it increased slightly from 3.5% to 3.6%. The change in the number of unemployed people in the U.K. during the reported month fell. U.K. Claimant Count Change dropped from 3.9K to 3.3K. This may turn out to be a slight decrease, but in the face of the forecasts of 17.3K, it turns out to be very optimistic. Average Earnings Index +Bonus, although it fell from 6.1% to 6.0%, is a positive reading as it was expected to fall to 5.9%. Which may mean that despite the forecasts, the decline is milder and personal income growth during the given month was only slightly lower, which is good news for households. CPI Two Western European countries, France and Spain, published data on CPI. In France, CPI y/y increased from 5.0% to 6.2%. The opposite was the case in Spain where consumer inflation fell from 8.9% to 7.3%, moreover meeting expectations. Despite high inflation, which is still higher than the expected level of 2%, these European countries, can be said, are doing well and their economies are not facing recession. Speeches Today's attention-grabbing speeches will be from the German Bundesbank. The first one took place at 10:00 CET, and the speaker was Dr. Sabine Mauderer. The next speeches will take place in the second half of the day at 16:00 CET. The speakers will be: German Bundesbank Vice President Buch and Burkhard Balz ZEW Economic Sentiment Economic sentiment in Germany rose once again. Currently, they have risen to the level of -36.7. Previously, they rose from -61.0 to 59.2. Although ZEW have increased but are still below zero, which means that the general mood is pessimistic US PPI The most important event of the day is the result of inflation from the producer side in the US, i.e. U.S. Producer Price Index (PPI). The previous level of 0.4% is expected to hold. This may mean that from the producers' point of view, the situation in price changes tends to stabilise, which may have a positive impact on the dollar as well as on the US economy in general. Canadian data Canada will release its Manufacturing Sales and Wholesale Sales reports at 15:30 CET. Both are expected to be below zero. Manufacturing Sales is projected to increase from -2.0% to -0.5%. This means that progress in this sector is expected. The wholesale sales level is forecasted at -0.2% vs. the previous 1.4%. Summary 1:50 CET Japan GDP (Q3) 2:30 CET RBA Meeting Minutes 4:00 CET China Industrial Production (YoY) 6:30 CET Japan Industrial Production (MoM) (Sep) 9:00 CET UK Average Earnings Index +Bonus (Sep) 9:00 CET UK Claimant Count Change (Oct) 9:00 CET UK Unemployment Rate (Sep) 9:45 CET French CPI 10:00 CET German Buba Mauderer Speaks 10:00 CET Spanish CPI 12:00 CET German ZEW Economic Sentiment (Nov) 12:00 CET EU ZEW Economic Sentiment (Nov) 15:30 CET US PPI (MoM) (Oct) 15:30 CET Canada Manufacturing Sales (MoM) (Sep) 16:00 CET German Buba Balz Speaks 16:00 CET German Buba Vice President Buch Speaks Source: https://www.investing.com/economic-calendar/

Germany is reportedly taking emergency measures in case of power outages this winter. One of them is the accumulation of billions of euros by the Bundesbank German Central Bank, which will be helpful if there is a bank run. Also among the options is the ability to set limits on withdrawals. Government officials said there was little risk of blackouts this winter, but earlier this year the head of the country's energy regulator warned that without significant reductions in gas consumption, the situation could become quite bleak. "We are unlikely to avoid a gas accident in winter without saving at least 20% in the private, commercial and industrial sectors," Klaus Muller said last month. "The situation could become very serious if we do not significantly reduce gas consumption." Reducing consumption is already difficult, but as winter approaches and heating demand increases, it will become even more difficult. This is why many citizens are now attending training courses on what to do in the event of a power outage. Authorities are worried that they will run into local banks, which is exactly what happened when the coronavirus pandemic began in 2020. Back then, they withdrew 20 billion euros more than they invested. Thus, banks are preparing for the possibility of a repeat of those days and are considering restrictions on cash withdrawals to prevent cash leakage. According to financial regulators, the country's banks are currently underprepared for major power outages. A recent survey in Germany showed that about 40% of people expect such a shutdown within the next six months.     Relevance up to 09:00 2022-11-21 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/327276

A regional wage agreement in Baden-Wuerttemberg yesterday will pave the way for broader wage developments and shows the European Central Bank that second-round effects will kick in next year but should be dampened Last night, employers and unions in the metal and electronics industry in Baden-Wuerttemberg reached a new wage agreement. Wages will be increased by 5.2% in June 2023 and by 3.3% in May 2024. There will also be a one-off payment of €3,000, exactly the amount the German government had offered to exempt from tax and social security contributions. While this is "only" a regional wage agreement, it will have knock-on effects on other regional and sectoral wage negotiations. Almost four million people in Germany work in the metal and electronics industry. Traditionally, there has been a lot of attention on German wage settlements across the eurozone. The takeaway for German wage developments and the risk of second-round effects is that last night's deal shows what a compromise can look like. It won’t be enough to fully offset the drop in purchasing power caused by higher inflation, but it softens the damage. For the ECB, it signals that second-round effects remain dampened and that a lower, subdued inflationary pressure can last for longer than markets currently 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

Summary:  Today we look through key markets for the technical lay of the land, from the US and German equity markets to gold, US yields. We also note a very heavy crude oil market, with cycle support possibly coming into play in the days ahead. Elsewhere, we dive into some examples of the enormous rise in options trading and note the background risk this brings to the market, regardless of whether today's massive options expiry in the US on over $2 trillion in underlying assets proves a non-event. Today's pod features Saxo Technical Strategist Kim Cramer Larsson, with John J. Hardy hosting and on FX. Listen to today’s podcast - slides are available via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: https://www.home.saxo/content/articles/podcast/podcast-nov-18-2022-18112022

Europe is facing an energy crisis, rampant inflation and a clear economic slowdown. Germany as the main and largest economy in Europe and the European Union attracts the attention of not only tourists but also investors. General outlook A drop in energy imports from Russia after the invasion of Ukraine sent energy prices soaring in Germany, driving inflation to its highest level in more than 25 years, while fueling fears of a potential gas shortage this winter, even with storage facilities nearly full. All leading indicators point to a further weakening of the economy in the fourth quarter, with no improvement in sight. The prices of consumer goods and services are rising at a double-digit rate in Germany, according to the latest data from the local statistical office. CPI inflation rose to 10.4% in October, exceeding economists' forecasts. Inflationary pressures actually extend throughout the economy. The almost record high inflation in Germany, as in the whole of Europe, was to a large extent caused by a sharp increase in fuel and energy prices (by 43% y/y against 43.9% in September and 35.6% in August). Food prices also accelerated (to 20.3% against 18.7%). Prices of services increased even faster than in previous months (4.0% against 3.6%). In addition, the pressure on price increases was reduced by the reduction of the VAT rate on gas from 19% to 7%. October flash PMIs for Germany are worse than market expectations. Manufacturing PMI falls to 45.1 in October, lowest since May 2020. Manufacturers saw a deepening decline in new orders due to growing concerns about the economic outlook and high energy costs. Any result below 50 points (neutral level) suggests a recession of the economy. PMI indices show what GDP may look like soon. The economy continued to thrive despite challenging global economic conditions: broken supply chains, rising prices and war in Ukraine. GDP forecast The German economy can surprise GDP growth in the third quarter. However, this does not mean that the country will avoid a recession. Estimate of third-quarter German GDP growth came in at 0.3% quarter-on-quarter, from 0.1% QoQ in the second quarter. It is too early to be optimistic about the country's economic prospects next year, despite the expected GDP growth. The official results will be published on Friday, 25 November. Source: investing.com Recession? Despite not the best forecasts, Germany defends itself against a decline in GDP. This does not mean that the country will avoid recession in the future. Even though the weather has brought some relief to the German economy as rainfall has raised water levels and warm October weather has delayed the start of the heating season, a gradual recession continues. Businesses and households are increasingly suffering from higher energy bills and persistently high inflation adjusting consumption and investment. The war in Ukraine probably marked the end of a very successful German business model: importing cheap (Russian) energy and raw materials, while exporting high-quality products to the world, benefiting from globalization. The country is now forced to accelerate its green transition, restructure its supply chains and prepare for a less globalized world. Such a change can be time-consuming and moreover generate more costs. A sharp decline in German production will help drag the EU into recession this winter. Production across the EU is expected to fall in the current quarter and the first three months of 2023, with Germany experiencing one of the largest drops in activity. Production is important for the German economy and its decline has a significant impact on the economic situation. Source: investing.com

The strong improvement of the Ifo index adds to recent glimmers of hope. However, this simply reflects a stabilisation at low levels and there is no reason to change the recession call, yet. The sheer fact that things are no longer getting worse doesn't mean that improvement is around the corner iStock     Germany’s most prominent leading indicator, the Ifo index, staged a strong rebound, increasing to 86.3 in November, from 84.5 in October. While the current assessment component continued to weaken, expectations improved significantly to 80.0, from 75.9 in October. This Ifo index reading shows that hope is back, even if the current situation is deteriorating further. Glimmer of hopes come too early Today's Ifo index adds to recent glimmers of hope that the German economy might avoid a winter recession. These hopes are built on the back of several government stimulus packages, filled national gas reserves, a better and faster adaption of businesses and households to reduce gas consumption, and hopes that consumers will simply spend away the energy crisis. However, the downsides still outweigh the upsides: new orders have dropped since February and inventories have started to increase again, a combination that never bodes well for future industrial production. Despite some relief in global supply chain frictions, early leading indicators from Taiwan and Korea point to a weakening of global trade in the winter. High energy prices are gradually being passed through to consumers, therefore gradually weighing on private consumption.   The government’s fiscal stimulus, currently amounting to some 2% of GDP, will come too late to prevent the economy from contracting in the fourth quarter. However, it is substantial enough to cushion the contraction and to turn a severe winter recession into a shallow one. The next question will be whether the economy can actually avoid a double dip in the winter of 2023/24. Currently, many official forecasts expect the German economy to return to average quarterly growth rates by mid-2023. We are more cautious and think that the series of structural changes and adjustments will keep the recovery subdued, with a high risk of a double dip. For now, the winter of 2023/24 is still far away. This year’s winter has just started, and a few warm November weeks do not automatically make for a warm season. Today’s Ifo index gives hope for some stabilisation, nothing more, nothing less. Stabilisation is clearly not the same as a significant improvement. Returning to recent optimism, it is tempting to revive soccernomics: a 1-0 lead and a decent performance for 65 minutes can unfortunately still end in a 1-2 defeat. Not all optimism leads to success. At the current juncture and despite today's encouraging Ifo index reading, the question is what is more likely: the German economy avoiding recession or the German national football team still making it into the next round. We wouldn’t put much money on either of the two. TagsIfo index Germany Eurozone   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The end of the week is quiet due to America's lack of activity due to Thanksgiving. The market's attention will be focused mainly on the Asian and European markets. Today, an important report turns out to be the result of the German GDP. Tokyo CPI At the beginning of today, Japan, and more specifically Tokyo, published its inflation report. In this city, Core CPI increased from 3.4% to 3.6% and it was a higher than expected reading (3.5%). The upward trend of this indicator has been going on since the beginning of May, but since May Core CPI has been above 1.0%. Also CPI increased significantly from 3.5% to 3.8%. The consumer price index only in Tokyo excluding fresh food and energy prices held its previous level of 0.2%. In this city, the rate peaked this year in May (0.4%), and then fell twice. After that, from July to September it held the level of 0.3%. Singapore Industrial Production Singapore Industrial Production MoM increased significantly. Comparing October to September, the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities was 0.9%, which is a good result as another decline was expected. The same index comparing the result from October 22 to October 21 has fallen. The fall was expected. The current reading is -0.8%, it is the first result in a year that was below zero, but it was higher than the expected -0.9%. This means that the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities has decreased significantly, but not as much as expected. Source: investing.com German GDP In Germany, both the quarterly and annual change in gross domestic product turned out to be a positive surprise. GDP Q3 YoY was 1.2%. Unfortunately, it was a decrease in comparison to the previous period, the reading of which was at the level of 1.8%. This time it was expected to score 0.1% lower. A very positive result for the German economy as well as for the euro zone turns out to be the reading of GDP Q3 q/q. The index increased by 0.3% compared to the previous period and reached the level of 0.4%. An increase to 0.3% was expected, but the result higher than expected may raise some optimism. German GDP figures show the country’s economy has grown slightly more in the third quarter than anticipated on the back of consumer spending. Switzerland Employment Level The Employment Level measures the number of people employed during the previous quarter. As the current reading shows, the exemplary trend is successively maintained. Employment increased this time to the level of 5,362M. The previous reading was about 46M than (5,316M). Such results show the good condition of the economy, because employment increases household income, and thus these households are able to spend more, which drives the economy because money remains in constant circulation. ECB’s speeches Markets expect only two speeches at the end of the week, and this time only from the European Central Bank (ECB). The first speeches took place at 9:50 CET. The European Central Bank Supervisory Board Member Kerstin af Jochnick spoke. The second and final speech of the day will take place at 18:00 CET, with Luis de Guindos, Vice-President of the European Central Bank The speeches of the ECB's officials often contain references to possible future monetary policy objectives, assessments and measures. What's more, statements can give strength to the euro (EUR), or set it in the opposite direction. Summary: 0:30 CET Tokyo CPI 0:30 CET CPI Tokyo Ex Food and Energy (MoM) (Nov) 6:00 CET Singapore Industrial Production MoM 8:00 CET German GDP (Q3) 8:30 CET Switzerland Employment Level 9:50 CET ECB's Supervisory Board Member Jochnick Speaks 18:00 CET ECB's De Guindos Speaks Source: https://www.investing.com/economic-calendar/

Industrial production adds to evidence that the gradual slide into recession continued at the start of the final quarter of the year   German industrial production, excluding construction and energy, decreased by 0.4% month-on-month in October. On the year, industrial production was up by 0.8%. Production in the energy-intensive sectors, however, dropped by 3.6% MoM and is now down by almost 13% compared with October last year. Global supply chain frictions as well as the cooling of global demand continue to weigh on German industry. On the upside, activity in the construction sector grew by 4.2% MoM. However, don’t forget that industrial production is still below its pre-pandemic level. Weak start to the final quarter Today's industrial production data is the final part of the entire batch of hard October macro data. And despite recent glimmers of hope, as illustrated by an uptick in the Ifo index and the PMI, the verdict at the start of the final quarter is clear: the German economy has not fallen off a cliff but continues its long slide into recession. Retail sales were down sharply, exports were down and industrial production was down; activity in the construction sector was the only growth driver. Admittedly, there have been some positive developments: several government stimulus packages, filled national gas reserves, a better and faster adaption of businesses and households to reduce gas consumption, and hopes that consumers will simply spend away the energy crisis. However, the downsides still outweigh the upsides: new orders have dropped by almost 15% since the start of the year and inventories have started to increase again after the summer, a combination that never bodes well for future industrial production. Despite some relief in global supply chain frictions, early leading indicators from Taiwan and Korea point to a weakening of global trade in the winter. High energy prices are gradually being passed through to consumers, therefore gradually weighing on private consumption.   The government’s fiscal stimulus is substantial enough to cushion the contraction and to turn a severe winter recession into a shallow one. The next question will be whether the economy can actually avoid a double dip in the winter of 2023/24. Currently, many official forecasts expect the German economy to return to average quarterly growth rates by mid-2023. We are more cautious and think that the series of structural changes and adjustments will keep the recovery subdued, with a high risk of a double dip. Today’s industrial production data has two messages: German industry, excluding energy-intensive sectors, is more resilient than some pessimists had thought but at the same time, the gradual slide into recession still looks unavoidable. Read this article on THINK TagsIndustrial propduction Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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

Germany's business sentiment index rose in December for the third month, returning to August levels on the back of more optimistic expectations, while assessment of the current situation has improved just slightly. Ifo Business Climate Index for Germany jumped from 86.4 to 88.6 in December, better than the 87.6 expected. In a commentary on the publication, the President of the ifo Institute notes that “business is entering the holiday season with a sense of hope”. Market participants closely follow the Ifo index because of its strong predictive power for the economy. But even more interesting is that the strong reversal from decline to growth coincided with the turnaround in the German indices. The rise in German business sentiment may also be good news for EURUSD buyers. In 2020 and 2009, EURUSD accompanied the index’s recovery for the first several months. However, breaking the multi-year downtrend may take a significant fundamental change, which is too early to tell. The EURUSD appears locally tired after its two-and-a-half-month rally and in a tactically overbought condition. The Euro has been losing ground against the USD during the last two trading sessions, retracing from 1.0730 to 1.0600. Still, it is the only major currency that has managed to break above the 200-day MA, which many consider a technical change in the long-term trend. Read next: Russian Drones Attacked Kyiv Again | Most respondents do not want Musk| FXMAG.COM The bullish trend in the single currency might continue if the ECB's decisiveness in fighting inflation does not negatively impact business sentiment.

Citing a survey conducted by the Federation of German Industries (BDI) and the Association of German Chambers of Industry and Commerce (DIHK), Reuters reported that Germany’s firms brace for a mild recession in 2023 even though supply chain disruptions were expected to gradually ease. BDI’s President Siegfried Russwurm said, "The last quarter of 2022 and the start of 2023 are likely to be accompanied by a decline in economic activity. However, we expect only a slight slump." Meanwhile, DIHK President Peter Adrian noted, "Freight rates for container prices are approaching long-term normal values again, and the congestion outside international ports is slowly easing.” "If the announced relaxations of China's zero-COVID policy are implemented, it would also be a positive signal for global supply chains," Adrian added. Market reaction The above comments have little to no impact on the Euro, as EUR/USD is keeping its range at around 1.0650, still adding 0.18% on the day.

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

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

Exports continue to weaken, suggesting that recession fears are real German exports continue to weaken   German export weakness continues. German exports (seasonally and calendar-adjusted) decreased by 0.3% month-on-month in November, from -0.6% MoM in October. On the year, exports were up by more than 13% but this is in nominal terms and not corrected for high inflation. Imports also decreased, by 3.3% month-on-month, from -2.4% MoM in October. As a result, the trade balance widened to €10.8bn. The ongoing weakness in exports in the fourth quarter suggests that recession fears are real. Near-term outlook anything but rosy Trade is no longer a growth driver but has instead become a drag on German economic growth. Since the second quarter of 2021, the growth contribution of net exports has actually been negative. In the past, the current weakness of the euro would at least have brought some smiles to German exporters’ faces. Like almost no other, German exports have often seen an asymmetric reaction to exchange rate developments. The negative impact of a stronger currency is cushioned by inelastic demand and high product quality, while the full price impact of a weaker currency normally adds to export strength. But not this time. Export order books have continued to weaken significantly in recent months as the global economic slowdown, high inflation and high uncertainty leave a clear mark. The near-term outlook is anything but rosy. It could take at least until next spring before relief in global supply chains and a rebounding global economy revive German exports. Read this article on THINK TagsGermany GDP Export Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The first trading week of the year is coming to an end and as we've already said, it hasn't been that boring as many have supposed. As we're after Fed minutes and German and Spanish inflation prints, but still before Eurozone inflation and NFP, we reached out to Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. to deliver you with her view on the most recent events like mentioned macro events and striking performance of popular stocks like Tesla, Amazon and Apple. Inflation in the Eurozone for the following months may largely be determined by how cold or warm the following months will be Spain has generally faced lower inflation than other EU member states during this inflationary period - it peaked in July at 10.8% and has since lowered to 6.8% in November, while it was still above 10% in the same period in the EU. Additionally, Spain is in a more advantageous situation in terms of geographical location and heating needs during the winter season and the country has introduced various reliefs such as limits on the increase of rents and energy bills pushing the inflation lower. Furthermore, while Spain’s consumer prices rose 5.8% (lower than before), its core inflation rose to 6.9% (from 6.3% a month ago), meaning that it may not be safe to say that Spain has retained its inflation. Germany may be a better indicator for the whole Eurozone, although it is in a better position than many other EU member states in terms of dealing with inflation (such as the newly introduced solidarity surcharge to finance the energy price cap, which not only supports the government’s budget to cover the energy price spikes for the households but also keeps companies’ profits lower and therefore limiting the “fuel” for further inflation). If we consider that one of the key inflation drivers in the EU is heating and energy prices, inflation in the Eurozone for the following months may largely be determined by how cold or warm the following months will be. Considering that heating will be needed for a large part of the EU for at least 3 more months, the ongoing geopolitical conflict leading to food supply difficulties, and the still decreasing unemployment rates in both the EU and Eurozone, there may not be any strong reason to believe that the Eurozone’s inflation data is headed for particular improvement. It's a quite long way to another Fed decision, would you consider this week's Fed minutes and NFP as real guideposts? The Federal Reserve’s minutes this week perpetuated the already expressed opinion of a restrictive policy stance, which may be confirmed by higher-than-expected non-farm payroll data on Friday. It would be useful to pay attention to the NFP data not only from the actual vs forecast perspective but also current vs a previous couple of months as well as revision of actual data perspectives – increases in both of these measures may be considered as another indicator of still overheating economy. Amazon’s stock price touched what seems to be an important support level on 28 December (closed at 81.82 USD) I would like to separate Tesla from the rest of the group as the company is considerably more unpredictable and seems to largely depend on Elon Musk’s activities. As investors are currently looking at safer investments, we may see further selloffs of Tesla stocks. Technically, besides the 100 USD level, the one last major support left for the stock price is its 100-month moving average currently standing at 88 USD. Amazon, Apple, and Alphabet stocks currently seem largely dependent on the overall macroeconomic sentiment and the Fed’s possible and actual moves in the following months. Based on the hawkish stance still held by the Fed officials, we may expect to see further lows also for these companies, but for different reasons in comparison to Tesla. Read next: Tesla rebounded 5.12%, General Motors rose 2.57%, Micron Technology traded 7.6% higher, and Meta Platforms rose 2.11%| FXMAG.COM Furthermore, Amazon’s stock price touched what seems to be an important support level on 28 December (closed at 81.82 USD) and since then has started moving higher. It is worth monitoring its further price movements and looking for a pivot in the current trend. Amazon also has fallen the most among these three stocks and currently trades at a 1.5x price to next year’s sales ratio. For comparison, Alphabet and Apple are still trading at 4x and 5x price to next year’s sales ratio accordingly. Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement, or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Industrial activity in November provided more evidence that the economy did not fall off a cliff in the fourth quarter but was not strong enough to avoid a contraction either   German industrial production increased by 0.2% month-on-month in November, from a downwardly revised -0.4% MoM in October. On the year, industrial production was down by 0.4%. Production in the energy-intensive sectors increased by 0.2% MoM and is now down by almost 13% compared with November last year. While production in the energy sector increased by 3% MoM, activity in the construction sector weakened by 2.2% MoM. Glass half full or half empty? Today's industrial production data brings back the old question of whether the glass is half full or half empty. To some, the current stagnation means that German industry is holding up better than feared. To others, it is only filled order books at the start of the war in Ukraine and the backlog of orders that prevented more severe damage to industrial production. In any case, industrial production is still some 4% below its pre-pandemic level. Almost three years after the start of the pandemic. The former growth engine of the German economy is stuttering and improvement is not really in sight. Despite the recent return of optimism as illustrated by improving sentiment indicators, the sharp drop in new orders, the inventory build-up in recent months, the lagged impact of high energy prices and potential supply chain frictions as a result of China’s Covid policies all bode ill for the short-term outlook. Still, the New Year started on a more optimistic footing for the German economy. The mild temperatures almost seem to have ended the energy supply crisis, at least for now. National gas reserves have increased again, and consumption is clearly below historical averages. However, the question is how sustainable the safety net of warmer temperatures and fiscal stimulus can be. Even at the risk of being perceived as the boy who cried wolf, the short period in early December when a real winter spell pushed gas consumption more than 10% above historical averages illustrates how deceptive the optimism at the start of the year could be. Let’s not forget that the German economy is still facing a series of challenges which are likely to weigh on growth this year: energy supply in the winter of 2023/24, changing global trade with more geopolitical risks and changes to supply chains, high investment needs for digitalisation and infrastructure and an increasing lack of skilled workers. While the warm weather should actually ring alarm bells in terms of climate change, it is a welcome surprise for the economy. However, the warm weather does not simply blow away all economic problems. Solid construction sector too little to avoid recession Today’s industrial production data was the last hard macro data before the German statistical office releases its first estimate of fourth-quarter growth. Remember that in the third quarter, soft data plunged like a stone although actual GDP growth surprised to the upside. This time around, it looks as if hard data will be catching up. So far, and compared with the third quarter, retail sales, exports and industrial production all point to a mild contraction in the economy. Only the construction sector seems to be in growth territory. Despite the latest improvements in confidence indicators, available hard data still suggests that the economy’s slide into recession has continued. Read this article on THINK TagsIndustrial propduction Germany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Goldman Sachs has been one of the recent major banks to upgrade its expectations for the Euro Zone for the coming year. It had previously expected the shared economy to fall into a recession in the first half of the year. Now, the forecast shows an expectation that the Euro Area will just barely avoid a recession, growing at 0.1% for each of the first two quarters. The revision of expectations is based on the dramatic drop in natural gas prices through the fall, and China reopening sooner than expected. The bout of warm weather over the last couple of weeks has provided further optimism that Europe will avoid an energy crisis during the winter, as Germany was able to restock its natural gas supplies. Additionally, France brought back on line some of its nuclear power plants, allowing the country to become a net exporter once again. More room for the ECB? With inflation only just off double-digits, there is quite a bit of pressure on the ECB to get prices back in line. The ECB expects inflation to remain above target for the next three years. However, high inflation isn't a tenable situation, as seen in the UK. Inflation in Britain started to rise sooner than in the Euro Area, and has prompted a series of strikes across the country that threaten to either push the country further into recession or increase inflationary pressures. There has been some industrial action in Europe, with some firms offering concessions in wages. But as people see their purchasing power diminish for a protracted period of time, the labor upheaval seen in the UK (like the energy crisis before it), could be a preview of what could happen in Europe over the winter and into the spring. Read next: GM, Ford, Google And Solar Producers Would Work Together To Set Standards For Increasing The Use Of VPPs| FXMAG.COM It's not just Europe Meanwhile, the World Bank almost halved its projections for growth this year. It had previously forecasted that the global economy would grow by 3.0%, but now expects only 1.7%. An important part of the pessimism for the outlook is around China, which is expected to have a difficult start to the year. Europe is one of the major exporters to China, as well as relying on it for materials. The continued disruption as covid rampages through the world's second largest economy could be expected to have an effect on Europe as well. The US is also expected to have meager growth in the first half of the year. All of this combines to put the ECB in a difficult spot, not wanting to be responsible for Europe slipping into a recession, even if just technically. But something has to be done about inflation. The core that matters A large portion of the headline inflation can be attributed to the increased cost of energy. Now that natural gas prices are coming down, so should the headline CPI figure. But core inflation, the one that matters to the ECB, has actually continued to rise. That might pose additional headwinds for the economy, if the ECB has to raise rates even more to get it under control. German annual GDP growth is expected to come in at 1.8%, down from the 2.6% registered in 2021. Meanwhile, core Spanish annualized CPI for December is expected to be confirmed as growing to 6.9% from 6.3% reported in November.

The German economy grew by 1.9% in 2022. This implies a stagnating, not contracting, economy in the fourth quarter. Will the widely-predicted recession simply fail to materialise? We remain doubtful. Avoiding the worst does not suggest the economy is doing well. The economy has just returned to its pre-pandemic level   Same procedure as every year. The German statistical office just released a first estimate for GDP growth in 2022, without having any single hard data point for the month of December. According to this first estimate, the German economy grew by 1.9% year-on-year, from 2.6% in 2021. Definitely not bad for a year with lockdowns and a war. However, to put things in perspective: the German economy has only just returned to its size of late 2019. Three years of crisis have not passed by unnoticed. First estimate points to stagnation not contraction in fourth quarter The most important element of this annual growth rate is what it means for fourth quarter growth. According to the statistical office, the German economy stagnated in the fourth quarter, after growing by 0.4% quarter-on-quarter in the third quarter. In the past, these implied estimates for the final quarter were very accurate. However, at the current juncture, the economic performance in December could have been more volatile and disruptive than in the past; think of the weather impact, longer Christmas breaks and stronger-than-expected impact from the energy crisis on consumption and production. We think that this estimate for the fourth quarter will still be revised somewhat. In any case, today’s data shows that for the entire year 2022, the catch-up effect after the end of lockdowns, both for consumption and production, outweighed the economic fallout from the war in Ukraine. In the final months of the year, fiscal support also cushioned the downswing. Avoiding the worst doesn't mean that growth will rebound strongly Looking ahead, the post-lockdown catch-up is over and will not support economic activity in 2023. The adverse effects from the war and the energy crisis are likely to prevail and will be a drag on the economy. Weakening new industrial orders since February last year and weak consumer confidence are just two of many reasons for more trouble ahead for the German economy. Still, the New Year started on a more optimistic footing for the German economy. The mild temperatures almost seem to have ended the energy supply crisis, at least for now. National gas reserves have increased again, and consumption is clearly below historical averages. While the warm weather should actually ring alarm bells in terms of climate change, it is a welcome surprise for the economy. That said, the weather is far from predictable and the economic safety net is built on fiscal stimulus. More generally, let’s not forget that the German economy is still facing a series of challenges which are likely to weigh on growth this year and beyond: energy supply in the winter of 2023/24, changing global trade with more geopolitical risks and changes to supply chains, high investment needs for digitalisation and infrastructure and an increasing lack of skilled workers. Today's data suggests that the widely-predicted recession might not happen. We remain very cautious. The sheer fact that the German economy avoided the worst, unfortunately, does not mean that all of the economic problems have disappeared. Read this article on THINK TagsGermany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The ZEW Index is a survey of the economic sentiment of financial market experts in Germany. It measures expectations for the German economy over the next six months. The survey is conducted by the Centre for Economic Research (ZEW). The indicator is based on responses from analysts and economists from banks, insurance companies and other financial institutions. It is regarded as an important indicator for assessing economic activity in Germany and is closely monitored by many investors. Currently, the value of this indicator has reached a positive reading for the first time since February 2022 (16.9 points), which could mean that the situation of this economy could be improving. What else could we learn from the survey? Evaluation of the economic situation The January survey was conducted among 179 analysts and specialists. Regardless of the region assessed, the majority of specialists view the current economic situation negatively. The worst performer here is China, where as many as 77% of respondents view the current economic situation negatively. Second from the bottom is Germany with 60.3%. What may seem interesting is the mildly negative assessment of the US economy, currently at minus 5 points, which is a drop from the previous positive reading of 6.8 points.China also ranks first in terms of perceptions of the future. As many as 58.9% of respondents answered that the situation for this economy would improve (previously 41.9%). This may be linked to the expected easing of the 'zero COVID' policy. Similarly, respondents answered about the behaviour of the SSE Composite index (56% positive responses), to which we could gain exposure through the iShares MSCI China ETF (MCHI). Source: Conotoxia MT5, MCHI, Weekly The future of the German economy was assessed similarly to the euro area as a whole. The ZEW index reached 16.9 points and 16.7 points respectively. This is a significant improvement on the previous reading, which rose by more than 40 points in both cases. 44% of specialists forecast that the value of the DAX index (DE40) would increase, while 38.1% of respondents believe that it would remain unchanged. There is a noticeable improvement in sentiment relative to the last survey for all indices. Source: Conotoxia MT5, DE40, Weekly Despite the negative reading of the ZEW indicator for the future of the US economy, at minus 6.7 points, we continue to see an improvement on the last reading, which was minus 23.3 points. One could conclude that more important than the value of a given indicator is its trend of change. A more optimistic view is taken of the future of the Dow Jones Industrial index (US30), with 48.2% of respondents expecting it to increase in value (previously 41.1%), while 31% believe it would remain unchanged. Source: Conotoxia MT5, US30, Weekly The foreign exchange market and interest rates The survey questions also focused on two currency pairs: the euro to the US dollar and the euro to the Chinese yuan. In both cases, survey's experts expect a significant strengthening of the European currency. The biggest change is expected for the EUR/USD pair, where as many as 53.5% of respondents expect an increase (previously 46.2%) and 33.5% assume no major change. Source: Conotoxia MT5, EURUSD, Weekly The positive attitude towards a strengthening of the euro appears to be linked to interest rate expectations. Almost unanimously, 87.1%, respondents were in favour of an increase in euro area interest rates in the short term. However, they are less positive about increases in the long term (we could assume more than six months), where 48.3% of respondents expect rates to rise and 36.5% expect no change. In second place in terms of expected interest rate increases is the United States. 79.2% of respondents see a further tightening of monetary policy in the forthcoming FOMC decision. In the long term, 38% of respondents expect an increase and 39.8% expect no change. These expectations seem to be reflected in US bond yields. Long-term 10-year bonds have lower yields than short-term ones (e.g. 2-year bonds). Currently, this difference is 0.65 percentage points. This situation may seem illogical, as why would we want to receive less for holding our funds longer. Historically, a similar relationship has usually heralded a period of recession or slowdown in the economy, which, it seems, we are beginning to feel today. Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)

Companies are the main producers of pollution, which is why more and more of them are choosing renewable energy. The South African company is also moving towards net zero carbon. What's more, Germany refuses to support Ukraine, which is fighting the occupiers. In this article: Away from fossil fuels No tanks form Germany The energy transition Away from fossil fuels The green revolution is taking place all over the world. Information also appears from Africa. More and more companies are moving to a plan to achieve net zero carbon emissions by 2050. South African coal-dependent Sasol said on Tuesday it had signed three wind power purchase agreements as it transitions to renewable energy to meet its carbon targets. Sasol said in a statement it was working with French gas company Air Liquide. Sasol also announced that it has signed a long-term contract with the Msenge Emoyeni wind farm in the Eastern Cape. South Africa's coal-reliant Sasol signs 289 MW wind power deals https://t.co/SRbhRNCamh pic.twitter.com/Zt40owNX1f — Reuters Business (@ReutersBiz) January 24, 2023 Read next: Salesforce Is Being Tested As Its Growth Slows Down| FXMAG.COM No tanks form Germany The war in Ukraine has been going on for almost a year. Ukrainians are constantly fighting for their country, but they need the right equipment to do so. Many Western countries help Ukrainians in every way. Ukraine has long been begging for tank units from its allied West to counter the ongoing Russian invasion. But Germany again refused to commit to sending German tanks to Ukraine despite strong pressure. Last Friday's defense summit at Ramstein Air Base failed to produce a tank deal for Kiev, and so far only Britain has pledged to send 14 of its own Challenger 2 tanks to Ukraine. The latest comments from Berlin come after months of pressure on the German government to offer Ukraine some of its Leopard 2 tanks or allowed its allies to export their own German battle tanks. On Saturday, the Baltic states of Estonia, Latvia and Lithuania issued a joint statement in which Germany would "supply Leopard tanks to Ukraine." Poland and Finland have repeatedly expressed their readiness to provide Leopard 2 units. France has stated that it does not rule out sending its own Leclerc tanks to Ukraine. The delivery of appropriate military equipment may determine the course and even the outcome of the war. Germany refuses to commit to sending tanks to Ukraine despite pressure from allies https://t.co/n1ceoW1HQI — CNBC (@CNBC) January 24, 2023 The energy transition The world is racing against time to reduce its dependence on fossil fuels. There is a great challenge for the whole world The challenge is that while energy consumption per capita has peaked in many developed economies, it is increasing in those that are still developing. Energy changes do not take several years, but have been carried out for decades. Thanks to wind and solar, the share of low-carbon energy has recently accelerated, and the energy transition required today is unlike any other in history. The world needs so much more than just wind and sun to get through. Other renewable energy sources such as bioenergy and green hydrogen will be key. The energy transition required today is like no other in history. Energy transitions of the past were really just energy additions. The latest F&D visualizes the challenge the world faces in bringing about a clean energy transition. https://t.co/blDZWbytSm pic.twitter.com/9CrgQXEn6D — IMF (@IMFNews) January 24, 2023

The estates have a special culture of drinking coffee, which is why this country was a challenge for a popular chain store - Starbucks. In this article: BNP Paribas in Frankfurt have been raided Despite the challenges, Starbucks has persisted in Italy UBS about economy IMF for Haiti BNP Paribas in Frankfurt have been raided The offices of French bank BNP Paribas in Frankfurt have been raided by German police. The bank is under investigation for a multi-billion dollar tax fraud known as "cum-ex". The cum-ex trading system that flourished after the 2008 credit crunch relied on rapidly trading company shares around dividend days, diluting share ownership and allowing multiple parties to claim rebates. The scandal has rocked German political and financial circles and lawmakers say it has cost taxpayers billions of euros. German police raid offices of French bank BNP Paribas in Frankfurt - Handelsblatt https://t.co/T94qPeKCPm pic.twitter.com/71qALQ5CQr — Reuters Business (@ReutersBiz) January 25, 2023 Despite the challenges, Starbucks has persisted in Italy Italians take their coffee culture very seriously - it is full of traditions, customs and rituals. When Starbucks announced formal plans to open in Milan, some local residents disagreed. However, in 2018, Starbucks opened its first store in Italy, a 25,000-square-foot roaster in Milan. To ensure a smooth transition into uncharted territory, the company partnered with an Italian brand manager and other local companies. Despite the challenges, Starbucks has overcome all odds in Italy and is even planning expansion. Can Starbucks find success in Italy — the country that invented the espresso? Watch the video to find out. https://t.co/f27hd0tF4f pic.twitter.com/m0wyWQ4ac9 — CNBC (@CNBC) January 25, 2023 Read next: The Department Of Justice's Lawsuit Against Google | FXMAG.COM UBS about economy Inflation remained high in 2022, interest rates rose, growth expectations fell, and stock and bond markets suffered. Next year, inflation will be a major topic for economists and economies around the world. Many economies believe the worst is behind them and inflation has peaked. As we enter 2023, high inflation and rising interest rates, along with heightened earnings expectations and geopolitical risk, are shaping our investment themes. Has inflation peaked yet? If not now, then when? Find out more about an “inflation inflection” and other inflections in our UBS Year Ahead 2023. https://t.co/OaCWkxYGN2#shareUBS pic.twitter.com/siPWRRLapw — UBS (@UBS) January 24, 2023 IMF for Haiti The management of the International Monetary Fund (IMF) approved the first review of Haiti's Personnel Monitoring Program (SMP). The SMP will help the government restore macroeconomic stability and lower inflation. Despite the tougher macroeconomic environment and downside risks, recent data and progress on structural reforms suggest that the authorities are making significant efforts to mitigate Haiti's many challenges. The Haitian authorities adopted a budget for the financial year 2023 which is in line with the objectives agreed under the SMP and in the context of the medium-term budget. Ensure that a substantial budget allocation is used to protect the most vulnerable and implement public finance management systems to monitor the use of public funds. In addition, IMF staff will continue to work closely with the authorities to support the implementation of their agenda and help them build public support. IMF Management has approved the first review of Haiti’s Staff Monitored Program to help 🇭🇹 restore macroeconomic stability and lower inflation, given the burden of inflation on the poor. https://t.co/YI3995OEry pic.twitter.com/QZ917QcceX — IMF (@IMFNews) January 24, 2023

Germany’s most prominent indicator has improved for the fourth month in a row, but the renewed optimism is still based on very fragile fundamentals The outlook for the German economy still isn't clear. Pictured: skyscrapers in Frankfurt's business district 90.2 German Ifo index 88.6 in December   The inflow of optimistic data continues. After the PMI and the ZEW, it is now the latest Ifo index reading which points to an improving outlook for the German economy. In January, the Ifo index came in at 90.2, from 88.6 in December, and is back at levels last seen in the summer. While the drop in the current assessment component illustrates that the economy is definitely not out of the woods yet, expectations continued to improve. Lower wholesale gas prices and the reopening of the Chinese economy have boosted economic confidence. However, the fact that the German economy seems to have avoided the worst doesn’t automatically mean the outlook is rosy. More reslient than feared Hope has clearly returned to the German economy. The warmer winter weather, along with implemented and announced government fiscal stimulus packages, have prevented the economy from falling off a cliff. In fact, the German economy has been more resilient despite a long series of crises in 2022, which threatened to push it into a deep recession. The reason for this resilience is not so much the structure of the economy but rather a simple policy recipe that the German government has successfully used over the last 15 years and perfected recently: fiscal stimulus. Contrary to common belief and what German governments have often preached to other European governments: in times of crisis, the government prefers outright fiscal stimulus. This was the case during the financial crisis, during the Covid-19 pandemic and now as a response to the war and the energy crisis. What German governments perfected during the pandemic and last year’s crisis is the use of big ballpark figures, hoping that eventually, not all the money will have to be used. During the pandemic, outright fiscal stimulus amounted to more than 10% of GDP. Last year, after some months of hesitation, the government decided on several stimulus and price cap packages, amounting to a total of some 8% of GDP. The announcement effect and the actual money saved the economy from falling into recession, at least for now. Better is not good Not falling off the cliff is one thing, staging a strong rebound, however, is a different matter. And there are very few signs pointing to a healthy recovery of the German economy any time soon. First of all, we shouldn’t forget that fiscal stimulus over the last three years stabilised but did not really boost the economy. Industrial production is still some 5% below what it was before Covid, and GDP only returned to its pre-pandemic level in the third quarter of 2022. Industrial orders have also weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historic lows, and the loss of purchasing power will continue in 2023. Finally, like every eurozone economy, the German economy still has to digest the full impact of the ECB rate hikes. Demand for mortgages has already started to drop and, as in previous hiking cycles, it didn't take long before the demand for business loans also started to drop. In short, the German economy will still be highly affected by last year’s crises throughout 2023. Germany’s economic outlook looks complicated, to say the least Germany’s economic outlook for this year looks complicated, to say the least, with an unprecedentedly high number of uncertainties and developments in opposing directions. And there is more. Let’s not forget that the German economy is still facing a series of structural challenges which are likely to weigh on growth this year and beyond: energy supply in the winter of 2023/24 and the broader energy transition towards renewables, changing global trade with more geopolitical risks and changes to supply chains, high investment needs for digitalisation and infrastructure, and an increasing lack of skilled workers. This long list embodies both risks and opportunities. If historical lessons from previous structural transitions are of any guidance, even if managed in the most optimal way, it will take a few years before the economy can actually thrive again. Read this article on THINK TagsIfo index 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

There are at least two important releases we should care about this week. Thanks to Matt Weller (StoneX), we can broaden our view on German CPI and RBA decision. Are you of the opinion German CPI on Friday will confirm inflation slowdown? 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. Notably, the "core" (ex-energy and food) reading for the broader Eurozone came in at a record high of 5.2%, and Germany may see similar price pressures even if the headline number moderates as expected. Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM Do you expect Reserve Bank of Australia to pause hiking after February decision? With inflation still rising Down Under, despite interest rates hitting decade+ highs, the RBA will be forced to keep raising interest rates even beyond this week's meeting. While it's not exactly comparable, its notable that the Federal Reserve is still raising interest rates even though inflation in the US peaked back in July. Finally, China's reopening appears to be proceeding as well as could be expected, which should boost the Australian economy and provide an inflationary impulse as the year progresses.

A terrible industrial production report confirms the economy's sudden and hard halt in December.   German industrial production decreased by 3.1% month-on-month in December, from +0.4% MoM in November. On the year, industrial production was down by almost 4%. Production in the energy-intensive sectors plummeted by 6.1% MoM and is now down by almost 20% compared with December last year. While production in the energy sector decreased by 2.3% MoM, activity in the construction sector fell by 8% MoM. This is a simply horrible report. Industrial pain is real Today's industrial production data brings back the old question of whether the glass is half full or half empty. To some, the current stagnation means that German industry is holding up better than feared. To others, it is only filled order books at the start of the war in Ukraine and the pandemic backlog of orders that have prevented more severe damage to industrial production. In any case, industrial production is currently almost 8% below its pre-pandemic level and the sharp drop in production in energy-intensive sectors illustrates how much the energy crisis is hurting industry. The former growth engine of the German economy is stuttering and no improvement is in sight. Despite the recent return of optimism as illustrated by improving sentiment indicators, the sharp drop in new orders, the inventory build-up in recent months and the lagged impact of high energy prices all still bode ill for the short-term outlook. Read next: Adani Group Company's Crisis Is Gaining Momentum, Finland Is The Happiest Country| FXMAG.COM Today’s industrial production was the last hard data for the month of December. It is a month to forget. Retail sales, exports and imports all fell sharply. Either this data will be strongly revised upwards in the coming months or the German economy entered hibernation in December. Despite the latest optimism reflected in improving sentiment indicators, this economic hibernation is unlikely to end any time soon. Read this article on THINK TagsIndustrial propduction Germany GDP 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  

This week hasn't been full of game-changing events. Apart from the Reserve Bank of Australia interest rate decision, it's German CPI release on Friday, that makes it more intense. Speaking of risk assets - recent Bitcoin price movement may be called a bit mysterious... FXMAG.COM: Bitcoin rose after the Fed rate hike and Jerome Powell's press conference, but we could call this price movement a quite "steady" bounce, why is that? Is Bitcoin improving in terms of volatility...? Dominik Podlaski (Bitget): First of all, traders are always prepared for various outcomes of such market changing events as Jerome Powell's press conference. A 25 bps interest rates hike has been an option with the highest probability of happening, thus it didn’t provoke a lot of volatility in the markets. This change was so called already “priced in”. Secondly this was literally the best option for Bitcoin and other cryptocurrencies. Raising interest rates by 50 bps would slaughter traditional markets, including S&P 500. In effect Bitcoin would follow them. Similar effects would have leaving interest rates as they were. This would be definitely bullish for DXY and inversely for cryptocurrencies. Last but not least there is a lot of uncertainty in the markets right now. Therefore even “positive” news are not an impulse for a rally, as investors are cautious. Everyone prefers to stay low instead of too exposed. (Source: https://www.tradingview.com/chart/BLX/R1mi7bZT-The-future-of-BITCOIN-with-diminishing-returns/) Bitcoin volatility has been on the decline since the very beginning of its existence. This key trait results from two main factors, besides many other smaller ones. The most important is the theory of diminishing returns. With each consecutive bull run Bitcoin brings less and less ROI - approximately 5 times less each bull market. This has a direct effect in the yearly decrease of volatility. Additionally with every following year of the cryptocurrencies adoption Bitcoin is treated more as an asset for storing the value. Exactly like gold, not a risky object of high ROI as other cryptocurrencies. Speaking of which king FXMAG.COM: Are you of the opinion German CPI on Friday will confirm an inflation slowdown? Slowdown? Yes, general slowdown of inflation can be seen all over the markets. Real victory over inflation? Not very likely. Germany found itself in a tough economic situation, as prolonged war in the East disrupted its supply chain. Both food and energy prices are undermined, because Ukraine and Russia were an important part of their economic strategy. Christian Blindner, Germany’s finance minister, shared his forecast of 2023 CPI to be at 7% average. Analytics consider it optimistic. Therefore there isn’t much space from December CPI reading of 8.6%. Read next: Disney Plans To Cut Costs And Jobs, Google Is Now Rolling Out AI Chatbot| FXMAG.COM Despite there are some positive accents at the markets, the high probability of stagflation (extended period of high inflation) is holding investors back. The recession is still looming behind the corner, so the January German CPI reading might be even slightly higher than the December one. (Source: https://www.bild.de/politik/inland/politik-inland/christian-lindner-fuer-2023-rechnen-wir-mit-7prozent-inflation-82397190.bild.html)

British pound is past the Bank of England decision, which didn't provided significant changes. Now it's time to discover the UK GDP, published tomorrow morning. Could a higher-than-expected print or one that meets expectations support pound sterling? Andrey Goilov helps us to provide FXMAG.COM readers with valuable conclusions. After a 50bp rate hike, could promising GDP print provide further support for GBP? It is extremely important that the British GDP report for Q4 at least coincided with the forecast. The expectations are that the economy could have remained at zero. After a decline by 0.3% q/q in Q3 even such a result could be a good one. Next, much will depend on the report components: it is vital to see, which sectors supported the economy the most, where to look for footholds for growth, and where there have been too much damage. Industrial production in December will be a curious one to see among other things. If the GDP turns out as forecast or higher, the GBP will get some support. Then the GBPUSD pair will be able to recover to 1.2100, from where it can reach 1.2150-1.2200. Read next: Disney Plans To Cut Costs And Jobs, Google Is Now Rolling Out AI Chatbot| FXMAG.COM Are you of the opinion German CPI on Friday will confirm inflation slowdown? The prelim CPI in Germany in January is expected to have grown by 0.8% m/m upon falling by the same percentage the previous month. If the statistics coincide with the forecast, this will mean the CPI is speeding up instead of slowing down. The main component that might be pushing inflation up is foods. Due to supply chains issues inside and outside Europe prices for foods have been growing for the whole of 2022. Most likely, they will keep on growing in 2023. And this will support growth of the main price indicator. As soon as the foods component stabilizes, inflation will stop growing. For Germany, growth of prices is a serious trouble. The cost of the daily life of households is increasing gradually, which pumps up social instability, among other things. Visit RoboForex

The third estimate of German GDP growth in the final quarter of 2022 shows that celebrating resilience was a bit premature. A technical recession is in the making   We've previously had German GDP estimates of stagnation, of -0.2%, and -0.4%. Now we know the third estimate of German GDP growth in the final quarter of 2022 was the correct one. As just released by the German statistical office, the German economy contracted by 0.4% quarter-on-quarter in the fourth quarter of 2022, from +0.5% in the third quarter. This is the first contraction since the first quarter of 2021. On the year, GDP growth came in at 0.9%. Recession is in the making The economic contraction is no surprise. What is interesting in today’s GDP report are the details. Private consumption without lockdown savings languished under high inflation and energy prices and fell by 1% quarter-on-quarter, from +0.7% in the third quarter. Capital investments plunged by 2.5% QoQ, from 1.3%. Net exports, government consumption and a large inventory build-up prevented the economy from falling into a deeper contraction. The German economy has surprised by showing more resilience than feared, despite facing a long series of crises. However, while this resilience, driven by fiscal support and warm winter weather, has prevented the economy from falling into a deep recession, it is definitely no guarantee for a strong rebound anytime soon. In fact, even though sentiment indicators have increased in recent months, there is overwhelming evidence of a still weak economy. The second consecutive drop in the Ifo’s current assessment component, a falling PMI manufacturing and, as reflected in this morning’s data, weak consumer confidence and a willingness to spend close to historical lows, all confirm our view that the German economy will contract once again in the first quarter. Recession in the short term and subdued recovery afterward Looking beyond the first quarter, the latest improvement in soft data suggests that the German and eurozone economies are in the middle of a typical cyclical recovery, while we fear that we are actually in the middle of a structural transition. If we are right, any rebound this year will be softer and more short-lived than many expect, and subdued growth rather than a strong rebound remains the base case. Or in other words: not falling off the cliff is one thing; staging a strong rebound, however, is a different matter. In Germany, industrial orders have weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historic lows, the loss of purchasing power will continue in 2023, and the full impact of monetary policy tightening still has to unfold. Today’s numbers mark the first part of what could become a technical recession in Germany. We think that the risk of yet another contraction in the first quarter and, thus, a technical recession is high and that the German economy is still miles away from staging a strong rebound. Read this article on THINK TagsGermany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

March 01, 2023  $USD, Australia, Canada, China, Currency Movement, EMU, Germany UK, Japan, Mexico, US Overview: Many investors may be skeptical of the accuracy of Chinese data, but its stronger than expected February PMI animated the animal spirits and bolstered risk-taking appetites. Asia Pacific equities jumped, led by the 4.2% rally in Hong Kong and a 5% surge in the index that tracks mainland shares. Among the long bourses Australia and Singapore slipped, and South Korean markets were closed for a national holiday. Europe's Stoxx 600 is posting a small gain and US index futures are trading higher. European 10-year yields are mostly 5-6 bp higher, though UK Gilts are bucking the move and the 10-year yield is a little softer. The US 10-year Treasury yield is firm near 3.94%. The dollar is broadly lower. The New Zealand dollar is leading the charge with a 1% gain, followed by the euro, which is up around 0.75% near $1.0665. Sterling is little changed and at the bottom of the G10 performers today. Nearly all the emerging market currencies are higher, save the Russian rouble and Taiwanese dollar. The Mexican peso rose to new five-year highs and the Chinese yuan is posting its largest gain of the year. Gold posted a key upside reversal yesterday and is extending its gains today. It is reached a five-day high near $1838. April WTI initially is trading inside yesterday's range and is pulled between the China re-opening meme and the continued build of US supplies, which API estimated rose for the tenth consecutive week. Asia Pacific China's February PMI jumped more than expected, strengthening the recovery meme, and bolstering risk appetites more broadly. The manufacturing PMI rose to 52.6 from 50.1, which is highest in a decade. The non-manufacturing PMI increased to 56.3 from 54.4, just below the high set in November 2020. This saw the composite rise to 56.4 from 52.9, a new high. The Caixin manufacturing PMI was somewhat less impressive, rising to 51.6 from 49.2 and is seen reflecting a subdued export performance. Yesterday, Japan reported a stunning 4.6% drop in January industrial output. Only one economist in Bloomberg's survey of 28 economist had anticipated a larger contraction. The final February manufacturing PMI stood at 47.7, up from the flash estimate of 47.4, which was the weakest since August 2020. It has not posted a monthly increase since last March. In January it was 48.9, unchanged from December 2022.  Australia's economy expanded by a solid even if not spectacular 0.5% in Q4 22. That follows a 0.7% expansion in Q3. Although Q4 growth was a little less than expected, the year-over-year rate was in line at 2.7%. Separately, Australia reported its newly minted monthly inflation report. January prices slowed to 7.4% year-over-year from 8.4% at the end of last year. This was a larger drop than expected, and initially weighed on the Australian dollar. The RBA sees it falling to 4.8% by the end this year. The median forecast in Bloomberg's survey is not as sanguine as sees a 5.4% pace. Lastly, the final February manufacturing PMI came in at 50.5, up from the flash reading of 50.1. This is the third consecutive month that it hovered around 50 without break below. The dollar was turned back from the JPY137 area yesterday and settled near JPY136.15. The heavier greenback tone saw it slip marginal through yesterday's lows to almost JPY135.60 today. The intraday momentum indicators are stretched and nearby support around JPY135.40-50 may hold, with the help of firmer rates in Europe and the US. The Australian dollar is recovering smartly after making a marginal new low (since early January) near $0.6695. It has risen through yesterday's high (~$0.6760) and a close above there could be a bullish key reversal. Nearby resistance is seen around $0.6800. Initial support is around $0.6750. The Chinese yuan surged after the PMI reports. The dollar peaked Monday near CNY6.9730 reached CNY6.8790 today, a six-day low. It is the third day the greenback has fallen, which halted a four-day rally seen last week. Today's loss, if sustained, would be the largest this year. The PBOC set the dollar's reference rate slightly below expectations (CNY6.9400 vs. CNY6.9411, the median forecast in Bloomberg's survey.  Europe The eurozone's final manufacturing PMI was unchanged at 48.5.  Germany's was revised lower to 46.3 from 46.5.  It was at 47.3 in January and the February reading was the first decline in four months. The French reading was also revised down to 47.4 from the flash reading of 47.9.  In January it was above 50 (at 50.5) for the first time since last August. Italy's manufacturing PMI jumped to 52.0 from 50.4 and was better than expected. The same is true of Spain, where the manufacturing PMI rose to 50.7 from 48.4.  It is the highest since last June. Separately, Germany reported a 2k rise in unemployment last month. The market had looked for aa 10k decline, and January's 22k fall was halved. The unemployment rate was unchanged at 5.5%. German states have reported the February CPI figures and the national estimate will be out shortly. The EU harmonized measure is seen rising by 0.5% month-over-month for a 9.0% year-over-year increase, after a 9.2% rate in January. Recall Spain and France surprised on the upside yesterday. The aggregate report for the eurozone is due tomorrow. The UK's February manufacturing PMI ticked up to 49.3 from the preliminary estimate of 49.2 and 47.0 in January. While still in contraction territory, it is the best reading since last July. The UK also reported stronger than expected consumer credit and mortgage approvals than expected. Although recession expectations are widespread, many are beginning to question it and at least one large bank now says a recession has been averted. Read next: Some McDonald's Locations Don't Promote Hip-Hop Stars' New Meal| FXMAG.COM After a poor close yesterday (on its lows near $1.0575), the euro has popped back and is trading at a five-day high in Europe near $1.0660. Some buying may be related to the 1.5 bln euro options expiring today at $1.06. Initial resistance around $1.0685 may cap upticks given overbought momentum indicators. That said, a close above it would lift the technical tone. Large options at $1.06 and $1.07 expire Friday. Sterling also was turned back yesterday and settled on its lows (~$1.2020), but unlike the euro, has found little new demand. It bounced to almost $1.2090 and held below yesterday's high (~$1.2145). It risen above the 20-day moving average but failed to close above it. It is found today slightly above $1.2060. There are options for nearly GBP500 mln at $1.20 that expire today. America Yesterday's battery of US data is unlikely change economic views. The December house prices are too dated for most, and the January trade deficit was only a little bigger than expect, and the weaker wholesale inventories were partly blunted by the stronger retail inventories and other better-than-expected January reports. The data for February, which included the Chicago PMI, the Conference Board's consumer confidence, and the Richmond Fed's manufacturing survey, were all weaker than expected. The Richmond Fed's business condition measure and the Dallas Fed's service activity report were still in contraction territory, even if a little less so than January. Today's highlights are the final manufacturing PMI and the ISM manufacturing survey. Both are expected to remain below 50 as they have since last October. A warm January bodes well for construction spending, which is seen rising by 0.2% after a 0.4% decline in December. Lastly, auto sales will trickle in through the day, perhaps preventing them from having the impact commensurate with their significance. Auto sales have typically slow in February (last eight consecutive years) and the median forecast in Bloomberg's survey sees auto sales slowing to a 14.7 mln seasonally adjusted annual pace, from 15.74 in January, which were the highest since May 2021.  Canada sees the February manufacturing PMI. It is not typically a market-mover. That said, it fell for the last five months of 2022 before rising back above 50 in January for the first time since last July. The US dollar closed firmly yesterday, but remained within the range set on Monday, which was within Friday's range. Last's Friday's high, which was the greenback's best level since early January, was near CAD1.3665 and the January high was closer to CAD1.3685. The US dollar has come back offered today, with the risk-on sentiment. However, it is holding above yesterday's low (~CAD1.3560), and this has to be taken out to be meaningful. Note that there are options for $500 mln at CAD1.3580 that expire today.  Mexico's economic calendar is more complicated. Sure, February's manufacturing PMI and IMEF surveys will be reported. But two other reports may be more important. First, Mexico reports January worker remittances. There is a clear seasonal pattern for strength in December and weakness in January. Worker remittances have emerged as a key source of capital inflows into Mexico and have been stable to higher, and sufficient to cover the trade deficit. The proper comparison for the January figure (expected ~$4.5 bln) is not December (~$5.4 bln) but January 2022 ($3.9 bln) and January 2021 (~$3.5 bln). The dollar posted a fresh five-year low against the peso yesterday near MXN18.2820. The losses were extended today to almost MXN18.24 before the greenback recovered in the European morning to almost MXN18.30. A nearby cap is seen in the MXN18.33-MXN18.35 area. A push above MXN18.40 would likely trigger stops.     Disclaimer

February inflation data shows very few to no signs of any disinflationary process outside of energy and commodity prices Inflationary pressure is far from over in Germany   February's headline inflation came in at 8.7% year-on-year, unchanged from January. The HICP measure came in at 9.3% YoY, from 9.2% in January. The sharp monthly increase by 1% month-on-month shows that the inflationary pressure is far from over. The discrepancy between the national and European measures can be explained by a rebasing of the national time series and changes in the weights. No start of disinflationary trend, yet Available regional components suggest that core inflation has remained broadly unchanged. While food price inflation increased, energy price inflation continued to come down. At the same time, service price inflation remained high and increased in, for example, packaged holidays and leisure activities. Last month, only very few services had inflation rates of below 2%. Among these were services like insurance or communication but also paramedic services. Overall, there are few to no signs of any disinflationary process outside of energy and commodity prices. 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 European Central Bank to take this data at face value. Government intervention and interference, this year and/or last year, sometimes temporarily, sometimes more permanently, will often 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. The energy price cap will come into effect as of 1 March but will be paid retroactively. 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. Looking ahead and beyond the 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, if they remain at current levels, 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. In Germany, selling price expectations, the best proxy for the pass-through of higher energy and commodity prices in recent years, have dropped significantly since last summer and currently stand at levels last seen in the spring of 2020. At the same time, however, selling price expectations in services remain close to historic highs. Combined with expected nominal wage growth of more than 5% year-on-year this year, this means that core inflation will remain stubbornly high. Read next: Euro Is Rising, USD/JPY Falls Below 136.00, The Aussie Pair Also Gains| FXMAG.COM ECB will continue to hike The downside of government support schemes and the fact that the eurozone has avoided falling into a severe recession is that what started as supply-driven inflation could morph into demand-driven inflation. And not only in Germany. This is probably a bigger concern for the ECB than just one month of increasing headline inflation. As long as core inflation remains stubbornly high in the eurozone, the ECB will continue hiking rates and will not consider future rate cuts. A 50bp rate hike at the March meeting has been pre-announced and looks like a done deal. Beyond the March meeting, the ECB seems to be entering a new game in which further rate hikes will not necessarily get the same support within the governing council, as hiking deep into restrictive territory increases the risk of adverse effects on the economy. The main question beyond the March meeting will be whether the ECB will wait to see the impact of its tightening on the economy or whether it will continue hiking until core inflation starts to substantially come down. We currently expect a compromise: two additional rate hikes by 25bp each in May and June, before pausing the hiking cycle and entering a longer wait-and-see period. Financial markets, which only a couple of weeks ago were still betting on rate cuts at the turn of the year, have now once again turned around and are expecting the ECB to hike by a total of 150bp over the next few months. Not impossible, but clearly a recipe for more bad macro news in 2024. 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

Belgium needs to significantly increase the pace of renovation in order to meet the 2050 target of having all homes climate-neutral, but faces a bigger challenge than other countries due to having an older and larger housing stock, fewer flats, and a higher proportion of low-income homeowners who lack the financial resources for energy renovations A suburb in Belgium Real estate is crucial to the EU's goal of becoming climate neutral by 2050 Energy efficiency is becoming increasingly important for the real estate market and will continue to play a crucial role in the future. Europe's ambition is to become the first continent to become climate neutral by 2050, meaning that the European Union will no longer contribute to global warming. This goal has been embraced by all EU member states. As buildings currently account for 36% of greenhouse gas emissions in the EU, the construction and real estate sectors play a decisive role in achieving this goal. Europe wants to significantly reduce the greenhouse gas emissions and energy consumption of the building stock by 2030 and make it completely climate-neutral by 2050. It is vital to significantly increase the renovation rate of energy-inefficient buildings to achieve these ambitious targets. Heating buildings responsible for 20% of greenhouse gas emissions Building heating accounted for 20% of Belgium's greenhouse gas emissions in 2021, of which 15% was for heating residential buildings and the remaining 5% for heating non-residential buildings. In the residential sector, we see a clear downward trend in greenhouse gas emissions caused by heating. Between 1990 and 2021, for example, emissions fell by 20% despite an increase in the number of buildings. The decrease is largely due to the milder winter weather in recent years, which means we need to heat less. On the other hand, the improved energy efficiency of buildings has also reinforced the downward trend. In contrast, in the non-residential sector, which includes shops, offices, etc., greenhouse gas emissions increased by 36% between 1990 and 2021, partly due to the strong growth in the number of employees and therefore buildings. While the residential sector will also have to greatly increase the pace of renovation to reduce emissions, the non-residential sector in particular will have to play catch-up in the coming years. Despite the progress, Belgium does remain one of the worst-performing countries at a European level in terms of residential energy consumption and per capita CO2 emissions. Only Luxembourg has even higher emissions per inhabitant. In 2019, average Belgian residential emissions were 1.34 tonnes of CO2 per year, almost double the European average and well above Belgium's neighbours. To meet the climate goals, greenhouse gas emissions must fall by at least 80% compared to 1990 by 2050, meaning that current residential CO2 emissions of 1.34 tonnes per person must fall to around 0.30 tonnes. Greenhouse gas emissions per capita, residential sector, 2019 Source: Eurostat Unfavourable starting position makes energy transition extra challenging While all European Union countries face the same challenge of making their entire building stock climate-neutral by 2050, Belgium will have to make extra efforts to achieve this objective. The Belgian real estate market has a number of characteristics that place it in a less favourable starting position for the upcoming energy transition. Below we discuss each of these factors. 1. On average, homes are larger than those in neighbouring countries According to Eurostat figures, Belgian homes are significantly larger than those in neighbouring countries and the EU average. With an average house size of 124 m² in 2012, Belgium only lost out to Luxembourg (131 m²) and Cyprus (141 m²). New houses built since 2012 are slightly smaller on average and are likely to have brought the Belgian average down a little. Nevertheless, Belgium will still score highly in the rankings because new construction is only a small part of the total building stock. Moreover, other European countries are also building smaller and smaller homes. In addition, the size of dwellings can also be determined by the average number of rooms per person. According to Eurostat data, Belgium had an average of 2.1 rooms per person in 2021, leaving it a little behind Malta (2.3 rooms per person) and matching the Netherlands. This is remarkably higher than Germany and France, with an average of 1.8 rooms per person, and the EU average of 1.6 rooms per person. The above indicators show that, on average, Belgian houses have a larger living area than in neighbouring countries and have more rooms to heat and cool, so they consume more energy. Moreover, large houses also have greater heat loss because there are more doors, windows and vents, allowing heat to escape more easily. Average number of rooms per person, 2021 Source: Eurostat   2. Belgium has relatively more open and semi-open buildings In general, flats are more energy-efficient than houses because they have more common walls. As a result, less surface area is in contact with the outside air and less heat is lost. In addition, flats also tend to be a bit smaller than houses, which means fewer rooms need to be heated. With only 22.3% of the total housing stock in the form of flats, Belgium currently has the third lowest share of flats in Europe. Only Ireland (9.8%) and the Netherlands (17.5%) have an even lower share. Then again, unlike the Netherlands, Belgium has relatively more four-fronted houses, where the potential for heat loss is naturally also higher than in closed or semi-open buildings. Building stock by housing type, 2021 Source: Eurostat   3. Belgium has a very old building stock More than 60% of residential buildings in Belgium were built before 1981, meaning they are older than 40 years. Moreover, almost a quarter of residential buildings were built before 1946, meaning they are older than 75 years. Older homes tend to have higher heating requirements than new homes. Energy efficiency was not a priority back then and technological solutions were less developed than today. 4. Relatively more low-income people own their homes Finally, compared to other countries, Belgium also has a high share of homeowners among low-income households, who often do not have sufficient financial resources to pay for a full energy renovation. Plus, low-income households often live in houses with lower energy efficiency, which means that renovation costs are just higher for them. Homeownership by income group, 2015 or latest available year Source: OECD Belgian buildings require more energy for heating These different characteristics of the Belgian property market, namely relatively large and old houses and more open and semi-open buildings, mean that Belgian buildings lose a lot of heat. Therefore, in Belgium, 73% of household energy consumption goes to heating buildings. This puts us in second place in Europe, after Luxembourg which uses 83% of its energy consumption to heat buildings. Belgium thus scores considerably higher than Germany (67%), France (63%), the Netherlands (61%) and the EU average (63%). Many Belgians hesitant to tackle their renovation Although high energy prices have significantly reduced the payback period for energy renovations and stricter regulations are on the way, many Belgians still seem reluctant to tackle the energy renovation of their homes. Last year, there were many relatively minor interventions, such as installing solar panels or extra insulation, but there are signs that the pace of in-depth energy renovations has slowed. Although during the pandemic, the number of building permits issued for renovations rose sharply as many families had more time and spent less money on services, the number fell back to pre-pandemic levels in October. The number of mortgages granted for renovations also fell in the second half of last year to below levels seen in recent years. Finally, data from the European Commission also showed that households' intention to renovate their homes over the next 12 months is at its lowest level in more than 20 years and significantly lower than in neighbouring countries. Number of building permits granted for renovation, October month only Source: Statbel Need for integrated solutions for all aspects of energy renovations To conclude, it seems that the pace of deep energy renovations is slowing down after accelerating during the pandemic. There are several barriers that families experience in tackling their renovation. Many families do not have sufficient financial resources to carry out a renovation, but also experience a lot of other non-financial obstacles that keep them from starting. Families are left with many questions about the total cost of an energy renovation, the payback period, the effect on the EPC score and the value of their house, and the ideal sequence and planning of energy renovations. In addition, home renovation requires technical, administrative and legal knowledge and depends on cooperation between different specialised suppliers, which is an additional non-financial barrier. Nevertheless, the renovation rate will have to increase dramatically to meet EU targets. It is therefore essential to help households through the different steps of energy renovation and work towards integrated solutions that offer households a tailor-made solution, taking into account their financial possibilities, their renovation preferences and the characteristics of their home. Read this article on THINK TagsReal Estate Netherlands Germany ESG Belgium 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

It's only a weak indicator of life in the economy, but German exports increased by 2.1% month-on-month in January – not quite enough to offset the sharp December drop Hamburg port   German exports recovered somewhat from the December shock. In January, German exports (seasonally and calendar-adjusted) increased by 2.1% month-on-month, from -6.3% MoM in December. On the year, exports were up by almost 9%, but this is in nominal terms and not corrected for high inflation. Imports decreased once again in January, this time by 3.4% MoM, from -5.6% MoM in December. As a result, the trade balance widened to €16.7bn. Trade data point to structural challenges Despite today’s rebound, exports are still only back to levels seen in April last year. It looks as if trade is no longer the strong growth driver of the German economy it used to be. Supply chain frictions and a more fragmented global economy continue to undermine Germany’s old success formula. Last year’s trade developments illustrated trade weaknesses – in 2022, more than 15% of German exports were cars and automobile parts. The second and third largest export items were machinery and chemical products. At the same time, the trade deficit with China almost doubled. Obviously, the latter will also be due to weaker economic activity in China but stresses more generally Germany’s economic dependence on China. Germany's import dependence on China could become a particular (geo-)political problem in the near future. In the very near term, the ongoing weakening of export order books, the expected slowdown of the US economy, high inflation and high uncertainty will leave a clear mark on German exports. The reopening of the Chinese economy will probably not be enough to fully offset the long series of downward risks. Read this article on THINK TagsGermany Exports Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Orders in German industry in January 2023 fell for the eleventh consecutive month in annual terms, according to data released today by the Federal Statistical Office (Destatis). Orders in German industry in January 2023 increased by 1% m/m (forecast: -0.7% m/m) In year-on-year terms, they fell by -10.9% (forecast: -12.5% y/y) Domestic orders fell by -5.3% MoM, foreign orders increased by 5.5% MoM The increase in orders in the aircraft and spacecraft sector is impressive: +138.5% It's hard to believe, but it's true: orders in German industry in January 2023 fell for the eleventh consecutive month on an annualized basis. Data on the German economy, released this morning by the Federal Statistical Office (Destatis), do not inspire optimism. And this is not good news for the Polish economy, which is still very closely linked to the German economy. Let us remind you that Germany is Poland's largest trading partner. In the first 5 months of 2022, Polish exports to Germany were worth €38 billion (+15.2% y/y), while imports were worth €30.5 billion (+26.7% y/y). And although Germany's share in total Polish exports decreased from 28.9% to 27.9%, the share of our western neighbors in our exports was still almost one-third of the total. Orders in German industry on an annual basis Source: MacroNext Domestic orders down, foreign orders up Orders in German industry in January 2023 rose by 1% month-on-month, which was a nice surprise, because analysts expected -0.7% m/m, after an increase of 3.4% a month earlier. However, in year-on-year terms, they fell by -10.9% (forecast: -12.5% y/y, after a decline in December by -9.9% y/y). Index of orders in German industry Source: Destatis As statisticians point out, in January 2023 domestic and foreign orders in Germany showed opposite trends. While domestic orders fell by -5.3% MoM, foreign orders increased by 5.5%MoM. New orders from the euro zone fell by -2.9%, while orders from the rest of the world increased by 11.2%. The increase in orders from countries outside the euro area was mainly due to large orders in the aircraft and spacecraft sector. Impressive increase in orders in the aircraft and spacecraft construction sector As in the case of domestic and foreign orders, the main industrial groups in the industry also moved in opposite directions. While new orders in the capital goods sector increased by 8.9% in January 2023, orders in the area of intermediate goods fell by -8.9% compared to the previous month. New orders in the consumer goods sector fell by -5.5%. The increase in orders in the aircraft and spacecraft construction sector (+138.5%) is impressive, and there is also an increase in orders for the production of engines for motor vehicles (+6.8%). The decrease in new orders was particularly pronounced in the production of electrical appliances: -22.3% (after an increase of 34.3% in the previous month). Read next: In crude oil, we are increasingly likely to see a year of two distinctive halves| FXMAG.COM Turnover in industry in January 2023 increased by 0.2% m/m. The revision of the data revealed a decrease of -1.5% in December 2022 compared to November 2022 (was: -1.7%). In January 2023, calendar-adjusted turnover was -0.4% lower than in January 2022. Turnover index in German industry Source: Destatis

Industrial production rebounded strongly from the December crash but weak retail sales show that growth optimism is still premature   German industrial production rebounded strongly in January, more than offsetting the dramatic December crash, increasing by 3.5% month-on-month from -2.4% MoM in December. On the year, industrial production was down by 1.6%. Production in the energy-intensive sectors rebounded by 6.8% MoM but is still down by some 13% compared with January. Activity in the construction sector surged by almost 13% MoM. This strong rebound is not so much a reflection of the overall strength of the economy but rather a sign that the sharp plunge in economic activity in December was a temporary (perhaps also technical) glitch. Industrial relief but consumer pain Despite the January improvement, German industry continues to sputter. Even three years since the start of the pandemic, industrial production is still almost 5% below its pre-pandemic level. Looking ahead, yesterday’s increase in industrial orders brought some relief but it is weak relief as both domestic and eurozone demand fell sharply and only bulk orders from non-European countries increased. Still, lower wholesale energy prices and the reopening of China could give German industry some tailwind. On the other hand, however, the lack of skilled workers, high interest rates and a high level of uncertainty are likely to undermine investment activity. The inventory build-up in recent months adds to concerns about a still weak outlook for industry. Finally, and as if there haven’t been enough challenges so far, water levels are currently again at record low levels for this time of the year, potentially creating the next supply chain friction. Read next: Jerome Powell wasn't that dovish yesterday, hinting at acceleration of rate hikes and higher rate peak| FXMAG.COM Today’s industrial production data brings some welcome relief but is no reason to cheer. It is mainly a correction of the December plunge. What is also remarkable is the fact that January retail sales did not correct but continued their downward trend from the end of last year. While industry could become a mild growth driver in the first quarter, private consumption looks set to be a drag. Read this article on THINK TagsIndustrial Production Germany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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

Another improvement in sentiment in the German economy as the Ifo index increased for the sixth month in a row in March. However, we fear that the latest financial turmoil will reach the real economy in the coming months Source: iStock   In March, Germany’s most prominent leading indicator, the Ifo index, increased for the sixth month in a row, coming in at 93.3 from 91.1 in February. Lower wholesale gas prices and the reopening of the Chinese economy have boosted economic confidence. Both the current assessment and expectations component increased significantly. Divergence between financial markets and real economy The financial market turmoil of the last few weeks has not yet affected economic sentiment - at least not economic sentiment measured by company surveys. The latest economic sentiment indicators nicely illustrate that for now, financial market turmoil appears to be ringfenced and has not affected the real economy: while the ZEW index, filled in by financial analysts, dropped, PMIs and now the Ifo index increased. We are more careful, however, and remind everyone that the Ifo index can react with a delay of one to two months to unexpected events and financial market turmoil can clearly affect the real economy over time. Read next: Eurozone bank lending dampened by ECB’s monetary tightening| FXMAG.COM The German economy will continue its flirtation with recession. But what is more important: the ongoing war in Ukraine, ongoing structural changes, an ongoing energy transition and the impact of the most aggressive monetary policy tightening in decades are the main drivers of what looks like subdued growth for a longer while. Read this article on THINK TagsIfo index Germany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The GfK consumer climate index for Germany rose by 1.1 points to -29.5 in April, a very low level by historical standards and still below the lows of the pandemic in the year 2020. Sentiment has been improving since October, allowing talk of a recovery from the inflation and energy shock in Europe's largest economy, although the pace of recovery has slowed. We believe this interest in the single currency correlates with rising business and consumer sentiment indices. The economic recovery will allow the ECB to maintain a tighter monetary policy. Interestingly, the turnaround in consumer sentiment coincided with a "bottom" in EURUSD. The single currency rallied strongly in the final quarter of last year, briefly topping 1.10 in early February before a technical correction. In the second half of March, the single currency recovered against the dollar, despite selling pressure from Credit Suisse and Deutsche Bank. Read next: Next announces final dividend of 140p. Full-year profit before tax guidance increased by £20m| FXMAG.COM We believe this interest in the single currency correlates with rising business and consumer sentiment indices. The economic recovery will allow the ECB to maintain a tighter monetary policy. Assuming a positive correlation between consumer sentiment and the EURUSD exchange rate, we expect the #1 currency pair to continue its upward trend but with a much more subdued amplitude than at the end of last year. As early as April, the euro could fully emerge from its correction and rise above 1.10, but it is unlikely to exceed 1.12 in the year's first half.

With the largest strikes in Germany in more than three decades this week, fears of a wage-price spiral have gained momentum once again. However, last year’s data show clear signs of a profit-price spiral already spreading in the economy Workers in Germany are striking as they demand better pay to withstand price rises   Over the last two years, many of us will have had our suspicions that price hikes aren't just the result of higher energy and commodity prices, but that some producers, suppliers and service providers have upped their costs, whether to make up for losses during the Covid-19 lockdowns or to increase financial buffers for worse times to come. In the minutes of the European Central Bank's (ECB's) February meeting, the issue of potential price markups not related to higher costs was raised for the first time. The minutes revealed that “profit growth remained very strong, which suggested that the pass-through of higher costs to higher selling prices remained robust... It was therefore widely stressed that developments in profits and markup warranted constant monitoring and further analysis on an equal footing with developments in wages”. According to a Reuters report in early March, the ECB had discussed analyses showing that profit margins in the eurozone had been rising rather than falling. As a consequence, profits rather than labour costs and taxes accounted for the largest chunk of domestic price pressures in the eurozone since 2021. GDP deflator (%YoY) and percentage point contributions of labour costs and profits (eurozone) Source: Eurostat; ING Economic & Financial Analysis Measuring a profit-price spiral in Germany It's a similar picture in Germany. If companies had simply only passed on higher producer prices, profits would hardly have risen. In practice, however, from the second half of 2021 onward, a significant share of the increase in prices can be explained by higher corporate profits. There is no official corporate profit data, so this is based on gross value added minus the compensation of employees as a proxy, since gross value added results from the compensation of employees and corporate profits and is already indirectly corrected for prices of input goods. At the same time, however, gross value added also includes machinery and investment depreciations, which are hard to quantify. Applying the aforementioned methodology shows that the share of profits in total gross value added has increased significantly in some sectors over the last three years. A hint that German companies could fuel inflation further. In the construction sector, for example, the share of profits in gross value added increased by 22% between the fourth quarter of 2019 and the fourth quarter of 2022. In the trade, transport and hospitality sector the figure was 19%, while it rose by 14% in the agriculture sector. Increase share of profits in gross value added Source: Destatis; ING Economic & Financial Analysis   Price margins have also increased significantly over the last three years. In particular, companies in the agricultural, construction, retail, transport and hospitality sectors have seen significant increases in price margins. While price margins overall increased by 14% between the fourth quarter of 2019 and the fourth quarter of 2022, they increased by 63% in agriculture, 48% in the construction sector, and by 25% in the trade, transportation, and hospitality sector. By contrast, price margins in financial and insurance activities increased by only 0.2% and in information and communications by 4%. Contribution of compensation of employees and profits to the increase in price margins Source: Destatis; ING Economic & Financial Analysis   In many sectors, profits – not the compensation of employees – were the driver behind higher price margins. While the 14% increase in price margins in the overall economy between the fourth quarter of 2019 and the fourth quarter of 2022 can be explained in almost equal parts by an increase in compensation of employees and profits, the rise in price margins in the agricultural sector, the construction sector, and in the trade, transportation, and hospitality sector can be mainly explained by an increase in profits, and is thus not due to higher energy and commodity prices. How to tackle 'greedflation'? Later today, data will probably show that headline inflation in Germany is falling on the back of lower energy prices. Inflation in Germany and the eurozone, however, is no longer the result of a pure supply-side shock. On the contrary, over the last year, inflation has increasingly become a demand-side issue. It is not only higher energy and commodity prices which are being passed through to consumers, it is also widening profit margins in some sectors which are contributing to inflationary pressures. Read next: Rates Spark: Your timely inflation reminder| FXMAG.COM Whether it is "greedflation" in the purest meaning of the word or there are other reasons, we cannot know entirely. What is clear, however, is that with both a profit-price and wage-price spiral currently turning heavily, core inflation will remain stubbornly high and the ECB will continue hiking interest rates, at least until the summer before entering a high-for-longer period. 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

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

Industrial orders have now rebounded sharply since November, brightening the outlook for German industry. However, the US slowdown and the longer-term fallout from recent financial turmoil, as well as the broader impact of monetary policy tightening, could still spoil the party Source: iStock   German industrial orders surged in February, brightening the outlook for German industry. Industrial orders increased by 4.8% month-on-month, from 0.5% MoM in January. On the year, orders are still down by almost 6%. After the sharp fall since last summer, industrial orders have recovered in recent months. Compared with November last year, industrial orders have increased by more than 7%. Read next: Philippines: Headline inflation slides to six-month low| FXMAG.COM These strong industrial orders data fuel recent optimism in German industry. Interestingly, production expectations had just started to weaken again after the initial enthusiasm over the Chinese reopening at the start of the year. Looking ahead, the outlook for German industry has clearly brightened, even if the high inventory build-up since last summer is still likely to weigh on production in the short run. Beyond the short term, however, the question will be whether today’s boost in new orders is the start of an industrial revival or whether the expected slowdown of the US economy, the fallout from recent financial market turmoil and the broader impact of monetary policy tightening will spoil the party again. Read this article on THINK TagsIndustry Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Last night's Fed minutes didn't tell us much more than what we already knew from the post-meeting statement and Powell's press conference, with European markets finishing the day higher, while US markets slipped back. Banking turmoil and Fed The recent banking turmoil appears to have tempered the reaction function of many Fed officials in terms of how many more hikes are needed to keep a lid on prices, while the risks of a modest recession have increased, according to Fed staffers. The primary focus for now still remains on inflation which is still too high and sticky, and a labour market that is proving increasingly resilient. Yesterday's inflation numbers did little to suggest that another 25bps hike wasn't forthcoming even as headline CPI for March fell to 5% from 6%, rising less than expected on a monthly basis by 0.1%. The better-than-expected number initially helped to push 2-year yields sharply lower, however, this proved to be short-lived, given that on the core measure, prices rose on an annual basis to 5.6% from 5.5% in a move that on the balance of probabilities now is expected to see the Fed hike rates again by another 25bps at the next meeting in May. The bipolar reaction of bond markets serves to highlight the high levels of uncertainty there are about the future path of interest rates. There is certainly some optimism that prices are heading in the right direction and that inflation is slowing, however, there is also plenty of room for wishful thinking as markets continue to price in the prospect of rate cuts by year-end. This outcome still seems improbable given how long it has taken thus far for US CPI to come down from its peaks last year at 9.1% in June. On the core measure, we've remained steady at 5.6% for all of this year, and are only 1% below the peaks seen in September last year. Read next: Did you know that Warren Buffet has more than a 5% stake in Mitsui, Itochu, Mrubeni, Sumitomo and Mitsubishi?| FXMAG.COM Against this sort of stodginess in core prices, it's hard to imagine inflation falling quickly enough to justify the sort of rapid repricing which would prompt the Fed to start cutting rates only a matter of months after their last rate hike. It's especially hard to countenance when core CPI is still above the current Fed funds rate, and also well above the Fed's 2% target. On the plus side, we are seeing evidence that forward-looking indicators are heading in the right direction with today's March US PPI numbers expected to show a further slowing of price pressures. The recent prices paid numbers on the ISM last week showed a reduction in inflation pressures and these should be borne out in a fall to PPI final demand from 4.6% to 3%, while core PPI is expected to slow from 4.4% to 3.4%. Weekly jobless claims are also expected to be in focus after the surprise revisions higher that we saw come in throughout the month of March. Last week saw claims rise to 228k, while the previous week's number of 198k was revised up to 246k. The two previous weeks were also revised upwards by 56k and 38k respectively, reflecting a sharp reassessment of how the US labour market has been performing over the past few weeks. This is expected to continue this week with 235k claims expected. While higher than originally thought a couple of weeks ago, the claims numbers will need to go a lot higher before the Fed becomes concerned about rising unemployment.     Having seen the UK economy revised up to 0.1% GDP growth in Q4, thus avoiding the ignominy of a technical recession, the economic data since the end of last year has shown much greater resilience than many had feared at the end of last year. This has been particularly notable in the services sector, which after a weak Q4 has seen recent monthly PMI numbers recover strongly in February and March. Consumer spending has also picked up sharply with a lot of the recent retail updates showing that while consumers do have money to spend, they are spending it more judiciously. In January the UK economy grew by 0.3%, despite sky-high inflation, as consumer spending rebounded with retail sales gaining 0.9%. This was followed by a 1.2% gain in February, although sales volumes have lagged due to higher prices. Against such a backdrop, another positive GDP number for February could well go some way to increasing the odds of a positive Q1 GDP print for 2023, with expectations of a 0.1% gain, although index of services could act as a drag after a strong January of 0.5%. Construction output is also expected to rebound by 1% in February after a sharp -1.7% decline in January. At around the same time as the UK GDP numbers German CPI inflation is expected to be confirmed at 7.8% for March. In an encouraging development for the global economy earlier today the latest China trade numbers showed that the Chinese economy started to gain momentum in March, as exports surged by 14.8%, the first rise since September, while imports declined a less than expected -1.4%, suggesting that domestic demand was starting to recover after months of lockdowns. Despite this encouraging development, Asia markets had a mixed session, and this looks set to translate into a mixed open, with the CAC40 set to get off to a strong start after LVMH released a strong set of Q1 sales numbers after the close last night. Forex EUR/USD – pushed up towards the 1.1000 area yesterday, with the 1.1030 area as the next key resistance. Found support at the 1.0830 area at the start of the week, with key support just below that at 1.0780. GBP/USD – the main resistance on the cable sits at the high of last week at 1.2530. Strong support currently at 1.2270, with further gains towards 1.2660 still preferred while above 1.2250.   EUR/GBP – looks set for a retest of the 50-day SMA and trend line resistance at 0.8850, from the highs this year at 0.8970. Currently have trend line support at 0.8740 from the August lows at 0.8350. USD/JPY – still has cloud resistance at 134.50 which remains a barrier to further gains. Currently has cloud support at 132.50. FTSE100 is expected to open 12 points lower at 7,812 DAX is expected to open unchanged at 15,703 CAC40 is expected to open 38 points higher at 7,435

The stagnation of the German economy shows that the eurozone's largest economy has not escaped the risk of a recession   Recession not yet avoided. According to a first estimate, the German economy stagnated in the first quarter of the year, following a 0.5% quarter-on-quarter contraction in the fourth quarter of last year. On the year, GDP growth was down by 0.1%. GDP components will only be released at the end of May but according to available monthly data and the statistical office’s press release, growth was mainly driven by exports and activity in the construction sector, while private and public consumption were a drag on growth. After last year’s experience when the economy did better than soft indicators suggested, we now have an opposite pattern, with the economy doing worse than soft indicators have suggested. Also, don’t forget that in 4Q 2022, the initial estimate of a stagnating economy was revised down three times, from an initial stagnation to now -0.5% QoQ. Not out of recessionary danger, yet Today’s data shows that the warm winter weather, a rebound in industrial activity, helped by the Chinese reopening and an easing of supply chain frictions were not enough to get the economy out of the recessionary danger zone. Private consumption continues to suffer from still-high retail energy prices. Looking beyond the first quarter, we still think that the recent renaissance in industrial production could very well carry the economy through the second quarter. However, we are afraid that looking into the second half of the year, the German economy will continue its flirtation with recession. This is when the industrial backlog will have been reduced without new strong demand coming in, when the impact of the most aggressive monetary policy tightening in decades will fully unfold and when a slowdown of the US economy will hit German exports. On top of these cyclical factors, the ongoing war in Ukraine, ongoing demographic change and an ongoing energy transition will structurally weigh on the German economy in the coming years. Read next: Spain’s economic growth picks up while core inflation falls again| FXMAG.COM Today’s GDP growth illustrates that the industrial renaissance of the last two months has not been enough to get the economy out of recessionary territory. Even though early GDP estimates have become subject to unusually strong revisions and we could still see some upward revision, the overall direction for the German economy is clear: this year will bring a long flirtation with stagnation. Read this article on THINK TagsGermany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

After energy price inflation, it is now food price inflation that has started to drop as a result of base effects, pushing down German headline inflation. Core inflation, however, still doesn't show any sign of retreating   To paraphrase Meghan Trainor’s song: it’s all about that base. German headline inflation continued its downward trend, coming in at 7.2% year-on-year in April (from 7.4% YoY in March), but what looks like a broader disinflationary process is still only disinflation on the back of base effects. Yes, headline inflation has now dropped from its winter peak of 8.8% to 7.2% YoY and the HICP measure came in at 7.6% YoY, from an 11.6% peak in October last year. But the sharp drop in headline inflation is mainly the result of negative base effects from energy prices and in April for the first time also food prices. Underlying inflationary pressures, however, remain high and given that the month-on-month change in headline inflation was still above historical averages for April, there is no reason to cheer.  Food price inflation finally starts to come down Today’s drop in headline inflation will support the view of those who always advocated that the inflation surge in the whole eurozone was 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 fuelling underlying inflationary pressure, not only in Germany but in the entire eurozone. Headline inflation to come down further but core will remain high Available German regional components suggest that core inflation remains high. While energy price inflation continued to come down and food price inflation for the first time started to slow down, most other components showed broadly unchanged inflation rates. At the same time, selling price expectations in the manufacturing sector have almost dropped back to their historical averages but selling price expectations in services remain high. All of this suggests that the pass-through of inflationary pressure is gradually slowing down but is far from over. 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 European Central Bank 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. Read next: Italian GDP growth surprisingly strong in first quarter| FXMAG.COM 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 are likely to push down headline inflation faster than recent forecasts suggest. On the other hand, recent wage settlements and still decent pipeline pressure in services are likely to keep core inflation high. We continue to expect that German headline inflation will average at around 6% this year. 25bp rate hike most likely at next week's ECB meeting For the ECB, today’s data had something for everyone. Positive and negative surprises on growth and rather erratic inflation data can be used by both doves and hawks. As a result, an already heated debate on whether to hike rates by 25bp or 50bp will become even more heated. We still think that next week’s Bank Lending Survey results will tilt the balance in one of the two directions. Given the growing divide within the ECB, a rate hike of 25bp would still be a typical European compromise. However, today’s fireworks of very opposing data points have not made the ECB’s life any easier. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

German consumer inflation slowed to 7.2% y/y in April, Destatis said in its final estimate. The trend of decelerating price increases continues, although it remains well above the ECB's target. March data for other price indicators point to further easing of pressure. For example, the wholesale price index rose by only 2% y/y in March, and import prices were 4.8% lower than 12 months earlier. Gas prices at the European hub continue to fall, reaching $403 per 1,000 units. This is the lowest level since July 2021 and the upper limit of the typical price range since 2011. The slowdown in inflation allows the ECB to hold back and end the hiking cycle sooner, which is potentially negative for the euro. But now investors should pay more attention to how ECB officials assess the situation, as their job of taming inflation is not yet considered done. Read next: Bitcoin lurks at a local bottom| FXMAG.COM In her speech today, Lagarde once again reminded us that more action needs to be taken to curb inflation, which implies further rate hikes. This stance is more hawkish than the Fed, hinting at a pause and an end to the tightening cycle.

The third drop in a row for the German ZEW index marks a turning point for the worse as any growth optimism from the start of the year evaporates   All bad things come in threes. The ZEW index, which measures financial analysts’ assessment and expectations of economic and financial developments, signals a turn of the German economy for the worse. In May, the ZEW index decreased to -10.7 from 4.1 in April, the third consecutive drop. At the same time, the current assessment component also weakened, dropping to -34.8 from -32.5 in April. Weak German macro data in recent weeks, as well as the US debt ceiling debate, banking turmoil and expectations of further rate hikes, seem to have dented analysts’ optimism. Earlier optimism has disappeared for now The ZEW index is definitely one of the worst-performing leading indicators in Germany when it comes to predicting GDP growth. However, it has a decent track record in predicting turning points in the economy. With this in mind, today’s ZEW sends a worrisome message: three consecutive drops are a new trend, a trend in the wrong direction. Read next: Spanish construction sector growing strongly, but challenges remain| FXMAG.COM To some extent, today’s index numbers are both backward and forward-looking. It’s both a reflection of recent weak macro data but also, once again, of a downscaling of growth expectations. The optimism at the start of the year seems to have given way to more of a  sense of reality. A drop in purchasing power, thinned-out industrial order books as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the US economy all argue in favour of weak economic activity. On top of these cyclical factors, the ongoing war in Ukraine, demographic change and the current energy transition will structurally weigh on the German economy in the coming years. All of this doesn’t mean that the German economy will be stuck in recession for the next couple of years. But it does mean that growth will remain subdued at best and that the flirtation with stagnation will continue. Read this article on THINK Tags ZEW index Germany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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

Weak Chinese manufacturing data put pressure on the single currency as Europe, particularly Germany, is highly correlated with China.   However, the Eurozone's data is not so bad today. The number of unemployed in Germany rose by 9K, down from 23K and 19K in the previous two months. Unemployment is rising much more slowly than in the recessions of 2009 and 2020, and the unemployment rate (5.6%) is low by historical standards.   Second estimates confirmed a 0.2% q/q and 0.9% y/y rise in French GDP in the first quarter, although private consumption fell by a further 1% in April after a 0.8% decline in the previous two months.   For Italy, the final data pointed to economic growth of 0.6% q/q and 1.9% y/y, 0.1 percentage points higher than previously estimated.   Despite the upbeat economic data, the EURUSD fell to 1.0660 in early European trading, its lowest level since 17 March.

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

FXMAG.COM: Could you please comment on the CPI in eurozone? The CPI in the Eurozone in May might remain at 7% y/y. For Spain and Belgium, the problem of inflation is fading into the background. Here, inflation indices are below the consensus level. For France and Germany, on the contrary, the topic of prices remains acute. The food segment is still a key contributor to high inflation. Agricultural costs are decreasing, and energy is becoming cheaper. Yet, a number of products remain extremely expensive for consumers. By comparison, cheese in Germany now costs almost 40% more than last year, and potatoes are 14% more expensive. Throughout the EU, food inflation rose by almost 17% y/y in April and might be even higher in May. The constantly rising food prices force households to cut demand at a time of low income. In Italy, for example, there was a special meeting of politicians about the rising price of spaghetti. This is a real problem. Next, we see the following. The agricultural sector is reducing basic spending on food production. Yet labour costs are rising. In addition, supply chain issues persist. It is unlikely that food will become cheaper in the nearest future. Globally, rising prices might put pressure on the ECB to raise interest rates further.

Disinflationary trend in Germany gains momentum in May Another drop in headline inflation suggests that the disinflationary trend in Germany is gradually broadening. However, it will not (yet) stop the European Central Bank from hiking rates again.   German headline inflation continued its downward trend, coming in at 6.1% year-on-year in May (from 7.2% YoY in April). Today’s data marks the next stage of a gradually broadening disinflationary process as the drop in headline inflation is no longer exclusively the result of base effects but also the result of dropping prices.   Headline inflation has now dropped from its winter peak of 8.8% to 6.1% YoY and the HICP measure came in at 6.3% YoY, from an 11.6% peak in October last year. For the first time this year, prices actually dropped compared with last month, mainly for energy and food but also for transportation as a result of the newly introduced €49 ticket for public transportation.   Disinflationary trend gradually broadening   Today’s drop in headline inflation will support the view of those who advocated that the inflation surge in the eurozone was mainly a long but transitory energy and food price shock with an unpleasant pass-through to the rest of the economy.   If you believe this argument, today’s drop in headline inflation marks the next stage of a longer disinflationary trend: first, it was negative base effects pushing down headline inflation, and now it is actually falling prices in the same categories accelerating the disinflation. However, signs that the disinflationary process is actually spreading to other parts of the economy are still missing. According to available regional data, even the base effect outside of energy and food is still very limited.   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 European Central Bank to take this data at face value.   Government intervention and interference, whether that's temporary or permanent, and has taken place this year or last, will blur the picture.   In Germany, for example, the newly introduced €49 ticket already helped to push down inflation in May. However, the reversal of last year’s negative base effects from the energy relief package for the summer months should automatically push up headline inflation again between June and August. It will take until the end of the year for headline inflation to fall into the 3%-4% range.   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 are likely to push down headline inflation faster than recent forecasts suggest.   On the other hand, recent wage settlements and still decent pipeline pressure in services are likely to keep core inflation high. We continue to expect that German headline inflation will average around 6% this year.   Weak growth and dropping inflation but ECB will continue hiking For the ECB, macro data released since the May meeting has had something for everyone. The eurozone economy has turned out to be less resilient than anticipated a few weeks ago and confidence indicators, with all the caveats currently attached to them, point to a weakening of growth momentum again.   As headline inflation is gradually retreating, the risk increases that any additional rate hike could quickly turn out to be a policy mistake; at least in a few months from now. However, at the same time, the ECB seems to have given up linking policy decisions too close to their own forecasts (rightly so) and has put more than usual emphasis on actual inflation developments. With this in mind, the unwritten law that high inflation can only be defeated for good with positive real interest rates remains a strong argument for the ECB hawks.   As we have learned over the last 12 months, the ECB seems to prefer to go too high with rates rather than stop prematurely. This is why we expect the ECB to continue hiking by 25bp at its next meeting in two weeks from now.

Eurozone in technical recession after all The latest revisions of the GDP figure for the first quarter resulted in a 0.1% drop. That makes for a second decline in a row. These declines are so minimal that current economic circumstances are better described as broad stagnation.   So, a technical recession after all. It just took the statistical offices a while to get there. The decline of 0.1% in both the fourth and first quarters is so minimal though, and the labour market is so strong that it’s hard to argue that this is a recessionary environment. The stagnation of the economy does mark a clear cut from the recent post-pandemic boom though.   The significant downward revision was mainly due to Germany revising down its numbers as new data came in. This fuels the idea that March activity was very weak, making a quick rebound in the second quarter unlikely. With May survey data being weak across the board, it is likely that we only get a modest uptick after the two quarters of downturn. Overall, the eurozone economy is very much back to muddling through, as monetary policy starts to weigh more heavily on activity, post-pandemic spending fades and the energy crisis looms.

If we take a helicopter view, our selected CEE countries as a group are well integrated into global trade and the region plays an important role in global value chains. However, if we focus in, we can find a lot of differences in the exposure to external shocks in merchandise trade. A regular talking point here is the faster-growing regions in merchandise trade.   Unsurprisingly, the direct exposure of the CEE countries is greatest towards the EU (60-85%), with one exception. This is Turkey, where the EU accounts for 30-35% of exports and imports. Thus, Turkey’s trade structure looks less concentrated, making trade more resilient to external shocks, but more dependent on the foreign policy balancing. Meanwhile, other CEE countries, like the Czech Republic, Romania and Hungary are more heavily dependent on the EU with 70-80% share of external trade.   CEE foreign trade and ties to EU (% of GDP)     Looking at the question of whether trade with China can be a key differentiator, the direct exposure to China is still relatively small in the CEE region, at around 1.3-1.7% of total merchandise exports.   However, a pivot eastwards is being recorded in some countries, including Hungary’s ‘Eastern Opening’ policy. Due to geopolitical tensions with the US, China is repositioning itself. Its share in EU imports has increased from 7% to 9%, while in US imports China’s share has dropped from 20% to 15% in recent years.   The main channel of China’s expected increase in CEE trade could therefore manifest itself not directly, but through a potential increase in CEE’s trade with the EU. As an example, the 1Q23 data suggests that Germany saw imports from Poland and Romania each increase 17% YoY with a 10% YoY drop in Chinese imports (and an 86% YoY drop in Russian supplies).

Fed set for a rate pause; UK GDP set to rebound in April    European markets closed higher for the second day in a row, after the latest US inflation numbers for May came in at a 2-year low, and speculation about further Chinese stimulus measures boosted sentiment.   US markets followed suit although the enthusiasm and gains were tempered ahead of today's Fed meeting as caution set in ahead of the rate announcement.   Having seen US CPI for May come in at a two year low of 4%, in numbers released yesterday, market expectations are for the US central bank to take a pause today with a view to looking at a hike in July. Of course, this will be predicated on how the economic data plays out over the next 6-7 weeks but nonetheless the idea that you would commit to a hike in July begs the question why not hike now and keep your options open regarding July, ensuring that financial conditions don't loosen too much.   Today's May PPI numbers are only likely to reinforce this more dovish tilt, if as expected we see further evidence of slowing prices, with core prices set to fall below 3% for the first time in over 3 years. Headline PPI is expected to slow to 1.5%, down from 2.3%.       When Fed officials set out the "skip" mindset in their numerous briefings since the May decision when the decision was taken to remove the line that signalled more rate hikes were coming, there was always a risk that this sort of pre-commitment might turn out to be problematic.   So, while markets are fully expecting the Fed to announce no change today, Powell's biggest challenge will be in keeping the prospect of a July rate hike a credible outcome, while at the same time as outlining the Fed's economic projections for the rest of the year, as well as for 2024.   In their previous projections they expect unemployment to rise to a median target of 4.5% by the end of this year. Is that even remotely credible now given we are currently at 3.7%, while its core PCE inflation target is 3.6%, and median GDP is at 0.4%.     Before we get to the Fed meeting the focus shifts back to the UK economy after yesterday's unexpectedly solid April jobs data, as well as the sharp surge in wages growth, which prompted UK 2-year gilt yields to surge to their highest levels since 2008, up almost 25bps on the day.   While unemployment slipped back to 3.8% as more people returned to the work force, wage growth also rose sharply to 7.2%, showing once again the resilience of the UK labour market, and once again underlining the policy failures of the Bank of England in looking to contain an inflation genie that has got away from them.   This failure now has markets pricing in the prospect that we could see bank rate as high as 6% in the coming months, from its current 4.5%. The risk is now the Bank of England, stung by the fierce and deserved criticism coming its way, will now overreact at a time when inflation could well start to come down sharply in the second half of this year.   So far this year the UK economy has held up reasonably well, defying the doomsters that were predicting a 2-year recession at the end of last year. As things stand, we aren't there yet, unlike Germany and the EU who are both in technical recessions.   Sharp falls in energy prices have helped in this regard, and economic activity has held up well, with PMI activity showing a lot of resilience, however the biggest test is set to come given that most mortgage holders have been on fixed rates these past two years which are about to roll off.     As we look to today's UK April GDP numbers, we've just come off a March contraction of -0.3% which acted as a drag on Q1's 0.1% expansion. 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%.     This isn't expected to be repeated in today's April numbers, however there was still widespread strike action which is likely to have impacted on public services output.   The strong performance from manufacturing is also unlikely to be repeated with some modest declines, however services should rebound to the tune of 0.3%, although the poor March number is likely to drag the rolling 3M/3M reading down from 0.1% to -0.1%.       EUR/USD – failed at the main resistance at the 1.0820/30 area, which needs to break to kick on higher towards 1.0920. We still have support back at the recent lows at 1.0635.     GBP/USD – finding resistance at trend line resistance from the 2021 highs currently at 1.2630. This, along with the May highs at 1.2680 is a key barrier for a move towards the 1.3000 area. We have support at 1.2450.      EUR/GBP – has slipped back from the 0.8615 area yesterday, however while above the 0.8540 10-month lows, the key day reversal scenario just about remains intact. A break below 0.8530 targets a move towards 0. 8350.     USD/JPY – looks set to retest the recent highs at 140.95, with the potential to move up towards 142.50.  Upside remains intact while above 138.30.      FTSE100 is expected to open 10 points lower at 7,585     DAX is expected to open 15 points lower at 16,215     CAC40 is expected to open 3 points lower at 7,288

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

France/Germany flash PMIs (Jun) – 23/06 – One of the more notable trends we've seen in recent months has been an ongoing divergence between services sector activity and manufacturing activity. This trend has also started to manifest itself in China which is seeing its manufacturing sector start to struggle.   In France manufacturing activity remained steady at 45.7, while Germany slipped back to 43.2 from 44.5. Services continues to remain resilient but even here activity is cooling off a touch, with France slipping to 52.5 from 54.6, while Germany improved to 57.2 from 56.   In the UK the picture appears to be more upbeat, although even here manufacturing is struggling coming at 47.1 in May, while services also slowed to 55.2 from 55.9. Lower fuel costs may offer some support here; however, most services providers are struggling with higher costs, which by and large they are able to pass on.

Bank of England set to raise rates again, but by how much?      European markets fell for the third consecutive day yesterday, after the IFO in Germany warned that a recession would be sharper than expected in the second half of the year, and UK core inflation unexpectedly jumped to a new 32 year high. US markets also fell for the third day in a row after Fed chairman Jay Powell doubled down on his message from last week to US lawmakers yesterday, that US rates would need to rise further to ensure inflation returns to target.   This weakness in US markets looks set to translate into a lower European open, as we look towards another three central bank rate decisions, from the Swiss National Bank, Norges Bank and the Bank of England all of whom are expected to raise rates by 25bps today. Up until yesterday's CPI number markets were predicting with a high degree of certainty that we would see a 25bps rate hike from the Bank of England later today.   That certainty has now shifted to an even split between a 25bps rate hike to a 50bps rate hike after yesterday's sharp jump in core CPI to 7.1% in May.   As inflation readings go it's a very worrying number and suggests that inflation is likely to take longer to come down than anticipated, and even more worrying price pressure appears to be accelerating, in contrast to its peers in the US and Europe where prices now appear to have plateaued.   This has raised the stakes to the point that the Bank of England might feel compelled to hike rates by 50bps later today, and not 25bps as expected. Such an outcome would be a surprise from the central bank given their cautious nature over the years, however such has been the strong nature of recent criticism, there is a risk that they might overreact, in a sign that they want to get out in front of things. Whatever they do today it's not expected to be a unanimous decision, but the surge in core inflation we've seen in recent months, does make you question what it is that Swati Dhingra and Silvana Tenreyro are seeing that makes them think that the last few meetings were worthy of a no change vote.    In the absence of a press conference to explain their actions a 50bps rate move would be a risky strategy, as it could signal they are panicking. A more measured response would be to hike by 25bps with a commitment to go more aggressively at the next meeting if the data warrants it. The big problem the bank has is that they won't get to see the July inflation numbers, when we could see a big fall in headline CPI, until after they have met in August, putting us into the end of Q3 until we know for certain that inflation is coming down. The resilience in UK core inflation has got many people questioning why it is such an outlier, compared to its peers, however if you look closely enough the reason is probably staring us in the face in the form of UK government policy and the energy price cap, which has kept gas and electricity prices artificially high for consumers.   If you look at the price of fuel at the petrol pump it is back at the levels it was prior to the Russian invasion of Ukraine, due to the slide in oil prices from their peaks of $120 a barrel, with consumers already benefitting from this disposable income uplift into their pockets directly in a lower bill when it comes to refilling the family car.    Natural gas prices have gone the same way, yet these haven't fed back into consumers' pockets in the same way as they have in the US and Europe.   This has forced employers here, in the face of significant labour shortages, to increase wages to attract the staff they need, as well as keep existing staff to fulfil their business functions. We already know that average weekly earnings are trending upwards at 7.6% and in some sectors, we've seen wage growth even higher at between 15% and 25%.    These increased costs for businesses inevitably feed through into higher prices in the cost of delivering their services, and voila you have higher service price inflation which in turn feeds into core prices, in essence creating a price/wage spiral.   It is perhaps a supreme irony that an energy price cap that was designed to protect consumers from rising prices is now acting in a fashion that is making UK inflation a lot stickier, and making the UK's inflation problem a lot worse than it should be.   So, while a lot of people are blaming the Bank of England for the mess the UK is in, we should also direct some of the blame at the energy price cap, a Labour Party idea that was hijacked by the Conservatives and is now acting as moron premium in the UK gilt market.   It is these sorts of poorly thought through political interventions that always have a tendency to come back and bite you in ways you don't expect, and the politicians are at it again, with the Lib Dems calling for a £3bn mortgage protection scheme, another crackpot idea that would push back in the opposite direction and simply make the task of getting inflation under control even more difficult.     On the plus side there are reasons to be optimistic, with the energy price cap set due to be reduced in July, while PPI inflation has also been falling sharply, with the monthly numbers in strongly negative territory, meaning it can only be a matter of time before the year-on-year numbers go the same way.     This trend of weaker PPI suggests that market forecasts of a terminal bank rate of 6% might be overly pessimistic, and that subsequent data will pull gilt yields lower, however we may have to wait another 2 to 3 months for this scenario to play out in the data.   This should still feed into headline CPI by the end of the year, though core prices might prove to be slightly more difficult to pull lower.      EUR/USD – remain on course for the April highs at 1.1095 while above the 50-day SMA at 1.0870/80 which should act as support. Below 1.0850 signals a move towards 1.0780.   GBP/USD – fell back to the 1.2680/90 area yesterday before recovering, having found resistance at the 1.2845/50 area at the end of last week. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510.    EUR/GBP – found support at the 0.8515/20 area and has move up towards the recent highs at 0.8620. A move through 0.8630 could see a move towards 0.8680. While below the 0.8620 area the bias remains for a return to the recent lows.   USD/JPY – currently finding itself rebuffed at the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30.    FTSE100 is expected to open 45 points lower at 7,514   DAX is expected to open 82 points lower at 15,941   CAC40 is expected to open 34 points lower at 7,227   By Michael Hewson (Chief Market Analyst at CMC Markets UK)

UK retail sales could surprise to the upside, flash PMIs in focus - By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets fell for the fourth day in succession yesterday, driven lower on worries that central banks will look through concerns over a slowdown in economic activity and prioritise the battle against inflation, and look set to open lower this morning.     These concerns have been magnified in recent days with last week's hawkish Fed meeting, followed by the bigger than expected 50bps rate hikes from the Bank of England and Norges Bank yesterday, as investors started to worry that creating a possible recession was likely to become a necessary side-effect in their willingness to push inflation back down to their 2% targets. Certainly, the sticky nature of core inflation is causing a great deal of anxiety not only on the part of central bankers, but also on the part of those who are due to come off fixed rate mortgages in the next 12 months. The hope is that this period of high rates could soon give way to a softening later in the year, however the big rise in core inflation suggests that we may have to endure them for quite a bit longer.     On the plus side the lowering of the energy price cap next month is already seeing energy companies writing to customers and lowering their monthly direct debits with gas prices now back at 2021 levels. This should start to see headline inflation continue to decline into the end of the year.       While concerns over a possible recession are increasing, a lot of the economic data so far thisyear has proved to be reasonably resilient, which makes the timing of yesterday's decision to be more aggressive by the Bank of England a little bit after the fact.   For an economy that is wrestling with food price inflation of close to 20% the resilience seen in the UK consumer has been surprising so far this year, with clothing retailer Next surprising the market earlier this week when it upgraded its full year profits forecasts on better-than-expected trading activity.   Consumer confidence has improved as petrol prices have come down and certainly helped with some of that, however we also can't ignore the recent increase in interest rate costs that are likely to act as a drag in H2 of this year. In April we saw retail sales excluding fuel rise by 0.8%, partially reversing a sharp -1.4% decline in March, which in turn reversed a 1.4% gain in February.   The gain in April was even more surprising given the rise in tax rates, including council tax and other utility bills that kicked in at the start of the fiscal year.   For May estimates are for retail sales to fall by a modest -0.2%, even with recent updates from a few UK retailers pointing to continued resilience when it comes to spending patterns. We also have the latest flash PMI numbers for June which are likely to continue to exhibit one of the more notable trends we've seen in recent months, which has been an ongoing divergence between services sector activity and manufacturing activity.   This trend has also started to manifest itself in China which is seeing its manufacturing sector start to struggle.   In France manufacturing activity remained steady at 45.7, while Germany slipped back to 43.2 from 44.5. Both of these are expected to remain close to current levels.   Services continue to remain resilient but even here activity is cooling off a touch, with France slipping to 52.5 from 54.6, while Germany improved to 57.2 from 56. Again, these are expected to come in slightly weaker at 52.1 and 56.3.   In the UK the picture appears to be more upbeat, although even here manufacturing is struggling, coming at 47.1 in May, while services also slowed to 55.2 from 55.9. UK manufacturing is expected to soften to 46.8 and services to 54.8.     Lower fuel costs may offer some support here; however, most service providers are struggling with higher costs, which by and large they are having to pass on.    EUR/USD – pushed briefly back above the 1.1000 level yesterday before slipping back, with the main resistance at the April highs at 1.1095. This remains the next target while above the 50-day SMA at 1.0870/80 which should act as support. Below 1.0850 signals a move towards 1.0780.     GBP/USD – spiked up to 1.2850 yesterday before slipping back, however it remained above the lows this week at the 1.2680/90 area. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510, but needs to clear 1.2850.      EUR/GBP – failed between the 0.8630/40 area before slipping back. The main support is at least weeks low at the 0.8515/20 area. A move through 0.8640 could see a move towards 0.8680. While below the 0.8630 area the bias remains for a return to the recent lows.     USD/JPY – has finally cracked the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move, as it looks to close in on the 145.00 area. Support now comes in at 140.20/30.      FTSE100 is expected to open 27 points lower at 7,475     DAX is expected to open 120 points lower at 15,868     CAC40 is expected to open 53 points lower at 7,150

EUR: PMIs hardly a game-changer for the ECB The ECB had to resist two main dovish arguments at the June meeting: a faster decline in inflation, and signs of slowing growth outlook. The second will be tested again today with the release of PMIs. Consensus is looking at declining services PMI for a second consecutive month in the euro area and Germany, while manufacturing is seen holding up better. The composite EZ gauge is expected to decline very marginally from 53.9 to 53.3. At this stage, it will probably take a pretty clear sub-consensus surprise print to prompt a materially negative euro reaction. The ECB has demonstrated it is firmly focused on inflation, and the debate around a September hike (a July one should be a done deal, according to President Christine Lagarde) does not seem likely to take these surveys under much consideration.   The euro is showing more resilience than other activity currencies to the rebound in the dollar, and barring big downside surprises in PMIs may hold above 1.0900 into next week.

European and US stock markets have seen a significant shift in sentiment over the past few days when it comes to the global economy. Rising bond yields, driven by more hawkish central banks, which has prompted investors to reassess the outlook when it comes to valuations and growth.     While European markets saw their biggest weekly loss since March, US markets also took a tumble, albeit the first one in 8 weeks, as a succession of central banks pledged that they had significantly further to go when it comes to raising rates. Bond markets also started to flash warning signs with yield curves becoming more inverted by the day whether they be France, Germany, or the UK. Friday's weak finish hasn't translated into a strongly negative vibe as we start a new week for Asia markets, even allowing for events in Russia at the weekend which aren't likely to have helped the prevailing mood, with the US dollar slightly softer this morning after getting a haven bid at the end of last week.     With economic data continuing to show varying signs of vulnerability, particularly in manufacturing the situation could have got even spicier over the weekend when Wagner Group boss Yevgeny Prigozhin set his troops on the road to Moscow in an insurrection against the Kremlin, and Russian President Vladimir Putin.   As it turns out a crisis was quickly averted when it was announced that Prigozhin would go into exile in Belarus, with any charges against him dropped, and Wagner troops would return to their bases. One can only imagine the reaction if that news had broken if markets had been open at the time, however it only adds to the general uncertainty surrounding the war in Ukraine and how quickly things can start to unravel.   This weekend's events also serve to indicate how fragile Vladimir Putin's position is given that one of his most trusted advisors suddenly went rogue.   As we look ahead to the final week of June and the end of the quarter, as well as the first half of the year we can reflect to some extent that markets have held up rather well when all things are considered. They have been helped in that by the sharp falls in energy prices back to pre-Russian invasion of Ukraine levels, as well as the low levels of unemployment which have served to keep demand reasonably resilient.     The elephant in the room has been the stickiness of core inflation as well as signs that demand is starting to falter, and this week we could get further confirmation of that trend.   Today we get the latest Germany IFO Business Climate survey for June, which if last week's flash PMI numbers are any guide could well show that the confidence amongst German business is faltering, with expectations of a slowdown to 90.6, from 91.7.     We also get flash CPI inflation numbers from Germany, France and the EU where headline prices are likely to show further signs of softening, with core prices set to remain sticky. At around the same time we get the latest PCE inflation numbers from the US for May.   These are likely to be important in the context of the Federal Reserve's stated intention to raise interest rates at least twice more before the end of the year.     In April the core PCE Deflator edged up from 4.6% to 4.7%, an area it has barely deviated from since November last year. You would have thought that even with the long lags seen from recent rate hikes they would start to have an impact on core prices.   This perhaps explains why central banks are being so cautious, even as PPI prices are plunging and CPI appears to be following.       EUR/USD – pushed briefly back above the 1.1000 level yesterday before slipping back, with the main resistance at the April highs at 1.1095. This remains the next target while above the 50-day SMA at 1.0870/80 which should act as support. Below 1.0850 signals a move towards 1.0780.     GBP/USD – currently holding above the lows of last week, and support at the 1.2680/90 area. Below 1.2670 could see a move towards the 50-day SMA. Still on course for a move towards the 1.3000 area but needs to clear 1.2850.      EUR/GBP – failed to rebound above the 0.8630/40 area last week. The main support is at last week's low at the 0.8515/20 area. A move through 0.8640 could see a move towards 0.8680. While below the 0.8630 area the bias remains for a return to the recent lows.     USD/JPY – has finally moved above the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move, as it looks to close in on the 145.00 area. This now becomes support, with further support at 140.20/30.      FTSE100 is expected to open 6 points higher at 7,468     DAX is expected to open 28 points higher at 15,858     CAC40 is expected to open 8 points higher at 7,171

EUR: German IFO can keep the euro subdued Friday saw a soft set of PMIs across Europe, where the services sector dipped worryingly towards the gloom already felt in the manufacturing sector. This data set knocked about 50 pips off EUR/USD at the time of the release. Germany's June IFO today could also see a downside surprise and prompt another dip in EUR/USD back below 1.0900.  On the surface, the narrative of central bankers needing to keep higher rates for longer is not a good one for the pro-cyclical euro. However, a hawkish ECB has provided some defence against high US interest rates and has driven EUR/USD back above 1.09 – it will also firm up expectations of at least two more 25bp hikes (in July and September) and perhaps push back against some of the modest easing expected in 2024. This environment tends to favour the continuation of a 1.0850-1.1000 range trade for EUR/USD and the goldilocks scenario of soft landing/softer Fed policy looks to be delayed further. Elsewhere this week look out for a Riksbank rate meeting on Thursday.  Unless it delivers a hawkish hike, EUR/SEK will head back above 11.80.  

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

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

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)  

But there are also more cautious voices on the topic. Just as Lagarde pointed out in yesterday’s panel, interest rates remain the ECB’s primary monetary policy tool. In another background report by Econostream released in the afternoon, ECB officials signalled that the current passive run-off was sufficient, and especially speeding it up via the changes to the PEPP guidance and/or reinvestments would unnecessarily risk financial stability.   After all, the possibility to flexibly reinvest PEPP holdings is one of the main tools that the ECB still has to quickly react to spread widening pressures in bond markets. At some point the ECB has to decide on the balance sheet size it wants to target, which goes hand-in-hand with an ongoing review of the ECB’s operational framework. Yesterday, Lagarde flagged that this work could hopefully be completed in the next “six to nine months”. This indicates some upside risk to previous communication which saw the review being concluded by the end of the year.   Today's events and market view Inflation remains the central banks’ one needle in the compass that dictates their policy nowadays. This puts the focus squarely on today’s inflation readings out of Germany and Spain. German headline and core rates are seen higher on the back of base effects and statistical tweaks. Spain’s headline rate is seen falling below the 2% level but, more importantly, the core rate is seen to come down only marginally.   Alongside Italy’s data from yesterday this should already give a good idea of where tomorrow’s eurozone reading is headed – and it should signal no let up in the pressure on central banks to continue to act forcefully.   In this set-up yield curves will remain inverted for some time. Markets will see the softness in wider data, such as in yesterday’s eurozone credit growth which shows that policy transmission is working. Still, if there is anything that could turn the market it is surprises in the inflation data, which markets might be quicker to extrapolate even if central banks themselves might want to see confirmation from more than just one reading.   In other data we will get the initial jobless claims out of the US, pending home sales, as well as a third reading for first quarter GDP growth.

EUR: Looking at June national CPIs today Hawkish rhetoric from European Central Bank President Christine Lagarde this week has failed to move the needle much on market pricing of 25bp hikes in July and September. Let's see whether those expectations change much on the release today of national CPI data in both Germany and Spain. These are a precursor to tomorrow's release of the eurozone CPI figure, where the core rate is expected to tick up to 5.5% year-on-year from 5.3%.  The difference between the US and the eurozone story, however, is the confidence and activity data. Today, the eurozone is expected to release another soft set of consumer and industrial confidence data for June. This leaves a lingering sense that the ECB's hawkishness could crumble before the Fed's.  With USD/CNY staying bid and eurozone data soft we would say EUR/USD risks another drop to the 1.0850 area. Valuation metrics suggest EUR/USD does not have to sell off too far - but the pieces of the investment puzzle have yet to fall into place for a EUR/USD rally.

Lagarde signals ECB rate hike in July Germany releases inflation report later on Thursday Eurozone inflation report follows on Friday EUR/USD is unchanged on Thursday and is trading at 1.0912 in the European session,   German CPI  Germany releases the June inflation report later today. Inflation in the eurozone’s largest economy fell to 6.1% in May, down sharply from 7.2% in April. Much of the decline, however, was driven by lower energy prices. Inflation is expected to head higher, with a consensus of 6.3%. If CPI surprises to the downside, the euro could get a boost.   Lagarde signals rate hike in July Investors were hoping to gain some insights this week from ECB President Lagarde, who hosted the ECB Bank Forum in Sintra. There really wasn’t anything new in her remarks, which may have been disappointing to some. One could make the argument that Lagarde is being consistent in her message to the markets and used the Sintra meeting to reiterate the ECB’s intent to raise rates at the July 27th meeting, unless there is an unexpected drop in inflation, in particular the core rate. Lagarde stated on Wednesday that the central bank is not considering a pause in July as things currently stand. At the same time, Lagarde has some wiggle room, as she has said each rate decision will be data-dependent. The ECB has an entire month before the next meeting, and if core inflation slides or the eurozone economy takes a turn for the worse, the ECB could pause, arguing the conditions were appropriate for holding rates steady. Lagarde & Co. will get a look at eurozone inflation data on Friday. Headline inflation is expected to fall to 5.6% in June, down from 6.1% in May. Core CPI is projected to rise from 5.3% to 5.5%.   EUR/USD Technical EUR/USD is putting pressure on resistance at 1.0916. This is followed by 1.0988 1.0822 and 1.0750 are providing support    

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

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

Services PMIs and Fed minutes in focus By Michael Hewson (Chief Market Analyst at CMC Markets UK) In the absence of US markets yesterday, European markets underwent a modestly negative session on a fairly quiet day, and look set to open modestly lower this morning, with Asia markets drifting lower. For the past few days, markets have been trading in a broadly sideways range with little in the way of momentum, as investors weigh up the direction of the next move over the next quarter.   The last few weeks have been spent obsessing about the timing of a possible recession, particularly in the US, with the timing getting slowly pushed back into 2024, even as bond markets flash warnings signs that one is on the horizon.     As we look ahead to Friday's US payrolls report, speculation abounds as to how many more central bank rate hikes are inbound in the coming weeks, against a backdrop of economic data that by and large continues to remain reasonably resilient, manufacturing notwithstanding.     Despite the dire start of manufacturing activity as seen earlier this week, services have held up well, although we are now starting to see some pockets of weakness. A few days ago, in the flash numbers France saw a sharp fall in economic activity, sliding from 52.5 to 48 for June, although activity in the rest of the euro area remains broadly positive.     This is an area of the economy that could help boost economic activity, particularly in Italy and Spain now we're in the holiday season and has seen these two countries perform much better in recent months. The outperformance here could even help avert a 3rd quarter of economic contraction for the euro area.       Expectations for Spain and Italy are 55.7, and 53.1, modest slowdowns from the numbers in May, while France and Germany are expected to slow to 48 and 54.1.     We're also expected to see a positive reading from the UK, albeit weaker from the May numbers at 53.7. US PMI numbers are due tomorrow given the July 4th holiday yesterday.     Later today with the return of US markets, we get a look at the most recent Fed minutes, when the FOMC took the collective decision to keep rates on hold, with the likelihood we will see a resumption of rate hikes later this month.     In the lead-up to the decision there had been plenty of discussion as to the wisdom of pausing given how little extra data would be available between the June and July decisions. The crux of the argument was if you think you need to hike again, why wait until July when the only data of note between the June and July decisions is one payrolls report, and one set of inflation numbers.     All of that is now moot however and while inflation has continued to soften, the labour market data hasn't. Here it remains strong with tomorrow's June ADP report, the May JOLTs report, weekly jobless claims, as well as Friday's June payrolls numbers.     Tonight's minutes may offer up further clues as to the Fed's thinking when it comes to why they think that two more rate hikes at the very least will be needed by the end of this year.     A few members changed their dots to reflect the prospect that they were prepared to raise rates twice more by the end of the year, with a hike in July now almost certain. This stance caught markets off guard given that pricing had been very much set at the prospect of one more rate hike, before a halt.     A key part of the thinking may have been the Fed's determination that markets stop pricing rate cuts by the end of this year. This insistence of pricing in rate cuts by year end has been one of the key characteristics that has helped drive recent gains in stock markets.     This has now been largely priced out, so in this regard the Fed has succeeded,   The key now is to make sure that the Federal Reserve, along with other central banks, while prioritising pushing inflation down, don't break something else, and start pushing the rate of unemployment sharply higher.   This is the balancing act central banks will now have to perform, and here it might be worth them exercising some patience. Given the lags being seen in the pass through of monetary policy it may be that a lengthy pause after July, keeping rates at current levels for months, is a wiser course of action than continuing to raise rates until the tightrope snaps, and the whole edifice comes tumbling down.       Today's minutes ought to give us an indication of the thought processes of the more dovish members of the FOMC, and how comfortable they are with the prospect of this balance of risks.             EUR/USD – remains range bound with support around the 1.0830/40 area and 50-day SMA, with resistance remaining at the 1.1000 area. A break below the lows last week opens the way for a potential move towards 1.0780.     GBP/USD – still looking well supported above the 50-day SMA at 1.2540, as well as trend line support from the March lows, bias remains higher for a move back to the 1.3000 area. Currently it has resistance at 1.2770.       EUR/GBP – rolling over again yesterday, sliding below the 0.8570/80 area, and looks set to retarget the 0.8520 area. Resistance remains at the 50-day SMA which is now at 0.8655. Behind that we have 0.8720.     USD/JPY – currently capped at the 145.00 area, with support at the 144.00 area this week.  The key reversal day remains intact while below 145.20.  A break below 143.80 targets a move back to the 142.50 area. Above 145.20 opens up 147.50.      FTSE100 is expected to open 5 points lower at 7,514     DAX is expected to open 28 points lower at 16,011     CAC40 is expected to open 23 points lower at 7,347

Today's events and market view Ahead of Germany’s factory order and industrial production (IP) to be released tomorrow and Friday respectively, IP figures for France and Spain will be published this morning. Services PMI for Europe this morning are all second readings except for Italy and Spain. A further decline in the services index would undermine the ECB’s hawkish message, with employment and price components of particular interest. The ECB publishes its monthly consumer survey which includes questions on inflation expectations. The disinflation narrative should receive a boost from Eurozone PPI settling around negative values. US data consists of factory and durable goods orders. This will be followed by the minutes of the June FOMC meeting, where the Fed’s committee decided not to increase rates for the first time since early 2022. The Fed will be keen for markets to see the hawkish side of that decision and that it heralds a more protracted tightening cycle. The Fed’s dot plot still implies 100bp of cuts in 2024. Fed communication may well chip away at that message next. Bond supply consists of the UK selling 3Y debt.

Services are now also slowing We certainly don’t deny that the pick-up in wage growth, in combination with lower energy prices, is boosting consumers’ purchasing power, supporting consumption growth over the coming quarters. But at the same time, some increase in the savings ratio looks likely as the economic outlook has become more uncertain (in some member states unemployment has started to increase). All sectors are now signalling a deceleration in incoming orders, while inventories in industry and retail are at a very high level. Even services, which held up well despite the recessionary environment in manufacturing, are losing steam. The services confidence indicator fell in June below its long-term average. That doesn’t necessarily mean that the only way is down – we still expect a strong summer holiday season, supporting third-quarter growth. But after that things might become shakier again, as the US economy is expected to have fallen into recession by then. The bottom line is that we now only expect 0.4% growth in 2023. Subsequently, on the back of the low carry-over effect, we pencil in a 0.5% GDP expansion for 2024.   Downward trend in inflation continues The flash headline inflation estimate for June came out at 5.5%, while core inflation increased slightly to 5.4%. However, the increase in core inflation is entirely due to a base effect in Germany that will disappear in September. The growth pace of core prices, measured as the three-month-on-three-month annualised change in prices, now stands at 4.4%. That is still too high, but the trend is clearly downwards. The inventory overhang is leading to falling prices for goods. In the European Commission’s survey, selling price expectations softened again in all sectors, while the expected price trends in the consumers’ survey fell to the lowest level since 2016. It, therefore, doesn’t come as a surprise that we expect the downward trend in inflation to continue, with both headline and core inflation likely to be below 3% by the first quarter of 2024.   Selling) price expectations are coming down across the board

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

A stagnating economy, cyclical headwinds and structural challenges bring to mind the early 2000s and call for a new reform agenda As Mark Twain is reported to have said, “History doesn't repeat itself, but it often rhymes.” Such is the case with the current economic situation in Germany, which looks eerily familiar to that of 20 years ago. Back then, the country was going through the five stages of grief, or, in an economic context, the five stages of change: denial, anger, bargaining, depression and acceptance. From being called ‘The sick man of the euro’ by The Economist in 1999 and early 2000s (which created an outcry of denial and anger) to endless discussions and TV debates (which revelled in melancholia and self-pity) to an eventual plan for structural reform in 2003 known as the 'Agenda 2010', introduced by then Chancellor Gerhard Schröder. It took several years before international media outlets were actually applauding the new German Wirtschaftswunder in the 2010s. It's hard to say which stage Germany is in currently. International competitiveness had already deteriorated before the pandemic but this deterioration has clearly gained further momentum in recent years. Supply chain frictions, the war in Ukraine and the energy crisis have exposed the structural weaknesses of Germany’s economic business model, and come on top of already weak digitalisation, crumbling infrastructure and demographic change. These structural challenges are not new but will continue to shape the country’s economic outlook, which is already looking troubled in the near term. Order books have thinned out since the war in Ukraine started, industrial production is still some 5% below pre-pandemic levels and exports are stuttering. The weaker-than-hoped-for rebound after the reopening in China together with a looming slowdown or even recession in the US, and the delayed impact of higher interest rates on real estate, construction and also the broader economy paint a picture of a stagnating economy. A third straight quarter of contraction can no longer be excluded for the second quarter. Even worse, the second half of the year hardly looks any better. Confidence indicators have worsened and hard data are going nowhere. We continue to expect the German economy to remain at a de facto standstill and to slightly shrink this year before staging a meagre growth rebound in 2024. Headline inflation to come down after the summer What gives us some hope is the fact that headline inflation should come down more significantly after the summer. Currently, inflation numbers are still blurred by one-off stimulus measures last year. Come September, headline inflation should start to come down quickly and core inflation should follow suit. While this gives consumers some relief, it will take until year-end at least before real wage growth turns positive again. At the same time, an increase in business insolvencies and a tentative worsening in the labour market could easily dent future wage demands and bring back job security as a first priority for employees and unions. In any case, don’t forget that dropping headline inflation is not the same as actual falling prices. The loss of purchasing power in the last few years has become structural. Fiscal and monetary austerity will extend economic stagnation With the economy on the edge of recession, the government’s decision to return to (almost) balanced fiscal budgets next year is a bold move. No doubt, after years of zero and sometimes even negative interest rates, Germany’s interest rate bill is increasing and there are good reasons to stick to fiscal sustainability in a country that will increasingly be affected by demographic change (and its fiscal impact). Nevertheless, the last 20 years have not really been a strong argument for pro-cyclical fiscal policies. With both fiscal and monetary policy becoming much more restrictive, the risk is high that the German stagnation will become unnecessarily long. Waiting for 'Agenda 2030' In the early 2000s, the trigger for Germany to move into the final stage of change management, 'acceptance' (and solutions), was record-high unemployment. The structural reforms implemented back then were, therefore, mainly aimed at the labour market. At the current juncture, it is hard to see this single trigger point. In fact, a protracted period of de facto stagnation without a severe recession may reduce the sense of urgency among decision-makers and suggests Germany could be stuck in the stages of denial, anger, bargaining and possibly depression for a long time. Two decades ago, it took almost four years for Germany to go through the five stages of change. We hope this time that history will not be repeated.   German economy in a nutshell (%YoY)  

Germany needs an ‘Agenda 2030’. A stagnating economy, cyclical headwinds and structural challenges bring to mind the early 2000s and call for a new reform agenda   As Mark Twain is reported to have said, “History doesn't repeat itself, but it often rhymes.” Such is the case with the current economic situation in Germany, which looks eerily familiar to that of 20 years ago. Back then, the country was going through the five stages of grief, or, in an economic context, the five stages of change: denial, anger, bargaining, depression and acceptance. From being called ‘The sick man of the euro’ by The Economist in 1999 and early 2000s (which created an outcry of denial and anger) to endless discussions and TV debates (which revelled in melancholia and self-pity) to an eventual plan for structural reform in 2003 known as the 'Agenda 2010', introduced by then Chancellor Gerhard Schröder. It took several years before international media outlets were actually applauding the new German Wirtschaftswunder in the 2010s. It's hard to say which stage Germany is in currently. International competitiveness had already deteriorated before the pandemic but this deterioration has clearly gained further momentum in recent years. Supply chain frictions, the war in Ukraine and the energy crisis have exposed the structural weaknesses of Germany’s economic business model, and come on top of already weak digitalisation, crumbling infrastructure and demographic change. These structural challenges are not new but will continue to shape the country’s economic outlook, which is already looking troubled in the near term. Order books have thinned out since the war in Ukraine started, industrial production is still some 5% below pre-pandemic levels and exports are stuttering. The weaker-than- hoped-for rebound after the reopening in China together with a looming slowdown or even recession in the US, and the delayed impact of higher interest rates on real estate, construction and also the broader economy paint a picture of a stagnating economy. A third straight quarter of contraction can no longer be excluded for the second quarter. Even worse, the second half of the year hardly looks any better. Confidence indicators have worsened and hard data are going nowhere. We continue to expect the German economy to remain at a de facto standstill and to slightly shrink this year before staging a meagre growth rebound in 2024.   Headline inflation to come down after the summer What gives us some hope is the fact that headline inflation should come down more significantly after the summer. Currently, inflation numbers are still blurred by one-off stimulus measures last year. Come September, headline inflation should start to come down quickly and core inflation should follow suit. While this gives consumers some relief, it will take until year-end at least before real wage growth turns positive again. At the same time, an increase in business insolvencies and a tentative worsening in the labour market could easily dent future wage demands and bring back job security as a first priority for employees and unions. In any case, don’t forget that dropping headline inflation is not the same as actual falling prices. The loss of purchasing power in the last few years has become structural.

The green transition takes hold of Germany’s property market More than 60% of the current German housing stock will need to be renovated over the next ten years to meet climate targets set by the European Commission. The transition will come with soaring costs and increasing house price divergence, with energy efficiency expected to rise rapidly to the top of the list of priorities for buyers.   In search of a new equilibrium The German real estate market has entered the expected phase of correction on the back of higher interest rates and weakening real disposable income. In the first quarter, real estate prices were down by some 7% year-on-year. This is not a crash but a correction. At the same time, it will take while before the market is able to reach a new equilibrium. We currently see it reaching a bottom in the second half of the year, followed by a muted recovery in 2024. Financing costs and household income remain the most important drivers of the German real estate market, but factors like location and greenification will add to increased divergence. The real estate sector plays an important role in the country’s efforts to reach climate targets. In 2019, space heating in the private household sector accounted for 17.5% of total energy consumption and is also the source of around two-thirds of final energy consumption in households. Energy is also used for space cooling, heating water, lighting, electrical appliances and cooking. Less than 20% of household energy consumption in Germany is currently covered by renewable energy.   Share of renewable energy sources and heat pumps in total household energy consumption (2021)   It doesn't come as a surprise that the government is now trying to step up to the plate. The highly debated German Building Energy Act (GEG) has determined that from 1 January 2024, all new buildings must be heated by at least 65% with renewable energy. For existing buildings, a 'decision period' is granted until 2028. From 2045 onwards, no more fossil fuels are to be used for heating. However, even the greenest heating system is of little use if energy consumption is still high and energy efficiency remains low thanks to poor insulation. As a result, the EU Commission is aiming for all residential properties in the EU to at least carry an energy label of D by 2033.

 Vodafone Q1 24 – 24/07 it's been one way traffic for the Vodafone share price so far this year, with declines on declines, with the shares at 25-year lows. The departure of Nick Read as CEO hasn't been enough to stop the rot with new CEO Margherita Della Valle seemingly unable to convince markets she has a coherent plan to turn the business around. In May the telecoms company announced it was looking to cut 11k jobs over the next 3 years, as it announced its full year number. Full year group revenues rose 0.3% to €45.7bn.   The Germany business continues to underperform, posting a decline of 1.6%, driven by the loss of broadband customers, while the UK did much better, seeing an increase of 5.6%, which was driven by an 8% increase in mobile service revenue.   Its other markets in Spain and Italy also saw declines in organic service revenue of 5.4% and 2.9%. Full year pre-tax profit for the year rose to €12.82bn, however most of this was down to the gains from the disposal of the Vantage Towers business, of €8.6bn. Vodafone also generated an additional €689m from the completion of the sale of its Ghana business, as well as a loss of €69m on its disposal of Vodafone Hungary.   Investor concern remains primarily around the company's debt level at a time when the company seems to lack a growth strategy. On the plus side the company has announced that it is working through the final details of the merger of its British operations with Hong Kong's Hutchison Holdings, which runs the Three network.  

Eurozone A 25 basis point rate hike from the ECB is almost entirely priced in ahead of the meeting on Thursday but what comes after is up for much more debate. Recent commentary from policymakers suggests a pause may very much be on the cards in September, on the back of some progress in the inflation data recently. The ECB has taken a hawkish stance after meetings until now but next week could see President Lagarde and her colleagues tweak the communication and leave the door open to a pause at the following meeting. The following day we’ll get some flash inflation data from member states including Germany, France and Spain while the week will start with flash PMIs from Germany, France and the eurozone. Finally, Spain goes to the polls this weekend in a highly unusual late summer snap election in which a party from the far left or right will probably be kingmaker. It promises to be an eventful week.   UK A very quiet week for the UK following one in which inflation was shown to be finally falling and interest rate expectations have been pared back. The focus this week will be on the PMI surveys and whether we can get any further signs of disinflationary pressures building and the economy cooling.  

Korea: 2Q23 GDP improved but with disappointing details South Korea’s real GDP accelerated to 0.6% QoQ (sa) in 2Q23 from 0.3% in 1Q23, which was slightly higher than the market consensus of 0.5%. However, the details were quite disappointing with exports, consumption, and investment all shrinking. We expect growth to slow in 2H23.   Net exports contributed positively to overall growth The upside surprise mainly came from a positive contribution from net exports (+1.3pt). However, we do not interpret this in a positive light, because it was not driven by an improvement in exports, but rather by a contraction of imports (-4.2%), which was deeper than that of exports (-1.8%). By major item, exports of vehicles and semiconductors rose as global supply conditions improved and global demand remained solid. But, exports of petroleum/chemicals and shipping services declined further with unfavourable price effects weighing. Falling commodity prices have had a positive impact on Korea's overall terms of trade, having a greater impact on imports, but "processed" exports such as petroleum/chemicals and shipping took more of a hit.   Net exports led growth but due to sharper decline of imports than exports   Meanwhile, domestic demand dragged down overall growth by -0.6pt As monthly activity and sentiment data already suggested, private consumption was down -0.1% with declining service consumption, while investment – both construction (-0.3%) and facilities (-0.2%) – contracted. Also, government expenditure dropped quite sharply (-1.9%) as spending on social security declined. We believe that the reopening boost effects on consumption have finally faded away, while tight credit conditions have also dampened investment. R&D investment (0.4%) was an exception, rising for the second consecutive quarter on the back of continued investment in new technologies.   GDP in 2H23 will likely decelerate again Forward-looking data on domestic demand indicates a further deterioration in domestic growth. Construction orders, permits, and starts have been declining for several months, while capital goods imports and machinery orders have also trended down recently. With continued market noise surrounding project financing and growing uncertainty over global demand conditions, business sentiment for new investment is very weak. This year’s fiscal spending will also not support the economy meaningfully, considering the tax revenue deficit and normalization of covid related spending. However, we think trade will take the lead in a modest recovery. We believe that exports will rebound by the end of the third quarter with support from improved vehicle demand, semiconductors, and machinery (despite the global headwinds). Please see our 2H23 outlook details here.   Korea's GDP is expected to slow down in 2H23     Although 2Q23 GDP was higher than expected, the details suggest a weaker-than-expected recovery in 2H23, together with weak forward-looking data, thus we keep our current annual GDP forecast for 2023 unchanged at 0.9% YoY.   The Bank of Korea watch We think today’s data should be a concern for the Bank of Korea (BoK). The BoK forecast growth to accelerate in 2H23 on the back of better exports. We agree that export conditions will improve, but we don't think they will be strong enough to dominate weak domestic growth, and today’s data also suggests that growth will slow down in the near future. Thus, the BoK’s policy focus will probably gradually shift from inflation to growth in 4Q23. In 3Q23, we believe that the BoK will continue to keep its hawkish stance while keeping a close eye on other major central banks’ monetary policies. Also, inflation may fluctuate a bit over the Summer season due to soaring fresh food prices amid continued severe weather conditions. However, if inflation stays in the 2% range for most of 2H23, then the BoK’s tone should shift to neutral and eventually revert to an easing cycle.

Microsoft falls, Google jumps, Fed decides Surprise, surprise: Microsoft failed to meet investor expectations when it announced its Q2 results yesterday. Both revenue and earnings beat expectations, but the company reported a decelerating demand for its cloud computing services to 26%, and projected Azure to grow between 25%-26% for the current quarter. We are far from the 35% growth that we got used to in the good old days. Microsoft stock plunged up to 4% in the afterhours trading. Alphabet on the other hand a strong quarter for its search business advertisement, hinting that Google search withstood so far with the AI competition and its cloud business posted a 28% growth, more than Microsoft's. Google shares jumped 6% after the bell. Elsewhere, Snap tanked almost 20% as the overall sales declined and the forecasts remained short of analyst expectations, while GM lost 3.50% yesterday after raising its earnings forecast. But there is a catch: the forecast holds only if the workers don't go on a strike, and according to Evercore ISI, the chances of a strike is about 50-50. Today, Meta, Coca-Cola and Boeing will be among the big names that will report their earnings. The S&P500 advanced to the highest levels since April 2022, while Nasdaq 100 was up by 0.73% yesterday.    IMF raises global growth outlook  Zooming out, the IMF raised its outlook for the world economy this year and it now expects the global GDP to expand 3% in 2023. But it also warned that Germany will probably be the only G7 economy to suffer an economic contraction this year. Of course, the IMF also warned that there are some risks to their optimistic forecast, including the higher interest rates, the Chinese recovery that doesn't come, the debt distress and shocks from war and climate related disasters. But all in all, the US economy will likely end this year as the champion of soft landing – if all goes well.   I insist - if all goes well - because PacWest has been the latest US regional bank to succumb to this year's bank stress and its shares plunged 27% after Banc of California agreed to buy it.     Decision time!  Anyway, positiveness around the US economy is obviously giving some hawkish ideas to the Federal Reserve (Fed), which will likely announce another 25bp hike today, and warn that there could be more in the store. The US 2-year yield is in a wait-and-see more near the 4.90% level, either it will go back above the 5% with a hawkish Fed statement or it will retreat toward the 50-DMA, near the 4.65%, with a reasonably hawkish Fed statement, if the Fed opts for another 'skip' for example. The US dollar index pushes higher as expectations for other central banks soften due to the softer-than-expected economic data suggesting softer action from the likes of European Central Bank (ECB) and the Bank of England (BoE) in the coming months. The EURUSD continued its nosedive yesterday on IMF's less than ideal Germany outlook and the news that corporate loan demand plunged by the most on record in Q2, as higher rates started to bite European businesses.   Unfortunately, however, inflation expectations are getting stronger globally as the rising energy and crop prices hint that the upcoming inflation figures won't be a piece of cake. The barrel of US crude flirted with the $80pb level on Chinese stimulus hopes and the pricing of a soft landing, while wheat futures continue rising along with the escalating tensions in the Black Sea and Danube. Corn and soybean futures rise as well as hot weather in the US belt is adding to the positive pressure for corn.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

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

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

Eurozone Q2 GDP returned to growth with a 0.3% advance reading (prior revised higher to 0.0%). Eurozone core inflation held steady at 5.3% Stocks have a flat session as traders await NFP Friday US stocks are wavering ahead of a key Fed survey that should show loan growth is weakening and that the economy should steadily weaken.  The Senior Loan Officer Opinion Survey (SLOOS) will tell us how top lending officers feel about the credit outlook. The US dollar isn’t making any major moves as Wall Street grows more confident that a soft landing is very much obtainable.  Many traders won’t do much positioning until Friday’s NFP report, which should show the labor market remains tight.  The key for the payroll report might be what is happening with wages, as it seems fears of an acceleration of inflation have been downsized.  This week also includes the ISM reports which should show manufacturing activity is picking up and the service sector is cooling.  Weakening growth prospects is not the takeaway from this earnings season, but that could change if Apple and Amazon’s results tell a different story.      The euro remains heavy as concerns grow for Germany’s outlook.  German economy minister warned of five tough years and that bleak outlook could weigh on the euro.  EUR/USD might start to form a narrow trading range but that could change once we get beyond the NFP report.  It seems everyone is in wait-and-see mode and right now the US jobs report will steal the spotlight. The 1.0950 to 1.1050 could emerge as the key trading range until this week’s fireworks. US Data Both the ISM Chicago PMI and Dallas Manufacturing survey showed activity improved for a second consecutive month.  The Chicago PMI was softer-than-expected but has yet to benefit from increasing aircraft orders.  The Dallas Fed did not provide an inspiring outlook as activity remains sluggish, while prices paid and received rose.  The manufacturing part of the economy is still in contraction territory and the recovery will likely be unbalanced.   

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

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

Rates Spark: Action at both ends of the curve In the US, we reiterate the notion that the 10yr yield can't really break lower, as there is no room to do so. So it must, in effect, head higher. While long-end EUR rates are also looking up, the Bundesbank's cut to government deposit remuneration added a twist steepening as it pressured the front-end lower.   Continue to get comfortable with the US 10yr Treasury yield above 4% We maintain our view that the US 10yr Treasury yield can remain above 4% for now. The key rationale centres on the material change in the rate cut discount that had evolved once the mini banking crisis (kicked off by the fall of Silicon Valley Bank) had materially eased. Once those fears abated, the market effectively went risk-on, and lo and behold the macro data began to perk up through June and July. That prevented the discount for Fed rate cuts from becoming overly aggressive. Effectively the fund strip is discounting a move down to 4%, but not much below. That puts a floor on where the US Treasury yield can go when looking to the downside. Remember, when Silicon Valley Bank went down, that same market discount saw the funds rate getting cut to 2.75% in 2024. That provided much more room for the 10yr Treasury yield to fall, and it did fall (to 3.3%). Things are different now though. Until something materially breaks in the economy, there will be no elevation in the rate cut discount. And in that environment, there is a more credible path towards higher market rates. Just for now. It won’t last long. We could well see the prior high in the 4.25% area. But always remember that we are just one or two dodgy observations away in some key activity datasets for it to all come crumbling down. Payrolls have just past though, and that was not weak enough. So room to test higher.   The Bundesbank remunerates government deposits with 0% starting October Starting in October, government deposits held at the Bundesbank will no longer be remunerated. The Bundesbank’s decision has raised fears of renewed collateral scarcity – after all, it was the European Central Bank’s waiver of the 0% remuneration cap on government deposits that was needed to counter the severe distortions in 2022 when ECB policy rates were lifted into positive territory. The Bundesbank had signalled its desire to return to a 0% remuneration earlier, but expectations were generally for a more gradual return in line with the ECB’s incremental adjustments of the remuneration ceiling, rather than the one-time cut by effectively 345bp we are now seeing. Affected are only domestic government deposits which currently amount to around €50bn, and which could now push back into the market for high-quality liquid collateral. The impact reaction yesterday morning was for the Schatz asset swap to widen more than 6bp towards close to 80bp, but it has already partially faded. For one, the largest part in the adjustment of government deposits away from the central bank is already behind us, as it had reached levels of close to €250bn during the pandemic at the Bundesbank alone. The changes will take effect only in October after all, so until then that still leaves uncertainty on how collateral will eventually be affected.   Flight risk: Government deposits at the Bundesbank   Today's events and market view As outlined above, in the near term we continue to see steepening risks with the US 10Y Treasury maintaining the 4% handle, all the more with this week's US issuance slate. For European rates, the Bundesbank decision turned a bear steepening into a twist steepening as the German front end was pressured lower by renewed collateral fears. But the EUR long end is also seeing upward pressure as inflation swaps are marching higher. The EUR 5y5y inflation forward rose to 2.66% yesterday, the highest level since 2010. With the ECB having toned down its hawkishness at the last meeting, it has seemingly lost a grip on the market's long-term inflation expectations. But it is only one of many measures the ECB looks at to gauge expectations. Today the ECB publishes its consumer expectations survey, which also includes a survey on prices.  In primary markets, Austria reopens two bonds for €1.5bn and Germany issues €4bn in 5Y bonds. Later in the day, the US kicks off its quarterly refunding round with a new 3Y note issue of US$42bn.

EUR: Hard to see it trade out of range According to our short-term fair value model, EUR/USD’s equilibrium level currently sits around 1.0950, quite close to spot. The pair remains overbought according to CFTC positioning data (+23% of open interest), but there are clear indications that the process of adding EUR longs/building USD net shorts has stalled again in July. All in all, it appears that EUR/USD has managed to navigate the worst (barring new volatility peaks) of the US bond sell-off relatively easily, a sign that markets remain reluctant to let go of a cyclical currency like the euro in the current market environment (despite a deteriorating outlook for the eurozone economy) and the room for a big dollar recovery remains still narrow given markets now expect the Fed to be done with monetary tightening. We had warned our readers that August might well have been a directionless month for EUR/USD: things can change (developments in the Russia-Ukraine conflict should be followed closely, to name one), but we have not received any strong indication so far that EUR/USD may materially drift away from a 1.09-1.11 range this month. Today, some focus will be on the ECB’s Consumer Expectation Survey, which includes inflation expectation figures, and final CPI numbers for July in Germany and other EU countries.  

In this interview, we sit down with Paweł Majtkowski to delve into the intricate web of macroeconomic data shaping the British economy. As a seasoned economic analyst, Mr. Majtkowski provides his expert insights on the latest series of economic indicators from the UK. From GDP growth and inflation figures to employment rates and trade balances, we explore the trends, challenges, and potential opportunities that lie ahead for the UK's economic landscape. Join us as we navigate through the numbers and uncover the narratives behind the data-driven journey of the British economy.   FXMAG.COM: Let me ask you to comment on the whole series of macroeconomic data from the British economy. However, will it enter a recession? What does this data say about further potential rate hikes in the UK? The UK continues to struggle with high inflation. In June, it stood at 7.3 per cent year-on-year. The British economy is therefore experiencing difficult times, not least because of 14 consecutive interest rate rises in a row. Domestically, there is economic stagnation. However, the GDP results - 0.5 % growth last month and 0.2 % in the second quarter - are better than analysts' expectations. With such modest growth, it is the details that count. Economic activity increased in June due to very good weather (the best since 1884), there were more working days in May than in previous years and this helped to offset the effects of ongoing strike action. The services sector, which dominates UK GDP, is benefiting from low (structural) unemployment and rising wages. This, in turn, is a cause for concern for the Bank of England and especially its hawkish representatives. Further rate rises cannot therefore be ruled out. The manufacturing sector and the real estate market, on the other hand, are performing worse. Not insignificant for the UK is the fact that its second largest trading partner, Germany, has already slipped into recession. This is a result of falling manufacturing and a very slow recovery in China.   Paweł Majtkowski, eToro Market Analyst

EUR: Support turns into resistance Developments in emerging market currencies yesterday saw dollar demand push EUR/USD through key support at 1.0930 yesterday. That level marked the 100-day moving average which had defined the downside of EUR/USD over the last couple of weeks. The question now is whether 1.0930 proves the top of the near-term trading range - it could well do. In terms of the European calendar today, the focus will be on ZEW investor expectations for both Germany and the eurozone. These have been deteriorating for the last few months and are expected to fall a little more. Combined with a strong US retail sales figure today, EUR/USD could well trace out a 1.0875 to 1.0930 range and remain offered into tomorrow night's release of the FOMC minutes.

Slowing Europe  In Europe, the latest data released yesterday showed that growth and industrial production slowed, but slowed less than expected, while employment deteriorated less than expected – giving the European Central Bank (ECB) a good reason to continue its fight against inflation. But on a microscopic level, the Ifo said that Germany's skilled worker pool is worsening. The Netherlands unexpectedly slipped into recession after showing two straight quarter contraction, and Eastern Europe continues feeling the pinch of Ukrainian war; the Polish economy printed a 3.7% contraction. Plus, Europe's got a China problem. The European luxury goods have been supporting a rally in the European stocks as a result of higher Chinese purchases of the luxury products. But the souring economic conditions in China, falling home prices, rising unemployment and deteriorating sales growth weigh on valuations of companies like LVMH and Hermes. The Stoxx 600 is getting ready to test the 200-DMA, near 453, to the downside, and trend and momentum indicators hint that a deeper selloff could be on the European stocks' menu this quarter.   On the currency front, the weak data – even though it was stronger-than-expected, combined with a broad-based surge in the US dollar, kept the EURUSD below the 100-DMA yesterday, near 1.0930. The pair fell to the lowest levels since the beginning of July and the strengthening bearish momentum calls for a deeper downside correction. The next natural target for the EURUSD bears stands at 1.0790, the 200-DMA. The ECB will likely keep its hawkish stance unchanged, but when the Fed hawks step in, the other central bank hawks just need to wait before their hawkishness is reflected in market pricing

EUR: Another batch of soft PMIs? Before ECB President Christine Lagarde's speech on Friday, the highlight in the eurozone this week will be Wednesday's release of flash PMIs for August. Currently, gloom is descending on the European outlook, including the re-introduction of Germany's description as the 'sick man of Europe'. Let's see whether the manufacturing PMIs deteriorate any further and also whether services PMIs cross decidedly into sub-50 territory. EUR/USD is starting to look quite comfortable below 1.09 and below support at 1.0835/45 could make a dip down to the 1.0775 area. Certainly, with US Treasury yields pushing ahead and proving a threat to risk assets – and China still fragile – EUR/USD will struggle to make it back above the 100-day moving average at 1.0930.

FX Daily: A busy day ahead of Jackson Hole While the People's Bank of China continues its battle to keep the USD/CNY under 7.30, markets will take a close look at PMIs today. The main focus will be on the eurozone – Germany in particular – and the UK. In the US, Nvidia’s quarterly results are seen as pivotal for the AI-led equity run.   USD: Nvidia results in focus The Jackson Hole Economic Symposium starts tomorrow and should become the overwhelmingly predominant driver for currency markets. For now, investors are keeping a close eye on China and how effectively Beijing is defending its own currency. The 7.30 level in USD/CNY has emerged as the discomfort level for Chinese authorities, and a full session below that mark yesterday and overnight has prompted some optimistic calls that the worst is past us for the yuan’s mini currency “crisis”. It seems a bit premature, but the intent from the People's Bank of China (PBoC) to put a line in the sand at 7.30 is now clear, and would admittedly require another substantial deterioration in sentiment to accept a higher barrier for the pair. USD/CNH drops normally bring the dollar lower across the board. For now, the renminbi is stable rather than truly rebounding, which allowed a small EUR/USD drop yesterday. Markets will be looking at PMIs across developed economies today. The surveys have a larger market impact in European markets but have recently also been looked at with interest in the US, where consensus is expecting few changes from the July read. New home sales are also on the calendar. Another event to keep an eye on today will be the release of quarterly results from Nvidia. The firm is a key player in the AI space and some see today’s results as a key turning point for the recent AI-led equity rally. The impact will likely extend to the currency market. Still, with Jackson Hole kicking off tomorrow and the material risk of Fed Chair Jerome Powell reiterating a hawkish message, any dollar bearish trend may struggle to find solid momentum.

EUR: ECB cannot ignore PMIs Any forward-looking economic indicator is, at this stage, quite important for the euro and the European Central Bank. The bank is officially fully focused on inflation, but evidence of a slowdown in key parts of the euro area has mounted and is now too blatant to be overlooked. Core inflation dynamics will still remain the main input for the ECB – but should we see more indications from today’s PMIs that the eurozone outlook is deteriorating, then policymakers might see the window for one last hike closing rapidly and opt for a September hike rather than delaying it until the fourth quarter.  The focus will also be on Germany’s PMIs. Manufacturing is expected to have flattened in August at 38.8, and services to have declined modestly to 51.5. Overall, the eurozone numbers are not expected to show any further material deterioration. Later today, the euro area consumer confidence will also be published. EUR/USD came under pressure yesterday and unless we receive some encouraging news from PMIs, or a drop in the dollar (e.g., caused by an equity rally after Nvidia results), we suspect markets may marginally prefer to stay bearish on the pair as for some pre-Jackson Hole positioning.   EUR/USD is testing the early-July 1.0834 low this morning, a break lower puts the next support at 1.0800 (200-day MA).

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

Eurozone Services PMI falls to 48.3 in August (50.5 expected, 50.9 in July) Eurozone Manufacturing PMI rises to 43.7 in August (42.6 expected, 42.7 in July) Euro testing key support against the US dollar The data from the eurozone was no more promising, particularly Germany – the bloc’s largest economy – which has had a harder year than most and looks likely to continue to do so going into next year. There was a slight and unexpected improvement in the manufacturing number, albeit from a very low base and it still remains deep in contraction territory. But services contracted against expectations and the number was some way below forecasts and the July reading. Interest rate probabilities were pared back in the eurozone this morning too, with traders viewing the meeting in a few weeks as a coin toss between standing pat and another 25 basis point hike. Another hike is far from guaranteed in the cycle and today’s data certainly supports the case for pausing to see what impact past tightening has had.     Is EURUSD heading into bearish territory? The euro has been falling against the greenback for a month or so now, as have many other currencies as the dollar has performed well on the expectation of US rates remaining higher for longer.   EURUSD Daily     It’s now fallen back to a level that could tell us whether traders are viewing this as a corrective pattern or a broader reversal. While that is to a large extent a subjective view, there is a train of thought that when it’s trading above the 200-day simple moving average it’s in bullish territory, and below it’s in bearish territory. It’s worth noting there are many other ways to define it too. The pair is now testing the 200-day SMA from above and this also coincides with the lows from late June and early July. A break of this could be a bearish signal, with the next test coming around the 1.0650-1.07 where the next support level from May coincides with the bottom of the 200/233-day SMA band.

Overview of macroeconomic reports   On Thursday, no significant reports lined up for the UK, the European Union, or Germany. The US will publish reports on initial jobless claims and durable-goods orders. Unemployment claims is a relatively weak indicator simply because it is published weekly, and deviations from forecasts are rare. Since there are no deviations, there is no market reaction. Durable goods orders are more important as it reflects the change in purchase volumes of expensive category goods, such as cars, real estate, or major appliances. But the same thing applies here, it is important for the values to deviate from forecasts. If there is none, there's also no reaction. If there is, then we can expect a strong market reaction.   Overview of fundamental events There is absolutely nothing to highlight among Thursday's fundamental events. There are no speeches from officials of the Federal Reserve, European Central Bank, and the Bank of England. However, the Jackson Hole Symposium is about to begin. Nonetheless, all the most important speeches are scheduled for Friday, and today, there's not much to focus on.     Bottom line On Thursday, beginners might only focus on the two US reports. We don't know if they will trigger a market reaction, but at the same time, there are no other events. The movement patterns of the two main currency pairs are unlikely to change. For the euro, it's a downtrend, and for the pound, it's a flat trend. Main rules of the trading system: The strength of the signal is calculated by the time it took to form the signal (bounce/drop or overcoming the level). The less time it took, the stronger the signal. If two or more trades were opened near a certain level due to false signals, all subsequent signals from this level should be ignored. In a flat market, any currency pair can generate a lot of false signals or not generate them at all. But in any case, as soon as the first signs of a flat market are detected, it is better to stop trading. Trades are opened in the time interval between the beginning of the European session and the middle of the American one when all trades must be closed manually. On the 30-minute timeframe, you can trade based on MACD signals only on the condition of good volatility and provided that a trend is confirmed by the trend line or a trend channel. If two levels are located too close to each other (from 5 to 15 points), they should be considered as an area of support or resistance. Comments on charts Support and resistance levels are levels that serve as targets when opening long or short positions. Take Profit orders can be placed around them. Red lines are channels or trend lines that display the current trend and show which direction is preferable for trading now. The MACD (14,22,3) indicator, both histogram and signal line, is an auxiliary indicator that can also be used as a source of signals. Important speeches and reports (always found in the news calendar) can significantly influence the movement of a currency pair. Therefore, during their release, it is recommended to trade with utmost caution or to exit the market to avoid a sharp price reversal against the previous movement. Beginners trading in the forex market should remember that not every trade can be profitable. Developing a clear strategy and money management is the key to success in trading over a long period of time.    

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

Here, get more stimulus!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) Chair Jerome Powell's Jackson Hole speech was boring, wasn't it? Powell repeated that inflation risks remain to the upside despite recent easing and pointed at resilient US growth and tight US jobs market, and reiterated the Fed's will to keep the interest rates at restrictive levels for longer. The US 2-year pushed above 5%, as Powell's comments kept the idea of another 25bp hike on the table before the year end, but the rate hike will probably be skipped in September meeting and could be announced in the November meeting instead, according to activity on Fed funds futures. The US 10-year yield is steady between the 4.20/4.30%. The S&P500 gained a meagre 0.8% last week, yet managed to close the week above the 4400 mark and above its ascending trend base building since last October, while Nasdaq 100 gained 2.3% over the week, although Nvidia's stunning results failed to keep the share price above the $500 mark, even though that level was hit after the results were announced last week. And the disappointing jump in Nvidia despite beating its $11bn sales forecast and despite boosting its sales forecast for this quarter to $16bn, was a sign that the AI rally is now close to exhaustion.   What's up this week?  This week will be busy with some important economic data from the US. We will watch JOLTS job openings tomorrow, Australian and German CPIs and US ADP and GDP reports on Wednesday, to see if the US economy continues to be strong, and the jobs market continues to be tight. On Thursday, Chinese PMI numbers, the Eurozone's CPI estimate and the US core PCE will hit the wire, and on Friday, we will watch the US jobs report and ISM numbers. Note that the US dollar index pushed to the highest levels since May after Powell's Jackson Hole speech. The EURUSD is now trading a touch below its 200-DMA, even though the European Central Bank (ECB) chief Lagarde repeated that the ECB will push the rates as high as needed. Yet, the worsening business climate, and expectations in Germany somehow prevent the euro bulls from getting back to the market lightheartedly, while the yen shorts are comforted by the Bank of Japan (BoJ) governor's relaxed view on price growth – which remains slower than the BoJ's goal, but the possibility of a direct FX intervention to limit the USDJPY's upside potential keeps the yen shorts reasonably on the sidelines, despite the temptation to sell the heck out of the yen with the BoJ's incredible policy divergence versus the rest of the developed nations.   Here, get more stimulus!  The week started upbeat in China and in Hong Kong, after the government announced measures to boost appetite for Chinese equities. Beijing halved the stamp duty on stock trades, while Hong Kong said it plans a task force to boost liquidity. The CSI 300 rallied more than 2% and HSI jumped more than 1.5%. But gains remain vulnerable as data released yesterday showed that Chinese company profits fell 6.7% last month from a year earlier. That's lower than 8.3% printed in June, but note that for the first seven months of 2023, profits declined 15.5%, and that is highly disquieting given the slowing economic growth and rising deflation risks, along with the default risks for some of the country's biggest companies. Evergrande, for example, posted a $4.5 billion loss in the H1.  Therefore, energy traders remain little impressed with China stimulus measures. The barrel of US crude trades around the $80pb level, yet the failure to break below a major Fibonacci support last week – major 38.2% Fibonacci retracement on the latest rally, keeps oil bulls timidly in charge of the market despite the weak China sentiment. Oil trading volumes show an unusual fall since July when compared to volumes traded in the past two years. That's partly due to weakening demand fears and falling gasoline inventories, but also due to tightening oil markets as a result of lower OPEC supply. We know that the demand will advance toward fresh records despite weak Chinese demand. We also know that OPEC will keep supply limited to push prices higher. Consequently, we are in a structurally positive price setting, although any excessive rally in oil prices would further fuel inflation expectations, rate hike expectations and keep the topside limited in the medium run.    

06:00BST Wednesday 30th August 2023 US ADP set to slow in August   By Michael Hewson (Chief Market Analyst at CMC Markets UK)     We've seen a strong start to the week for European markets with the FTSE100 outperforming yesterday due to playing catch-up as result of the gains in the rest of Europe on the Monday Bank Holiday. US markets also saw a strong session, led by the Nasdaq 100 as yields retreated on the back of a sharp slowdown in US consumer confidence in August, and a fall in the number of vacancies from 9165k to 8827k in July, and the lowest level since March 2021.     The sharp drop in the number of available vacancies in the US helps to increase the probability that the Federal Reserve will be comfortable keeping rates unchanged next month, if as they claim, they are data dependent, and that rates are now close to restrictive territory.   This belief was reflected in a sharp fall in bond yields, as well as a slide in the US dollar, however one should also remember that the number of vacancies is still well above pre-pandemic levels, so while the US labour market is slowing, it still has some way to go before we can expect to see a significant move higher in the unemployment rate. Today's ADP jobs report is likely to reflect this resilience, ahead of Friday's non-farm payrolls report. The ADP report has been the much more resilient report of the two in recent months, adding 324k in July on top of the 455k in June. This resilience is also coming against a backdrop of sticky wages, which in the private sector are over double headline CPI.   Nonetheless the direction of travel when it comes to the labour market does suggest that jobs growth is slowing, with expectations for that jobs growth will slow to 195k in August. We also have the latest iteration of US Q2 GDP which is expected to underline the outperformance of the US economy in the second quarter with a modest improvement to 2.5% from 2.4%, despite a slowdown in personal consumption from 4.2% in Q1 to 1.6%.     More importantly the core PCE price index saw quarterly prices slow from 4.9% in Q1 to 3.8%. The resilience in the Q2 numbers was driven by a rebuilding of inventory levels which declined in Q1. Private domestic investment also rose 5.7%, while an increase in defence spending saw a rise of 2.5%.     Before the release of today's US numbers, we also have some important numbers out of the UK, with respect to consumer credit and mortgage approvals for July, and Germany flash inflation for August. Mortgage approvals in June saw a surprise pickup to 54.7k, which may well have been down to a rush to lock in fixed rates before they went higher. July may well see a modest slowdown to about 51k.   Net consumer credit was also resilient in June, jumping to £1.7bn and a 5 year high, raising concerns that consumers were going further into debt to fund lifestyles more suited to a low interest rate environment. This level of credit is unlikely to be sustained and is expected to slow to £1.4bn.     As long as unemployment remains close to historically low levels this probably won't be too much of a concern, however if it starts to edge higher, or rates stay higher for an extended period of time, we could start to see slowdown in both, as previous interest rate increases start to bite in earnest.     In comments made at the weekend deputy governor of the Bank of England Ben Broadbent said he that interest rates will need to be higher for longer despite recent declines oil and gas prices as well as producer prices. These comments prompted a sharp rise in UK 2 year and 5-year gilt yields yesterday, even as US yields went in the opposite direction. This rise came against a welcome slowdown in the pace of UK shop price inflation which slowed to 6.9% in August.     Headline inflation in Germany is expected to slow to 6.3% from 6.5% in July, however whether that will be enough for Bundesbank head Joachim Nagel to resile from his recent hawkishness is debatable. As we look towards European session, the continued follow through in the US looks set us up for another positive start for markets in Europe later this morning.     EUR/USD – rebounded off trend line support from the March lows at 1.0780 yesterday. Still feels range bound with resistance at the 1.1030 area, and a break below 1.0750 looking for a move towards the May lows at 1.0630.     GBP/USD – has rebounded from the 1.2545 area, but the rally feels a little half-hearted. We need to push back through the 1.2800 area to diminish downside risk and a move towards 1.2400.         EUR/GBP – the rebound off last week's 11-month low at 0.8490 has seen a retest and break of the 0.8600 area, however we need to push through resistance at the 0.8620/30 area to signal further gains, towards the 50-day SMA resistance.     USD/JPY – wasn't able to push through resistance at 147.50 and has slipped back. This remains the key barrier for a move towards 150.00. Support comes in at last week's lows at 144.50/60.   FTSE100 is expected to open 28 points higher at 7,493     DAX is expected to open 49 points higher at 15,980     CAC40 is expected to open 21 points higher at 7,394

Rates Spark: Losing buoyancy Weaker data is eroding the US narrative that has helped push yields higher over the past week. A lower landing zone for the Fed also means a lower floor to long-end rates. There is still more data and volatility in store this week, with the US jobs data looming large. EUR markets will look to the inflation data key input for the upcoming ECB meeting.   The Fed discount is eroding and so is the floor for the 10Y yield Recent data is eroding the narrative of US resilience that had supported the rise of 10Y yields to above 4.3% over the past weeks. Poor job openings data and dipping consumer confidence yesterday saw the 10y falling through 4.2% and then briefly further towards 4.1% overnight. Interestingly the move was largely in real rates, and it reversed all of the gains that they had managed after dipping on the weaker PMIs last week.   We had suspected that an elevated Fed discount would draw a floor under longer rates. But just as data had shifted this floor higher, data is now hacking away at that discount. The curve bull-steepened with 2Y SOFR swap rates dropping more than 12bp while the 10Y still dropped close to 10bp. Data this week holds more candidates to push yields around, especially with US jobs data out on Friday. The consensus is already looking for further cooling with the payroll increase decelerating to 170K, but the unemployment rate is seen steady at 3.5%. Keep in mind that the Federal Reserve itself – in comments and its June projections – has pointed to an unemployment rate of 4% and above as being necessary to cool inflation towards the target rate. The indications it got yesterday are going in the right direction.   A pause in September is widely seen as the base case, with markets firming their view as the discounted probability of a pause moves towards 90%. One final hike is still possible this year, but the discounted chances for that to happen have slipped from close to 70% to a coin toss. Our economist believes the Fed has already reached its peak.   Assessing the Fed's landing zone remains crucial to overall rates   Aiding the ECB decision process, first August CPI indicators from Spain and Germany European Central Bank President Lagarde did not provide any further guidance in Jackson Hole with regard to the upcoming meeting in September. From recent comments, it is clear that the hawks on the governing council would still like to see higher rates. Austria’s Holzmann had been quite explicit, saying he saw the case for a hike if there were negative surprises until then. Latvia’s Martins Kazaks also wants to err on the side of raising rates, while Bundesbank’s Joachim Nagel also says it is too early to consider a pause. In later comments, he seemed to soften his tone, suggesting to wait for the data. Following the dip in the wake of the PMIs, the market has slowly priced the probability of a hike back into the forwards, but still just below 50%. But further out, markets are back to seeing a 75% chance that a 25bp rate hike comes before the end of the year to take the ECB’s depo rate to 4%. We would focus more on the upcoming meeting, however. We also think a September hike at this stage could be more of a coin toss, but more importantly, we sense that the hawks will see it as a last chance to hike one final time. If there is no hike in September, rates will probably not rise any further. One key input to arrive at a final assessment is the inflation data this week, starting today with the preliminary readings from Spain and Germany.   Today's events and market view It appears that the tide has turned again for rates now that data is eroding the resilience narrative. The latest auction metrics, such as the strong 7Y UST sale last night, also suggest that levels had been pushed sufficiently high to attract demand again. But the key remains in the data, with the US jobs report looming large on Friday. Today, we will get the ADP payrolls estimate, with a consensus for a weaker 195K after 324K last month. The value of the ADP as a predictor for the official data is questionable, however, as was also evidenced early this month – a large upside surprise in the ADP was followed by a disappointing official payrolls figure. But today’s data and anecdotal evidence from the release can still offer insight into the health of the labour market where more signs of cooling have come to light. In other US data today, we will get the pending home sales and the second reading of second-quarter GDP growth. The main highlight for the EUR markets will be Spanish and German regional CPI data. The consensus is for Spanish headline inflation to tick higher from 2.1% to 2.4% year-on-year. For Germany, the headline is seen falling somewhat from 6.5% to 6.3% year-on-year, but the state of NRW numbers already came in slightly hotter this morning. Yesterday, supply had initially helped push yields higher before the US data turned the market. Today, we will see Germany tapping a 4Y green OBL for €1.5bn. Italy’s bond sales today include a new 10Y benchmark and will amount to up to €10bn in total.    

EUR: Spain and Germany release inflation figures The first round of inflation figures out of the eurozone will see the release of Spanish and German CPI this morning. In Spain, headline inflation should rebound marginally from low levels (2.3%), but all eyes will be on core inflation, which remains elevated. The consensus is for a slowdown from 6.2% to 6.0%. German’s figures will likely have the largest market impact: consensus is also centred for a deceleration from 6.2% to 6.0%. It is a crucial juncture for the euro. Markets approach the key risk event pricing in just slightly below 50% implied probability of another rate hike in September and 15bp in total. The EUR curve appears to largely agree with our view that if the ECB skips the September meeting, it will find it increasingly hard to raise rates again at all given the deterioration in the eurozone economic outlook. We expect markets to be very sensitive to even the smallest deviations from consensus, especially in Germany’s figures and the eurozone-wide numbers released tomorrow. We admit it’s a very close call, but our economists expect this week’s inflation reports to signal that core inflation remains too high for comfort and lead the ECB to one last rate hike in September. In our base case scenario, we see EUR/USD rally into the 1.0900-1.0950 area into the US payrolls on Friday.

Inflation's second wave: Are we really watching a 70s rerun? Another wave of global inflation is far from inevitable. But there are good reasons to think inflation will be structurally higher and more volatile over the next decade than the last.   Are we heading for a 1970s re-run? Inflation has only been falling for a matter of months across major economies, but the debate surrounding a possible “second wave” is well underway. Social media is littered with charts like the ones below, overlaying the recent inflation wave against the experience of the 1970s. These charts are largely nonsense; the past is not a perfect gauge for the future, especially given the second 1970s wave can be traced back to another huge oil crisis. But central bankers have made no secret that nightmares of that period are shaping today's policy decisions. Policymakers are telling us they plan to keep rates at these elevated levels for quite some time.   Inflation: The 1970s versus today   Rewind 50 years and not only did inflation fail to return to prior lows in either the US or the UK after the initial 1974 spike, but both countries saw at least one additional spike over subsequent years. Germany fared better, but wages did respond to the second oil crisis, helping to push inflation up again.  The lesson was that for a second wave to really take off, you need a catalyst and an economic environment ripe for inflation to take hold. The twin oil price shocks in the 1970s fell on a US economy that was already running hot, a byproduct of persistent US trade and fiscal deficits that grew through the 1960s, aided by the often loose monetary policy of then-Federal Reserve Chair Arthur Burns. That excess demand helped end the Bretton Woods system of fixed currencies and the US dollar lost a quarter of its value between 1970 and mid-1973 as the agreement collapsed, amplifying the hit from higher energy costs. And all of this fell upon an economy that was much more manufacturing-centric than it is today, and it was also heavily unionised. Wage growth typically kept pace with inflation. Back to today, the economy looks very different. But we think there are valuable lessons, and these are our main conclusions:   A second wave isn’t inevitable, but we think there are good reasons to expect inflation to be both structurally higher and more volatile over the next decade. The same is true for central bank rates. The US is less vulnerable to energy shocks than in the 1970s, but further gas price spikes are possible, and that could prompt renewed waves of eurozone inflation. With prices still well above 2021 levels, a shock would likely be smaller. However, a second energy price shock could lead to more pronounced feedback between eurozone wages and inflation. Shortages of metals, be it due to lack of investment or geopolitics, are a growing inflation risk, especially amid the green transition. This probably wouldn’t generate a 2022-style inflation shock by itself, but it is likely to be a source of constant price pressure in future years. Extreme weather is also likely to make food prices more volatile. Unionisation is less widespread than in the 1970s, but there are signs that worker power is increasing amid structural worker shortages. The ability of workers to protect real wages in future inflation shocks is set to grow.  Tighter fiscal and monetary policy should act as a brake on inflation over the short-to-medium-term. Interest rates aren’t likely to return to pre-Covid lows in the foreseeable future, and quantitative easing is unlikely to be used as an economic bazooka. But Covid and the Ukraine war have lowered the bar to big government tax/spending intervention in future crises.   Like the 1970s, inflation is becoming more volatile Source: Macrobond, ING calculations

Key inflation numbers set to tee up ECB for September pause?     By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets underwent a bit of a pause yesterday with a mixed finish, although the FTSE100 did manage to eke out a gain, hitting a two-week high as well as matching its best run of daily gains since mid-July. US markets continued to track higher, with the Nasdaq 100 and S&P500 pushing further above their 50-day SMAs, with both closing at a two-week high, for their 4th day of gains.   As we look towards today's European session, the focus today returns to inflation, and more importantly whether there is enough evidence to justify a pause in September from both the ECB as well as the Federal Reserve, as we get key flash inflation numbers from France, Italy, and the EU, as well as the latest core PCE inflation numbers for July from the US.   Over the course of the last few weeks there has been increasing evidence that the eurozone economy has been slowing sharply, with the recent flash PMIs showing sharp contractions in both manufacturing and the services sector. Other business surveys have also pointed to weakening economic activity although prices have also been slowing, taking some of the pressure off the ECB to continue to hike aggressively.   At the last ECB meeting President Lagarde suggested a pause might be appropriate at the September meeting, acknowledging that policy was starting to become restrictive. We've also seen some ECB policymakers acknowledging the risks of overtightening into an economic slowdown, while on the flip side head of the Bundesbank Joachim Nagel has insisted further rate hikes are likely.   Yesterday's Germany and Spain flash CPI numbers for August highlight the ECB's problem, with Spain CPI edging up in August to 2.4% with core CPI slowing modestly to 6.1%. Headline inflation in Germany only slowed modestly to 6.4% from 6.5%.   Today's headline EU flash CPI numbers are therefore expected to be a key test for the ECB, when they meet on 14th September especially if they don't slow as much as markets are pricing. French CPI is expected to accelerate to 5.4% in August while Italy CPI is forecast to slow to 5.6%.   EU headline CPI is forecast to slow to 5.1% from 5.3%, with core prices expected to slow to 5.3% from 5.5%, although given the divergent nature of the various CPI readings of the big four eurozone economies there is a risk of an upside surprise.    The weaker than expected nature of this week's US economic data has been good news for stock markets, as well as bond markets, in so far it has helped to reinforce market expectations that next month's Fed meeting will see US policymakers vote to keep rates on hold.   A slowdown in job vacancies, a downgrade to US Q2 GDP and a weaker than expected ADP jobs report for August appears to show a US economy that is not too hot and not too cold.   Even before this week's economic numbers the odds had already been leaning towards a Fed pause when the central bank meets in September, even if there is a concern that we might still see another rate hike later in the year.   These concerns over another rate hike are mainly down to the stickiness of core inflation which only recently prompted a sharp move higher in longer term rates, causing the US yield curve to steepen off its June lows. The June Core PCE Deflator numbers did see a sharp fall from 4.6% in May to 4.1% in June, while the deflator fell to 3% from 3.8%.   Today's July inflation numbers could prompt further concern about sticky inflation if we get a sizeable tick higher in the monthly, as well as annual headline numbers, reversing some of the decline in bond yields seen so far this week.   When we got the July CPI numbers earlier this month, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. This could translate into a similar move today with a move higher to 3.3% in the deflator, and to 4.2% in the PCE core deflator.     Personal spending is also expected to rise by 0.7% in July, up from 0.5% in June. Weekly jobless claims are expected to remain steady, up slightly to 235k.       EUR/USD – the rebound off the 1.0780 trend line support from the March lows continues to gain traction, pushing up to the 1.0950 area. We need to push through resistance at the 1.1030 area, to signal a return to the highs this year.   GBP/USD – another day of strong gains has seen the pound push back above the 1.2700 area. We need to push back through the 1.2800 area to diminish downside risk and a move towards 1.2400.       EUR/GBP – the failure to push through resistance at the 0.8620/30 area yesterday has seen the euro slip back towards the 0.8570/80 area. While the 50-day SMA caps the bias is for a retest of the lows.   USD/JPY – the 147.50 area remains a key resistance. This remains the key barrier for a move towards 150.00. Support comes in at last week's lows at 144.50/60.   FTSE100 is expected to open 6 points higher at 7,479   DAX is expected to open 30 points higher at 15,922   CAC40 is expected to open 13 points higher at 7,377  

Wishful thinking?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    America had another 'bad news is good news' moment yesterday; softer-than-expected ADP and growth data further fueled expectations that the Federal Reserve (Fed) is – maybe – good for a pause. The ADP report, released yesterday, showed that the US economy added 177K new private jobs in August, lower than expected and more than half the number printed a month earlier, while the US GDP was revised from 2% to 2.1% instead of 2.4%, due to lower business investment than initially reported and to downside revisions in inventory and nonresidential fixed investment. Household spending, however, continued leading the US economy higher; it was revised up to 1.7%. All in all, the data was certainly weaker than expected but the numbers remain strong, in absolute terms.     The S&P500 gained for the 4th consecutive session yesterday, the index is now above the 4500 level and has around 85 points to go before recovering to July highs. The US 2-year yield settles below the 5% level on expectation that the Fed has no reason to push hard to hike rates; it could just wait and see the impact of its latest (and aggressive) tightening campaign.  In the FX, the softening Fed expectations are weighing on the US dollar. The dollar index fell to its 200-DMA and could sink back to its March to August descending channel. But the seasonality is on the dollar's side in September. Empirical data shows that the US dollar performed better than its peers for six Septembers in a row since 2017, and it gained 1.2% on average, thanks to increased quarter-end dollar buying, and an increased safe haven flows before October – which is seasonally a bad month for stocks, according to Bloomberg.       But the dollar's relative performance is also much influenced by the growth and price dynamics elsewhere. Looking at the latest Euro-area CPI numbers, the picture in Europe is much less dovish despite morose business and consumer sentiment in Europe and weak PMI numbers printed recently. Despite the dark clouds on the European skies, the latest inflation numbers showed that inflation in both Spain and Germany ticked higher in August for the second month – a U-turn that could be explained by the re-surge in oil prices since the end of June. This morning, the aggregate CPI number may not confirm a fall to 5.1% in headline inflation. And a stronger-than-expected CPI print will likely boost the ECB hawks and get the euro bulls to test the 50-DMA, near 1.0970, to the upside.     Later today, investors will focus on the US core PCE data, which has a heavier weight on the international platform.  Therefore, the strength of the US core PCE will say the last word before tomorrow's jobs data. Analysts expect a steady 0.2% advance on a monthly basis, and a slight advance from 4.1% to 4.2% on a yearly basis. A bad surprise on the topside could eventually wash out the past days' optimism regarding the future of the Fed policy. So, fingers crossed, we really need the US inflation to fall, and to stay low.    But looking at energy prices, a sustainable fall in headline inflation could be wishful thinking for the upcoming months. US crude remains upbeat near the $82pb, as the latest EIA data showed that crude inventories fall more than 10mio barrel last week, as separate data showed that crude stored on ships at sea fell to the lowest levels in a year - a clear indication that OPEC's supply cuts are taking effect. Plus, Russia is discussing with OPEC to extend oil-export cuts and Saudi is expected to prolong its supply cuts.    

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

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

Has anything changed over the past two decades? The current economic situation and the public debate in Germany feel eerily familiar to that of 20 years ago. Back then, the country was going through the five stages of grief, or, in an economic context, the five stages of change: denial, anger, bargaining, depression and acceptance. From being called ‘The sick man of the euro’ by The Economist in 1999 and early 2000s (which created an outcry of denial and anger) to endless discussions and TV debates (which revelled in melancholy and self-pity) to an eventual plan for structural reform in 2003 known as the 'Agenda 2010', introduced by then-Chancellor Gerhard Schröder. It took several years before international media outlets were actually applauding the new German Wirtschaftswunder in the 2010s. In the early 2000s, the trigger for Germany to move into the final stage of change management – 'acceptance' (and solutions) – was record-high unemployment. The structural reforms implemented back then were, therefore, mainly aimed at the labour market. At the current juncture, it is hard to see this single trigger point. Generally speaking, the current situation is worse and better than the one in the early 2000s. It is better because 20 years ago Germany breached European fiscal rules, while it currently has one of the most solid public finances of all eurozone countries, leaving sufficient fiscal space to react. What is worse is that there is currently a long list of other problems. Finally, low unemployment is a bit of a blessing in disguise. While positive for the economy and very different from 20 years ago, low unemployment also seems to have reduced the sense of urgency for policymakers. Given the multifaceted challenges, it will be harder than it was in the early Noughties to find and then politically agree on a policy answer. Another important difference between the current situation and two decades ago is the external environment. Back then, Germany had some good luck, or put differently, the economic reforms coincided with a favourable macro environment. Think of EU enlargement, which enabled many German corporates to outsource production to much cheaper-wage countries in Eastern Europe. The rise of China on the global stage also brought an almost symbiotic trade partner. China had a strong appetite for German investment goods and at the same time flooded world markets with deflationary policies. Finally, Germany actually benefitted from the euro crisis and the ECB’s "whatever it takes" approach as interest rates were artificially low and the euro artificially weak. None of these factors will sugarcoat any reform efforts at the current juncture. If anything, China has become a rival and competitor and the ECB needs to fight inflation. This lack of any sugarcoating makes the need for reform even more pressing, but will probably also make these reforms initially more painful.  

Waiting for 'Agenda 2030' Structural reforms implemented in the early 2000s were mainly aimed at the labour market. This was known as ‘Agenda 2010’. Today, the German economy needs an ‘Agenda 2030’. Short-term fiscal stimulus can ease the pain but will do very little to regain international competitiveness and restructure the entire economy. What Germany needs is a full menu card with policy measures. These measures could be categorised into those boosting confidence and giving companies security and clarity, as well as supply-side improving measures. In the first category, think of an energy price cap for industry. Not for one winter but for several years. Such a measure should be accompanied by a clear schedule for the energy transition. This would prevent more companies from exiting Germany and producing elsewhere. Combined with fast depreciation rules of investments in digitalisation and renewable energies, this could safeguard the economy’s industrial backbone. With subsidies for sectors like artificial intelligence, batteries or hydropower, the government could support innovation. Finally, less bureaucracy, more investment into e-government and consequently faster public tenders and implementation of federal investments at the regional level would strengthen the supply side of the economy. It is a long list that can easily be extended and broadened. One thing, however, is clear: any overhaul of the economy will be almost impossible as long as fiscal austerity remains the dominant tune. The German economy is in for a longer period of stagnation. The new debate about the ‘sick of man Europe’ could finally increase the sense of urgency among decision-makers; more than a protracted period of de facto stagnation could.  

The euro is lower on Thursday, after a 3-day rally which pushed the currency 1% higher. In the European session, EUR/USD is trading at 1.0861, down 0.57%.   Eurozone CPI steady, core CPI falls Eurozone inflation was a mixed bag in August. Headline inflation was unchanged at 5.3%, missing the consensus estimate of a drop to 5.1%. There was better news from Core CPI, which dropped from 5.5% to 5.3%, matching the estimate. The ECB will be pleased with the decline in core inflation, which excludes food and energy and provides a more accurate estimate of underlying press pressures. Many central banks, including the Federal Reserve, have taken pauses in the current rate-tightening cycle, but the ECB has raised rates 13 straight times. Will we see a pause at the September 14th meeting? The answer is far from clear. Inflation remains above 5%, more than twice the ECB’s target of 2%. The central bank is determined to bring inflation back down to target, but that would require further rate hikes and the weak eurozone economy could fall into a recession as a result. ECB member Robert Holzmann said today’s inflation report indicated that inflation remained persistent and admitted that the latest inflation numbers pose a “conundrum” for the ECB. The markets aren’t clear on what to expect from the ECB, with the odds of a pause at 67% and a 25-basis point hike at 33%. ECB President Lagarde hasn’t provided much guidance, perhaps because she’s as uncertain as everybody else about the September rate decision.   Germany’s numbers continue to point downwards, as the eurozone’s locomotive has become an economic burden. The latest release, July retail sales, declined by 2.2% y/y, sharply lower than the revised -0.9% reading in June and below the consensus estimate of -1.2%. . EUR/USD Technical EUR/USD is testing support at 1.0831. Below, there is support at 1.0780 1.0896 and 1.0996 are the next resistance lines

The euro is flat on Friday, after sustaining sharp losses a day earlier. In the European session, EUR/USD is trading at 1.0844. Eurozone, German manufacturing struggling There wasn’t much to cheer about after today’s Manufacturing PMI reports for Germany and the eurozone. Although both PMIs improved slightly in August, business activity continues to decline in the manufacturing sector. The Eurozone PMI came in at 43.5 in August, up from 42.7 in July and just shy of the consensus estimate of 43.7. In Germany, manufacturing is in even worse shape – the August reading improved from 38.8 to 39.1, matching the consensus. Manufacturing is in deep trouble in the eurozone and in Germany, the largest economy in the bloc. The PMIs point to a constant string of declines since June 2022. The volume of new orders is down and exports, already struggling in a weak global environment, have been hit by the slowdown in China which has reduced demand. Germany’s weak manufacturing data is particularly disturbing. Once a global powerhouse, Germany has seen economic growth slide and is officially in a recession, with two consecutive quarters of negative growth in the fourth quarter of 2022 and the first quarter in 2023. US nonfarm payrolls expected to ease In the US, the nonfarm payroll report is expected to decline slightly to 170,000, compared to 187,000 in the previous reading. If nonfarm payrolls are within expectations, it will mark the third straight month of gains below 200,000, a clear signal that the US labour market is cooling down. A soft nonfarm payrolls report would cement an expected pause by the Federal Reserve next week and also bolster the case for the Fed to hold rates for the next few months and possibly into 2024. . EUR/USD Technical EUR/USD is tested support at 1.0831 earlier. Below, there is support at 1.0731 1.0896 and 1.0996 are the next resistance lines Content  

Our view on EU construction markets Germany: Four years of contracting building volumesIn the first half of this year, German construction activity declined by 1.4% year-on-year after a decline in 2022 of 1.6%. For 2023, we forecast a moderate contraction of the largest construction market in the EU. The building industry continues to suffer under higher interest rates and increased construction costs, which led to three German project developers – Project Immobilien, Development Partner and Euroboden – filing for bankruptcy in August. Order book assessment of contractors also declined to 3.8 months in the third quarter of 2023 from 4.3 months a year earlier. A sharp decline in building permits for new residential buildings in the first half of this year also signals a further decrease still to come. Along with higher interest rates and construction costs, policy uncertainty regarding sustainability measures in the real estate sector added to the drop in the number of new permits. Spain: Construction sector at a turning pointBy the end of 2022, the production level was almost 25% lower than it was at the end of 2019. Yet, order books are now improving and the EU's recovery fund investments in the Spanish construction sector should generate a more positive outcome moving forward. The increase in permits will also have a positive effect on building volumes – although the question will remain as to how many approved projects will actually be built as challenging circumstances persist. Nevertheless, we have upgraded our forecast for Spain.   EU construction forecast Volume output construction sector, % YoY   The Netherlands: Construction faces sharp decline in 2024We expect Dutch construction volumes to experience a slight growth of 0.5% this year. A small contraction was previously anticipated, but unexpectedly high growth in the first quarter of this year has led to the possibility of ending 2023 with a small increase. Signs of cooling are already evident at the beginning of the Dutch construction value chain, with a visible contraction in project development and the production of building materials such as concrete, cement, and bricks. This trend will continue further down the supply chain. As a result, we expect a contraction of 2.5% in Dutch construction output next year – the largest decline since 2013. This is a relatively large drop compared to other countries. However, the Dutch building sector has performed well in recent years, and production levels should therefore remain at high levels.   Belgium: Low growth for the construction sector in 2023Belgian construction output rose by 0.3% in the first half of 2023. The Belgian construction confidence index has been hovering around a neutral level for months but reached its lowest point of -5.0 in more than two years in July, despite an increase in building production volumes in 2022. The issuance of building permits for both residential and non-residential buildings has decreased over the same period, but more moderately than in other countries. The government's stimulus plans include funding to improve the energy efficiency of existing buildings and funds to rebuild 38,000 homes damaged by the floods in 2021. Overall, we predict that the Belgian construction sector will still experience a low growth rate of around 0.5% in 2023 and 1% in 2024.   Strong development differences among countries Development volume construction sector (Index 2016=100)

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

Rates Spark: Dis-inversion from the back end We rationalise why US longer tenor rates are rising – basically, the curve is inverted and getting used to discounting structurally higher rates. If so, reversion to a normal curve must mean dis-inversion from the back end. When something breaks, that will change. But for now, it's more of the same: upward pressure on long yields.   The US curve can't stay inverted forever. So if rates don't get cut, long rates must rise There are many theories swirling around as to why the US 10yr yield did an about-turn on Friday, post-payrolls. It had initially lurched towards 4%. But in a flash, it was heading back towards 4.25%. We rationalise this based on two factors. First, the curve remains very inverted, with longer tenor yields anticipating falls in official rates in the future. That’s a normal state of affairs. But as long as the economy continues to motor along, the wisdom of having many rate cuts at all is being questioned by the market. Less future rate cuts raise the implied floor being set by the Fed funds strip. That floor continues to edge higher. That’s the second (and related) rationale. Friday’s payroll report was not one that suggested anything had broken. Rather, it hinted at more of the same ahead. There are lots of stories floating around about the rise in the oil price and heavy primary corporate issuance, but we’re not convinced they are the dominant drivers. They certainly push in the same direction, but that's all – contributory rather than driving. Until activity actually stalls, there is no imminent reason for the Federal Reserve to consider rate cuts, and as that story persists, the floor for market rates is edging higher and becoming more structural at higher levels. In that environment, the only way for the curve to dis-invert is from longer maturity yields coming under rising pressure as shorter-tenor ones just hold pat. Something will break eventually, but so far it hasn’t. The path of least resistance therefore remains one for a test higher in longer tenor market rates.   Accommodating structurally higher rates as the Fed stays pat   Today's events and market views Rates are drifting higher and a busy primary market is a technical factor – though usually fleeting – that has added to the upward pressure. But it is the data that has provided markets with the waymarks, although first impressions can prove deceptive.  Today’s key data is the ISM services which is expected to soften marginally, suggesting the sector is losing momentum towards the fourth quarter. For now, it would not meaningfully alter the overall situation. Susan Collins, president of the Boston Fed, is scheduled to speak on the economy and policy. Later tonight, the Fed will also release its Beige Book with anecdotal information on current conditions in the Fed districts. In the eurozone, we will get retail sales data for July. Yesterday, the European Central Bank’s surveyed consumer inflation expectations saw a slight uptick, but this was balanced by downwardly revised final PMIs – the net impact on market pricing for the September ECB meeting was marginal. No ECB speakers are scheduled for today. In government bond primary markets, Germany taps its 10Y benchmark for €5bn. The Bank of Canada will decide on monetary policy today with no change widely expected after the economy surprisingly contracted in the second quarter.  

Eurozone retail sales dip further than expected in July Retail sales dropped by -0.2% in July, slightly worse than expected. While this marks a poor start to the third quarter, it does look like the declining trend in sales from recent years is starting to moderate.   The decline in eurozone retail sales was mainly driven by northern economies such as Germany, the Netherlands, Belgium and Ireland, which all posted quite significant drops in retail trade in July. France and Spain actually saw improving sales volumes, and Italy has yet to publish data so far. Overall, today’s data point fits the lacklustre trend in retail sales seen since mid-2021. Since then, we have seen a correction in consumption where services regained consumption share as economies reopened. This came at the expense of goods consumption, which had seen overspending in the early pandemic period. Still, it appears as though we’re seeing an easing of the correcting trend in retail sales. In recent months, it looks like sales have been bottoming out somewhat. This could indicate that the post-pandemic consumption shock is settling and that the improvement in real wages provides some support for the sector battling declining volumes. While it’s still early to draw definitive conclusions, this would be favourable for retail and goods production.

EUR/USD declines to two-month low Eurozone, Germany Services PMIs indicate contraction Eurozone inflation expectations steady at 3.4% The euro is back to its losing ways on Tuesday, after holding steady a day earlier. In the North American session, EUR/USD is trading at 1.0745, down 0.48%. The euro has faltered badly, losing about 2% since Wednesday and trading at its lowest level since July. Eurozone inflation expectations edge higher ECB Christine Lagarde has been talking about the importance of beating inflation but has shrugged when asked about interest rate policy. Lagarde spoke in Jackson Hole in late August and again on Monday in London, hammering home the messsage that inflation remains too high and the ECB will maintain high rates for as long as necessary in order to bring inflation back to the 2% target. Lagarde’s hawkish message in these speeches gave no hints as to whether the ECB would raise rates at its meeting on September 14th. Perhaps she is keeping the markets guessing, but another reason could be that the ECB hasn’t yet decided whether to hike or hold, with doves and hawks at the ECB strongly divided on the next move. Inflation remains high at 5.3% but another hike increases the risk of tipping the weak eurozone economy into a recession. Lagarde stressed on Monday that it was critical for the ECB to keep inflation expectations firmly anchored. I can only imagine her frustration today on reading the ECB monthly survey which indicated that inflation expectations for the next 12 months remained at 3.4% in July, and rose from 2.3% to 2.4% for three years ahead. Eurozone inflation has been moving in the right direction, but it appears that bringing it back down to target could take years.   Eurozone, German services PMI indicate contraction The services sector has helped carry the eurozone economy at a time when manufacturing continues to decline. However, the expansion in services came to a crashing halt in August as indicated in today’s PMIs for the eurozone and Germany. The 50.0 line separates contraction from expansion. The eurozone Services PMI for August was revised to 47.9 from a preliminary 48.3 points. This marked the first contraction in services activity this year and was the weakest reading since February 2021. The news wasn’t much better from Germany, the bloc’s largest economy. The Services PMI was confirmed at 47.3, the first contraction in eight months and the lowest level since November 2022. The euro has fallen about 0.50% in response to the weak services data, another painful reminder of the fragility of the eurozone economy.   EUR/USD Technical EUR/USD is testing support at 1.0716. Below, there is support at 1.0658 There is resistance at 1.0831 and 1.0889    

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

PBoC pushes back at speculators. Chinese FDI numbers and Indian inflation are Asia's main highlights today.   Global Macro and Markets Global markets:  US stocks returned to growth mode yesterday, with the S&P 500 and NASDAQ rising 0.67% and 1.14% respectively. Equity futures suggest that this might be short-lived, however. Chinese stocks had a mixed day, with the Hang Seng falling 0.58%, but the CSI 300 rising 0.74%.  US Treasury yields haven’t changed much. In fact, 2Y yields are unchanged from a day ago, while the yield on the 10Y US Treasury is only up about 2bp to 4.288%. EURUSD has recovered to 1.0750, after dabbling with levels below 1.07 at times the previous day. The AUD has also benefited from this, rising back to 0.6430 and Cable has pulled itself back up to 1.2512. The JPY has also made further gains following Ueda’s weekend comments about potentially ending super-easy monetary policy later this year and is now 146.55. In the Asian FX space, the PBoC took advantage of the USD’s weakness and some stronger-than-expected lending data and issued a stiff warning against speculative trading to weaken the CNY, resulting in a strong rally, which took the CNY down to 7.27 at one stage, and it is now 7.2894. This move helped lift other currencies such as the SGD. G-7 macro:  Yesterday was a pretty quiet day regarding Macro data, and today isn’t much more interesting. Germany publishes its monthly ZEW business survey, which is expected to show a further decline from already very low levels. The US publishes its NFIB small business survey, which is always a good and detailed snapshot of what is happening outside big business. China:  FDI data started to show a year-on-year decline in inflows of 4%YoY YTD in July, and we anticipate a further decline in the August numbers as overseas firms weigh the geopolitical tensions between China and the West and the disappointing re-opening, against the lure of one of the biggest markets in the world. India:  Inflation surged in July to 7.44%, mainly because of spikes in seasonal foods, especially tomatoes, following erratic weather. Daily price data shows that these spikes have eased a bit since last month, though there are also some sharp increases in the prices of onions. The net result should be a moderation of inflation to about 6.7% for August.   What to look out for: US CPI inflation and China data Australia Westpac consumer confidence (12 September) India CPI inflation (12 September) US NFIB survey (12 September) South Korea unemployment (13 September) Japan PPI inflation (13 September) India trade balance (13 September) US CPI inflation (13 September) Japan core machine orders and industrial production (14 September) Australia unemployment (14 September) ECB policy meeting (14 September) US initial jobless claims, PPI and retail sales (14 September) China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment (15 September)

Tesla fuels market rally By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    Tesla jumped 10% yesterday and reversed morose mood due to the Apple-led selloff. Tesla shares flirted with the $275 per share on Monday, thanks to Morgan Stanley analysts who said that its Dojo supercomputer may add as much as $500bn to its market value, as it would mean a faster adoption of robotaxis and network services. As a result, MS raised its price target from $250 to $400 a share.   Tesla rally helped the S&P500 make a return above its 50-DMA, as Nasdaq 100 jumped more than 1%. Apple recorded a second day of steady trading after shedding almost $200bn in market value last week because of Chinese bans on its devices in government offices, and Qualcomm, which was impacted by the waves of the same quake, recovered nearly 4%, after Apple announced an extension to its chip deal with the company for 3 more years. Making chips in house to power Apple devices would take longer than thought.   Speaking of chips and their makers, ARM which prepares to announce its IPO price tomorrow, has been oversubscribed by 10 times already and bankers will stop taking orders by today. The promising demand could also encourage an upward revision to the IPO price, and we could eventually see the kind of market debut that we like!    Today, at 10am local time, Apple will show off its new products to reverse the Chinese-muddied headlines to its favour before the crucial holiday selling season. The Chinese ban of Apple devices in government offices sounds more terrible than it really is, as the real impact on sales will likely remain limited at around 1%.   In the bonds market, the US 2-year yield is steady around the 5% mark before tomorrow's much-expected US inflation data. The major fear is a stronger-than-expected uptick in headline inflation, or lower-than-expected easing in core inflation. The Federal Reserve (Fed) is torn between further tightening or wait-and-see as focus shifts to melting US savings, which fell significantly faster than the rest of the DM, and which could explain the resilience in US spending and growth, but which also warns that the US consumers are now running out of money, and they will have to stop spending. So, are we finally going to have that Wile E Coyote moment? Janet Yellen doesn't think so, she is on the contrary confident that the US will manage a soft landing, that the Fed will break inflation's back without pushing economy into recession. Wishful thinking?   But everyone comes to agree on the fact that the Eurozone is not looking good. The EU Commission itself cut the outlook for the euro-area economy. It now expects GDP to rise only 0.8% this year, and not 1.1% as it forecasted earlier, as Germany will probably contract 0.4% this year. The slowing euro-area economy has already softened the European Central Bank (ECB) doves' hands over the past weeks. Consequently, the EURUSD gained marginally yesterday despite the fresh EU commission outlook cut and should continue gently drifting higher into Thursday's ECB meeting. There is no clarity regarding what the ECB will decide this week. The economy is slowing but inflation will unlikely to continue its journey south, giving the ECB a reason to opt for a 'hawkish' pause, or a 'normal' 25bp hike. 

A hawkish tone from the US CPI data and a hike from the ECB could give front end rates a larger lift this week, and provide the ingredients for a brief curve-flattening episode. More broadly, however, we think the current environment remains marked by disinversion pressure on the US curve from the back end – which will also have spillover effects into Europe. The inverted curve makes long positions on the common notion that rates rally once the Fed delivers its final hike costly. Yes, that rates should rally it is what experience of the past tightening cycles back to 1994 has shown, but at the same time curves were also not as deeply inverted as they are now. As we have pointed out earlier, until activity actually stalls there is no imminent reason for the Fed to consider cuts - as that story persists, the floor for market rates is edging higher and becoming more structural at higher levels.   Today's events and market view The BoJ’s hawkish tones over the weekend had given rates a nudge higher at the start of the week, putting 10Y yields in the US and Germany closer to the top of recent ranges. Supply activities have held rates in that elevated territory. Apart from that, the start of the week in rates was quiet, considering the relatively narrow trading ranges for the day. Following the UK wage growth data there is little else on the data calendar for today with the key events only lined up for later this week. Nonetheless today’s US NFIB index can also give us insights into selling prices for instance and the ZEW is likely to highlight the subdued macro outlook for Germany – and the dilemma that the ECB Council will face when it has to arrive at a decision on Thursday. With regards to primary markets the EU had mandated a new 7Y bond which should be today’s business. Germany sells €5.5bn in its 2Y benchmark while the Netherlands reopens a 3Y for up to €2.5bn. In the US we will see the reopening of the 10Y Treasury note for US$35bn.

oday, Italy will sell EUR 3.5-4bn of the new BTP 4% Nov30 and will reopen BTP 3.85% Sep26 for EUR 2.75-3.25bn, BTP 4.5% Oct53 for EUR 1-1.5bn and BTP 5% Sep40 for EUR 0.75-1bn. The auction size will be EUR 8-9.75bn, in line with its endof-August auction. Reopenings for specialists worth EUR 2.4bn will be particularly valuable due to tomorrow’s ECB meeting. Yesterday, BTP Nov30 was trading at 4.15% on the gray market, 6bp higher than the previous benchmark (BTP 3.7% Jun30). We like the new 7Y benchmark in a 5/7/10Y fly, whereas a 3/5Y steepener is appealing in a medium/long-term horizon. With respect to extra-long bonds on auction, BTP Oct53 remains cheap in relative-value terms, reflecting future supply pressure and lower convexity, while BTP Sep40 is fairly priced. A 10/30Y flattener remains an interesting defensive trade from a tactical perspective, especially after the recent steepening. For further information on the auction, see our Primary Market Focus – Italy issues new BTP Nov30 in an appealing area of the curve. Today, Germany will reopen Bund Aug52 and Bund 1.8% Aug53 for a total of EUR 2.5bn. Bund Aug52 was last sold via auction a month ago, whereas Bund Aug53 was last tapped via syndication on 29 August. The deal worth EUR 3bn was well received. Indeed, Bund Aug53 was sold at Bund Aug52 +7.5bp and is now trading 6bp higher, in line with the spread before the transaction. On the other hand, the extra-long end of the Bund curve has underperformed over the past month, with the 10/30Y spread steepening by 5bp to 12bp. Today, Portugal will reopen PGB 1.65% Jul32 and PGB 0.9% Oct35 for EUR 0.75-1bn.    

US and European equity futures markets trade higher with Asian markets also climbing on cautious optimism the Federal Reserve may decide to pause rate hikes after US core inflation advanced the least in two years. The dollar and Treasury yield both trade softer ahead of US retail sales with the euro ticking higher as traders' price in a two-third chance of a rate hike from the European Central Bank later today. Crude trades near a ten-month high on concerns about a supply shortfall, copper higher on yuan strength while gold prices have steadied following a two-day decline.   Equities: S&P 500 futures are holding up well against recent weakness trading around the 4,530 level despite yesterday’s higher-than-expected US inflation opening the door for the Fed to hike interest rates one more time in December. Arm IPO was priced at the top end of the range at $51 per share with trading set to being today. Adobe earnings after the US market close could be a key event for the AI-related cluster of stocks. FX: The US dollar wobbled on the CPI release but could not close the day higher with Treasury yields slipping. EUR in the spotlight today as ECB decision is due, and EURUSD has found support at 1.07 for now with a rate hike priced in with over 65% probability. USDJPY trades softer after government minister talked about the need for strong economic measures. Yuan strengthened further with authorities increasing bill sales in Hong Kong to soak up yuan liquidity making it more expensive to short the currency. Commodities: Brent holds above $92 and WTI near $90 after the IEA joined OPEC’s warnings of a supply shortfall in the coming months, thereby supporting a rally that started back in June when Saudi Arabia curbed supply to boost prices. Softening the rally was a weekly US stock report showing rising stocks and production near the 2020 record. Near-term the market looks overbought and in need of a pullback. Gold looking for support ahead of $1900 with a hawkish FOMC pause back on the agenda while copper trades firmer with a stronger yuan offsetting a rise in LME stocks to a two-year high Fixed income: The US yield curve bull-steepened yesterday despite higher-than-expected CPI numbers, indicating that the Federal Reserve might be approaching the end of the hiking cycle. Yet, long-term yields remained flat as the 30-year auction showed a drop in indirect demand and tailed by 1bps despite pricing at the highest yield since 2011. Overall, we remain cautious, favouring the front part of the yield curve over a long duration. Bonds will gain as the economy starts to show signs of deceleration. Still, larger coupon auction sizes and a hawkish BOJ will support long-term yields unless a tail event materializes. We still see 10-year yields rising further to test strong resistance at 4.5%. Today, the focus will be on the ECB, which markets expect to hike. Due to a recession in Germany and in Netherlands, we believe that the ECB will deliver a hawkish pause today, which might result in a short-lived bond rally. Macro: US CPI surprised to the upside, but it did not alter the markets thinking around the Fed. Core CPI rose 0.3% MoM, or +0.278% unrounded, above the prior/expected +0.2%, with core YoY printing 4.3%, down from July's 4.7%, and in line with expectations. Headline print was in line with expectations at 0.6% MoM, up from +0.2% on account of energy price increases, with YoY lifting to 3.7% from 3.2%, above the expected 3.6%. The PBoC announced plans to issue RMB15 billion Central Bank Bills in Hong Kong on September 19, which is going to tighten CNH (offshore renminbi) liquidity further In the news: Asset managers BlackRock and Amundi are warning that US recession risks are rising – full story in the FT. Germany is facing big structural problems in its manufacturing sector with gloom taking over among workers – full story in the FT. The EU is weighing tariffs against China over flooding the market with cheap electric vehicles – full story on Reuters. Technical analysis: S&P 500. Key at resistance at 4,540. Key Support at 4,340. Nasdaq 100 15,561 is key resistance. EURUSD downtrend, support at 1.0685, Expect short-term bounce to 1.08. AUDJPY testing resistance at 95.00. Crude oil uptrend stretched, expect a correction lower Macro events: ECB Main Refinancing Rate exp. unchanged at 4.25% (1215 GMT), US Retail Sales (Aug) exp. 0.1% vs 0.7% prior (1230 GMT), US Initial Jobless Claims exp. 225k vs 216k prior (1230 GMT), US PPI (Aug) exp. 0.4% vs 0.3% prior (1230 GMT), Commodities events:  EIA’s Weekly Natural Gas Storage Change (1430 GMT) Earnings events: Adobe reports FY23 Q3 earnings (ending 31 August) after the US market close with analyst expecting revenue growth of 10% y/y and EPS of $3.98 up 63% y/y. Read our earnings preview here.  

Asia Morning Bites 25 September 2023 Singapore inflation to ease slightly lower on a quiet day for macro.   Global Macro and Markets Global Markets: Friday was a choppy day for US stocks, and though they ended marginally down, futures suggest that they will open positively today. Chinese stocks had a rare positive day. The CSI 300 rose 1.81%, while the Hang Seng index climbed 2.28%. US Treasury yields declined across the curve on Friday. 2Y UST yields fell 3.4bp to 5.11%, while yields on the 10Y bond fell 6bp to 4.434%. That didn’t have much impact on the USD. EURUSD. remained almost unchanged at around 1.0650. The AUD gained a little, rising to 0.6440, and the GBP slid further to 1.2243. James Smith has made a video which describes how markets are now eyeing rate cuts following the recent Bank of England pause. The JPY weakened on Friday after the disappointing lack of anything new from Governor Ueda at Friday’s BoJ meeting. Here’s a note by Min Joo Kang on the meeting and her thoughts about what comes next. Apart from the JPY, most Asian currencies made modest gains on Friday, with the THB and KRW out in front. The THB is sitting just above 36 currently, the KRW at 1336.75.   G-7 macro: There was very little on the macro calendar on Friday apart from the Bank of Japan meeting, and it is a quiet start to the week too, with Germany’s September Ifo survey the only notable data point.  Singapore:  Singapore reports inflation today on a quiet day in what will be a quiet week, with much of Asia off for mid-Autimn holidays later this week.  The market consensus suggests a slight dip for both headline and core inflation as favourable base effects and softer retail sales kick in. Headline inflation could dip to 4%YoY (from 4.1%YoY), while core inflation should slip to 3.5%YoY from 3.8%.  This alongside slowing growth will be factored into the upcoming MAS decision next month with no likely adjustments to policy settings just yet.      What to look out for: US sentiment data Singapore inflation (25 September) Japan department store sales (25 September) US Dallas and Chicago Fed national activity (25 September) Fed Kashkari speaks (25 September) South Korea consumer confidence (26 September) Singapore industrial production (26 September) US Conference board consumer confidence, new home sales, FHFA house price index (26 September) Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)

... as well as in EUR The bear steepening is not confined to the US. In Europe the 10y Bund yield briefly pushed past 2.8% and the 30y hit 3%. Interesting to note is that this happened with longer term inflation expectations actually dropping, so entirely real rate driven. Risk assets of course are not liking it. In European sovereign space this has seen Italian bond spreads over Bunds prolonging their widening leg, taking the 10y spread to 186bp today. But overall widening was a moderate 2bp in relation to the 5bp outright move today, also considering it was largely directional widening since the start of this month. But at the same time that widening over the past week also happened alongside implied rates volatilities coming down, which should normally support spread products. Implied volatility has picked up a tad over the past few sessions but still remain at their lowest since June. In part, it may be the explanation why Bund asset swap spreads (ASW) have remained relatively tight as they mirrored that broader move. That is still notable though, as a lot of the factors traditionally driving the Bund ASW are on the move, and pulling in different directions. Risk sentiment as measured by sovereign spreads has been one factor, but its influence seems muted, with other risk measures like volatility being down. The European Central Bank’s chatter about quantitative tightening has become louder, but the additional effective net supply that a speedier unwinding of the ECB’s bond portfolios implies may take more time to actually realise. More near term, supply could actually still drop, when the German debt agency updates its quarterly funding plan today. And starting next week government deposits currently still sitting on the Bundesbank’s balance sheet will no longer be remunerated and could hence push into the market for high quality collateral.   10Y yields are on long term highs, but the curves still have room   Today's events and market views The data calendar for the US already gets busier with the releases of house price data, new home sales numbers and the Conference Board consumer confidence survey as highlights today. The European data calendar has less on offer but we will see quite a few ECB officials making public appearances, including chief economist Lane and Austria’s Holzmann. Government bond primary markets will stay busier with a 10Y tap out of the Netherlands, a 5Y tap from Germany and Italian short term plus linker auctions. The main highlight will probably be the release of the German fourth quarter funding plan with cuts to the issuance target expected. The UK taps its 10y green Gilt and the US Treasury sell a new 2Y note.

Asia Morning Bites Australia's August CPI inflation report should show inflation rising again. The fall in Chinese industrial profits may be moderating.   Global Macro and Markets Global markets:  For a change, US Treasury yields didn’t rise yesterday. Nor did they fall particularly. The yield on the 2Y UST was down just 0.4bp to 5.121%, while that on the 10Y bond rose just 0.2bp to leave it at 4.536%. This was despite Neel Kashkari, a voter on the FOMC this year, saying that he thought even a soft-landing scenario would probably require one more rate hike this year. Michelle Bowman talked about the need to cool the economy to bring rents down in line with wage growth, though she did not explicitly outline a path for rates. But she implied more was needed. With this, it feels as if markets are listening and choosing to believe that in the end, the Fed will not carry through on their threats to raise rates again, either because the threat lacks credibility, or because they believe that the growth and inflation evidence will turn sufficiently to make it unnecessary. It’s a tough call to make and leaves upside as well as downside risk. Kashkari and Bowman are both due to speak again today. US Stocks cooled on Tuesday. The S&P 500 dropped 1.47% while the NASDAQ fell 1.57%. Equity futures are looking mildly positive. It was also another off-day for Chinese stocks. The Hang Seng fell 1.48%, while the CSI 300 fell 0.58%.   The risk-off sentiment may be helping the USD, which has pushed even lower overnight, dropping to 1.0570. The AUD has declined below the 64 cent level, though may get a boost from CPI inflation data later on today. Cable has dropped to 1.2148, and the JPY has risen to 149.07, a level at which you have to think there could be some more verbal intervention (Finance Minister Suzuki has already waded in) and close to a level where physical intervention may occur. The CNY has held roughly level at 7.3112, though the rest of the Asia pack was weaker against the USD. The KRW and THB, together with the IDR were the weakest currencies in the region yesterday. G-7 macro:  US new home sales fell a little more than expected in August, dropping 8.7% MoM to a 675K annual pace. The Conference Board consumer confidence index was down slightly, breaking down into a slightly stronger present situation response, but a sharply weaker expectations survey. Germany also releases consumer confidence figures from GfK today. The only US data of note is the August durable goods orders and shipments figures.   Australia: A combination of base effects wearing off, and higher gasoline and food prices will take Australia’s monthly inflation rate for August back up again after the surprising decline in July. The inflation rate should push back from the July 4.9% YoY rate to a little over 5%. The consensus estimate sits at 5.2%, which is not far from our estimate of 5.1%. While this does not immediately threaten the market’s view that the RBA has peaked in its rate cycle, a few more results like this, plus some economic resilience may spur thoughts that there is still one more hike to come. We certainly are not ruling another hike out.   China: Industrial profits figures for August are released this morning. The year-on-year decline in this series has been moderating, and we expect this to continue, though probably still leaving profits down from a year ago.   What to look out for: Australia inflation Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)

August industrial data fuels new recession risk in Germany The fourth consecutive monthly drop in industrial production is adding to fears that the entire economy has fallen back into recession in the third quarter.   Whether you call it de-industrialisation, industrial shrinking, or just a big disappointment, one thing is clear: German industrial production dropped once again in August for the fourth consecutive month. On the month, it was down by 0.2%, from -0.6% month-on-month in July. For the year, industrial production was down by 2%. Industrial production is now more than 7% below its pre-pandemic level, more than three years since the start of Covid-19. On a more positive note, production in energy-intensive sectors increased by almost 1% MoM in August and is now ‘only’ 8% down over the year. Activity in the construction sector fell by 2.4% MoM.   Recession risk uncomfortably high Looking ahead, stabilising but still weak production expectations, thin order books despite last week’s increase, and high inventories all indicate that German industrial production will continue moving sideways rather than gaining momentum anytime soon. Today’s industrial production data will do little to change the current hangover mood in the German economy. A stagnating economy in the second quarter after two quarters of contraction gave hope to some that the economy was improving. However, hard data for July and August had nothing to be cheerful about. In fact, retail sales, exports and industrial production all disappointed in the first two months of the third quarter, suggesting that for the entire economy, the risk of falling back into contraction is uncomfortably high.

First takeaways from Germany’s regional elections The results of the regional state elections in Bavaria and Hesse are a clear blow to Chancellor Olaf Scholz’s federal government, with gains for the opposition conservatives but also the far-right AfD.   Sunday’s regional state elections were a kind of mid-term election for Chancellor Olaf Scholz and his federal government. About 9.4 million people were eligible to vote for the new state legislature in Bavaria and about 4.3 million in Hesse, more than 20% of the eligible voters in the entire country. During the last years, both states were led by the country’s main opposition party, the CDU in Hesse and its sister party, the Bavaria-only CSU. Regional state elections in Germany are always affected by both regional and national developments and it’s hard to tell upfront which of the two will have a larger impact. This time around, however, it was clear that both state elections were regarded as voters' reactions to bigger national topics like the energy transition and immigration, but also political communication, as the work of the federal government has almost constantly been accompanied by controversial discussions in public by all three coalition partners. The available results of both elections have the CDU coming in as the largest party, gaining significantly in Hesse and broadly remaining unchanged in Bavaria. The SPD and the Greens (both part of the federal government coalition) lost almost equal votes in Hesse and Bavaria. The third coalition partner in Berlin, the liberal FDP, continued the strongly negative trend since the last federal elections in 2021. It missed the threshold to enter parliament in Bavaria and just made it in Hesse with the smallest margin possible. The right-wing AfD recorded strong gains and will be the second-largest party in Hesse and third-largest in Bavaria.   What are the main takeaways from the two elections? The CDU is highly likely to keep the political lead in both Hesse and Bavaria and will therefore strengthen its opposition role at the national level. However, the question of who will lead the party into the next federal elections two years from now remains unanswered. Neither the result in Bavaria nor in Hesse was overwhelmingly strong enough for one of the two leading candidates (Bavarian Minister-President Markus Söder or Hesse’s Minister-President Boris Rhein) to immediately rise to the next level.   The strong gains of the AfD illustrate that the party is more than only a protest party in East German states. The party’s gains show that frustration with both the content and style of federal politics seems to be growing in the entire country. The next big topic in German politics will be whether the other parties will start some kind of cooperation with AfD. This will be mainly a challenge for the CDU, which despite a strong position currently and the losses of the liberal FDP, will always need a coalition partner. Don’t forget that next year, there will be three regional state elections in the East of Germany and currently, the AfD is leading the polls in all three.   The government coalition in Berlin has taken an enormous blow. Judging from Hesse and Bavaria, the coalition currently only combines some 30% of the popular vote and the FDP is close to an existential crisis being again kicked out of two regional state parliaments. These results can either lead to a full reset of the political agenda in Berlin or to a de facto standstill.

Rates Spark: Don’t dismiss the remaining yield upside just yet The US borrowing estimate and the BoJ were not the drivers of another leg higher in rates as many had feared. While it's unlikely to be the end of the supply story and we still await the quarterly refunding announcement, markets will also focus on the data and the Fed meeting again. After all, economic resilience was the other factor of higher rates.   The long end took its cues from lower US borrowing and more cautious tweaks from the BoJ Long-end rates took their cues for yesterday’s trading from the somewhat lower-than-expected US Treasury borrowing estimate as well as the Bank of Japan (BoJ) decision to only slightly adjust its yield curve control policy. In essence, two of the factors that many, including us, had seen as potential drivers of a renewed attempt at taking on the 5% threshold in 10Y UST yields proved to be duds. The UST curve kicked off with a bull flatteneing which also spilled over into other rates markets.   However, especially with a view on supply it is unlikely to be the end of the story. Markets are still awaiting the quarterly refunding announcement and the maturity split of the upcoming issuance today. Some had flagged the possibility of a more cautious approach focusing any increase on shorter-dated issues. But following the lower borrowing requirement, the US Treasury might feel less pressed on this topic. More importantly, the overarching concerns surrounding the medium- to long-term trajectory of the US deficit have not been addressed.   US economic resilience remains an important factor in keeping rates elevated as well Yesterday’s quarterly employment cost index rising to 1.1% should also remind us that the other important driver of higher long-end rates was the resilience of the economy and the job market in particular. It was in fact the faster wage growth figure managed to turn around the bullish dynamic yesterday and point yields higher again. The Federal Reserve has guided markets to firmly expect a hold at tonight’s FOMC meeting despite the more benign inflation backdrop, third-quarter GDP growth coming in hot, the jobs market remaining tight and inflation remaining well above the 2% target. But it has done so by pointing out that the higher long-end rates are now doing part of its job. That said, European rates markets were confronted with a more dovish data set as the eurozone flash CPI slipped below 3% and 3Q GDP growth came in with a negative sign. Yesterday's bull flattening was probably still more inspired by the overall direction given US and Asian events rather than the domestic data. That said, European Central Bank (ECB) officials are still attempting to anchor front-end rates by emphasising the outlook of keeping rates high for longer.     The US yield increase is stalling, but curves remain steeper   Today's events and market view The BoJ and US borrowing announcements have proved more benign for rates than anticipated with the 10Y UST yield dropping towards 4.8% before moves were reversed in month-end flows. Especially on the supply side, it is unlikely to be the end of the story with the refunding announcement coming today. But economic resilience should also not be dismissed as a potential driver of another leg higher in rates. To that end, we will get the  ADP payrolls estimate today ahead of the key jobs data on Friday. Also on today’s agenda are JOLTs jobs opening numbers as well as the ISM manufacturing. The key event for the day is the FOMC meeting tonight, although a hold has been well-flagged. The Fed is still likely to keep its bias for further tightening in place.  All Saints Day is observed in large parts of Europe. In today’s government bond primary markets, Germany will tap its 7Y bond for €3bn

German industrial production disappoints once again Another disappointing data release not only suggests that third-quarter GDP growth could be revised downwards, but also that the country is likely to end the year in a technical recession. Germany’s macro horror show continues, and we are almost getting to the point where kids ask their parents where they were the last time Germany produced a series of positive macro data. Today’s industrial production data is unfortunately no exception to the longer-lasting trend. German industrial production dropped once again in September for the fifth consecutive month. On the month, it was down by 1.4% from -0.1% month-on-month in August. For the year, industrial production was down by 3.7%. The drop in industrial activity was spread across all main sectors. Industrial production is now more than 7% below its pre-pandemic level, more than three years since the start of Covid-19. Production in energy-intensive sectors was more than 8% down compared with September last year.   Risk of ending the year in technical recession remains high Looking ahead, leading indicators in October don't bode well for future production. After a first stabilisation in September, production expectations and survey-based order book assessments weakened again in October. Inventories have started to come down somewhat but remain too high. Yesterday’s industrial orders data for September confirmed the weak outlook. It all looks as if German industrial production will continue moving sideways rather than gaining momentum anytime soon. With today’s data, industrial production would have to increase by at least 2% MoM in the coming months to bring production back into positive territory in the fourth quarter. Even though there isn’t any hard data for the fourth quarter yet, recent developments have clearly increased the risk that the German economy will end the year in recession.

Rates Spark: Shifting the rate cycle discount How convinced are we that the Fed has peaked? You can never be 100% sure on this, but the odds firmly favour the view that they’re done. That places rate cutting on the radar. Ahead of that, market rates tend to ease lower.   Have market rates peaked in the United States? Most probably yes The US 10yr has gapped below 4.5% in the wake of the CPI report – immediate impact effect. It did feel like Treasuries were waiting for this report before making any conclusive subsequent move having had a look below 4.5% twice and each time finding an excuse (good ones though) to get back above. Although the headline inflation rate is now 3.2%, the caveat is that core is still at 4% (even if lower than the 4.1% expected). But the path is positive, and that’s what the market rates are extrapolating. It is still not clear that market rates should capitulate lower from here though. Tuesday’s CPI report was great. But the absolute numbers mean there is still some inflation reduction work to get done. There will be an interesting supply test next week from the 20yr auction, which will be watched following the badly tailed 30yr one last week (the main reason we gapped higher again in yields). On the front end, the 2yr is back in the 4.85% area, having been above 5%. This is an easier sell. A big move lower is likely here. It’s only a matter of when – typically it’s about 3 months before an actual cut. Not quite at that point, but it will be there as a theme over the turn of the year. Breakeven inflation has also moved lower post the number. But real yields are lower by more – by over 20bp in the 10yr (now 2.2%). Real yields are still elevated though, and reflective of macro resilience and the fiscal deficit. That’s a resistance that can remain an issue for longer tenor market rates. Ongoing dis-inversion and a steeper curve ahead.   Today's events and market view The CPI data gave the market the green light to drop the 10Y US yield back to just below 4.5%. EUR rates were pulled lower alongside, bull flattening with the 10Y Bund yield touching 2.6%. This level held twice last week, having marked the lowest yield since mid September. Today’s calendar features more data that could feed the bullish sentiment. We will get the US producer prices and  we will likely also see softer retail sales data, where gasoline prices will have depressed values of sales. But as our economists point out, vehicle sales were down on the month and that credit card spending has been subdued, also pointing to a soft spending number. In the eurozone, markets will be looking at industrial production data, pointing to a worsening situation in the sector. With a view to the risk of a government shutdown, there are signs that the Speaker's interim plan that continues government funding at current levels until early next year has some support among Democrats. In primary government bond markets Germany will tap two 30y bonds for €2bn in total.

Germany suddenly has a €60bn hole in its budge The German Constitutional Court has ruled against Olaf Scholz's coalition government's decision to push unused funds from pandemic support into the climate and transformation fund. The government now has a budget hole of 60 billion euros.   Germany's Constitutional Court has ruled that the government's decision to reallocate €60bn of unused debt from pandemic support measures to its climate and transformation fund is unconstitutional. It's bad news for the government and means that the budget for 2024 can surely not be agreed this week. The government will now have to fill a hole of €60bn. This is not automatically linked to actual expenditures but rather to the total size of the government’s climate and transformation fund. This fund is a core element of the government’s strategy to tackle Germany’s long list of structural challenges. The fund has a size of about €210bn for the period 2024 to 2027. The government had planned to use more than €50bn from this fund next year. In short, today’s ruling shows that, at least in Germany, legal expertise is not necessarily the same as economic expertise. In the logic of Germany’s constitutional debt brake, today’s ruling makes sense. It simply says that debt piled up in special circumstances or crisis situations cannot be used to tackle another one. However, the question remains whether the debt brake makes economic sense when the country struggles with structural stagnation and a long list of serious challenges and transitions, of which many need fiscal support. To some extent, today’s ruling also opens the door to more special-purpose vehicle financing and creative accounting. It also shows that structurally accommodative fiscal policies in Germany are very unlikely to happen any time soon.

EUR: German debt brake causes some headaches The uncertainty over Germany’s fiscal headroom, after last week’s Constitutional Court ruling, has yet to have any significant impact on the euro. On the one hand, it could limit Germany’s room for fiscal manoeuvre next year, but at the same time, it might deliver a softer interpretation of fiscal rules across the whole region. Indeed recently, the European Commission agreed that the Excessive Deficit Procedure will not be applied before European parliamentary elections next June. Locally, the focus will be on eurozone consumer confidence today, but the bigger driver for the euro should be tomorrow’s November flash PMIs – which are expected to be soft.  

ECB financial stability review warns of stress Fed minutes point to rates remaining restrictive The euro is in negative territory on Wednesday. In the North American session, EUR/USD is trading at 1.0864, down 0.42%. ECB says banks showing stress The ECB released its semi-annual financial stability review earlier today and warned of stress in financial stability in the eurozone. The report found that tighter financial conditions were making it difficult for households, businesses and governments. In short, the financial stability outlook remains fragile. The review warned that the Israel-Hamas war posed the risk of affecting the supply of oil, which could push inflation higher and dampen growth. The economic picture in the eurozone is not encouraging, as the eurozone economy is stagnating and Germany, once a global powerhouse, has become a deadweight in the eurozone with its weak economy. The euro has jumped 2.8% against the US dollar in November, but that is more a case of US dollar weakness due to expectations of rate cuts in the US rather than strength in the euro. In the US, unemployment claims were lower than anticipated, coming in at 209 thousand. This was below the market consensus of 225,000 and the previous revised release of 233 thousand. The reading indicates that the labour market is still showing signs of strength, which supports the Federal Reserve’s rate policy of higher for lower. The Federal Reserve minutes of the November meeting stated that the Fed plans to proceed with caution and will be keeping an eye on the data in making future rate decisions. The minutes made no reference to any discussion at the meeting about rate cuts, consistent with Jerome Powell’s comments after the meeting that the Fed “is not thinking about rate cuts at all”. The markets would beg to disagree and have priced in a rate cut in mid-2024.   EUR/USD Technical There is resistance at 1.0951 and 1.1017 1.0831 and 1.0748 are providing support    

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

  Manufacturing PMIs (Nov) – 01/12 –these key indicators have continued to look weak, with economic activity in this sector in Germany and France stuck firmly in contraction territory for the last 16 months. Economic activity in Spain and Italy has been slightly better but even here we've started to see significant weakness. Last week's flash manufacturing numbers saw Germany and France economic activity see divergent fortunes, with Germany edging up from 40.8 to 42.3, while France got worse slipping back from 42.8 to 42.6. As for Italy and Spain, October saw a slowdown to 44.9 and 45.1 respectively, in a sign that while manufacturing had been more resilient initially during the summer months, even here we are starting to see the effects that higher rates are having on economic activity.    

German double-dip recession likely after 0.1% contraction in Q3 UK consumer confidence improves but remains weak EURGBP appears to fail again near range high German uncertainty weighing on the single currency The euro is slipping against the pound at the end of the week with economic data highlighting the challenges facing the bloc. Nowhere is that more evident than in Germany which appears to be on the brink of a double-dip recession and facing immense uncertainty over its budget for next year as it scrambles to patch up finances for this one. A supplementary budget next week alongside a proposal to suspend the debt brake now looks likely but even this is just a temporary solution that won’t give investors much confidence in the outlook for an economy already under significant strain. The economy was confirmed to have contracted by 0.1% in Q3 this morning and as we move into the final month of Q4, it’s looking likely data early next year will confirm the country is back in recession. The Ifo business climate survey was a little better and appears to be turning a corner which is hopefully a good sign but at 87.3, it’s still printing figures near historical lows. The early months of the pandemic were understandably much worse, as you’d imagine, but that aside, recent readings have fallen close to 2001 and 2009 levels. UK consumers buoyed by improving real earnings UK consumer confidence is also gradually improving, albeit from very weak levels. At -24, the Gfk survey is 25 points from last September’s lows but still some way below all surveys from mid-2013 through to the pandemic. Still, the direction of travel is more promising and inflation is now running below wage growth which should continue to support that.     A big test of technical support The euro has been struggling near range highs against the pound for a number of weeks but that now appears to be turning into some weakness in the pair. EURGBP Daily Source – OANDA on Trading View Not only did it not break the range highs, it’s now trading at a more than two-week low and testing what could prove to be a key support level. The lower part of the rising channel coincides with the bottom of the 200/233-day simple moving average band. A move below here could be viewed as a very bearish signal and would take the pair much deeper into correction territory. Arguably it could just reaffirm its position in a sideways channel, where it’s traded since May. And based on the size of the rising channel which could be viewed as a slanted double top, a breakout could be seen as a sign of a much deeper correction to come.  

Eurozone, German Service PMI ease in December Euro snaps four-day rally The euro has snapped a four-day winning streak on Friday. In the European session, EUR/USD is trading at 1.0949, down 0.38%. The euro has enjoyed a strong week, with gains of 1.77%. Soft Eurozone, German services PMIs weigh on euro Eurozone Services PMI eased in December, indicating that the economy continues to struggle. The PMI fell from 48.7 to 48.1 and missed the consensus estimate of 49.0. This marked a fifth straight month of contraction in the services sector, with 50 separating contraction from expansion. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. Euro soars after ECB pause The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected, but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring 1.09% against the US dollar after the announcement. ECB President Christine Lagarde reaffirmed that the Bank would continue its “higher for longer” stance, saying that the Bank was not about to let down its guard and lower rates. Lagarde sounded hawkish even though the ECB lowered its inflation forecast at the meeting. Inflation has fallen to 2.4% in the eurozone, within striking distance of the 2% target. Lagarde acknowledged that inflation was easing but said that domestic inflation was “not budging”, largely due to wage growth.   There is a deep disconnect between the markets and the ECB with regard to rate policy. ECB President Lagarde poured cold water on expectations for rate cuts, arguing that inflation had not been beaten. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024 and are confident that Lagarde will have to change her stance, with inflation falling and the eurozone economy likely in recession. . EUR/USD Technical EUR/USD is testing support at 1.0957. Below, there is support at 1.0905 1.1044 and 1.1096 are the next resistance lines    

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

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

The pivotal question we aim to answer is who should consider such instruments and who might be better off exploring alternatives. Given the diverse array of tools available for exposure to stock indices, it's worth exploring various options. Let's begin by addressing what a stock index truly is. An index, in itself, isn't a financial instrument, security, or derivative. It's essentially synthetic information about the market or specific segments and slices within it. In simpler terms, a stock index is a collection of components (in our case, listed companies) used to calculate its value. Each index has its portfolio, where each company is responsible for a specific percentage weight. Most indices use weights based on market capitalization – the higher the market value of a component, the greater its percentage value in the index portfolio. Additionally, the liquidity of a given company over a specific period (usually 6 months to a year) is often considered when determining portfolio weights. In essence, an index is like a portfolio comprised of a specific number of listed companies (in our case, not limited to just companies) in specific percentage proportions. Its value and price movements depend on the behavior of the components it holds. Explore more: Mastering Requoting in CFD Trading: Navigating Uncommon Market Scenarios In this segment, we'll focus on prominent stock indices from major exchanges. In the USA, the three key indices are the S&P500, Nasdaq-100, and Dow Jones Industrial Average (US30). In Germany, we have the DAX (DE30), once a favorite among traders; in the UK, it's the FTSE-100; in Japan, the Nikkei-225; and in Poland, the WIG20. Of course, this is just a small glimpse of the market, as each stock exchange has dozens, if not hundreds, of sector-specific, thematic, and smaller company-focused indices. However, leading indices are considered benchmarks for the mood and condition of a given exchange, although not always accurately. Investing in Stock Indices: How to Do It? Since a stock index isn't a financial instrument on its own, is it possible to "buy" it? There are numerous ways to gain exposure to index price movements, with the most popular being the purchase of an Exchange-Traded Fund (ETF) replicating a specific stock index. These ETFs construct their portfolios based on the composition of the underlying index, essentially buying shares of selected companies in the appropriate proportions. By investing in such a fund, we gain exposure to the stocks within the index using a single instrument. ETFs boast several advantages, including relatively low management costs, simplicity, convenience, and often high liquidity. However, standard ETFs are typically medium-term instruments, less suitable for speculation due to the lack of leverage and the ability to only take long positions. Of course, there are also synthetic ETFs in the market with double or even triple leverage, and some with inverse positions (short). On the XTB xStation platform, you'll find ETFs on all major stock indices, including their synthetic, leveraged, and inverse versions. Importantly, these can be purchased without any commission, and if you have a currency account, you won't incur any fees for currency conversion – the only cost is the annual management fee charged by the fund provider. If you prefer not to invest in an entire index through an ETF, you can independently create a portfolio of specific companies in predetermined proportions. On the xStation platform, you won't incur any commission fees for such transactions (up to a monthly turnover of 100,000 EUR). However, this approach is more time-consuming, although it exempts you from management costs charged by ETF providers. For more advanced investors, derivative instruments are available, including futures contracts, structured certificates on the Warsaw Stock Exchange, and, of course, Contracts for Difference (CFD), where stock indices serve as the underlying asset. Derivatives offer financial leverage and the ability to take both long and short positions, but they come with higher risk. CFD Market on Indices: Specification and Trading Conditions CFD contracts on stock indices are now offered by almost every broker, covering primarily popular American indices and leading indices from major global stock exchanges. According to the regulations of the European Securities and Markets Authority (ESMA), CFD contracts on indices provide a maximum leverage of 20:1, meaning a 5% margin requirement. Given the volatility of indices themselves, this is sufficient leverage even for intraday speculation. Depending on the broker, CFDs on some indices may have lower leverage – for instance, with XTB, this is the case for the Italian FTSE ITA40 and Reuters Russia 50 (RUS50), where the leverage is 10:1. Read more: Mastering Forex Markets. A Comprehensive Guide to Navigating Sideways Trends and Consolidation Patterns When holding positions overnight, be prepared for negative swap points, although XTB exempts CFDs on indices (excluding cash versions) from swaps, eliminating additional costs for maintaining positions over time. As for the lot value for CFD contracts on indices, it should ideally be equivalent to the multiplier for futures contracts (which are the underlying instruments for CFDs). However, some brokers may apply a multiple of the multiplier. For the most popular CFD indices, the lot values are: S&P500: multiplier 50 (e-mini) Nasdaq-100: multiplier 20 (e-mini) DAX: multiplier 25 (Mini-DAX) WIG20: multiplier 20 (similar to FW20) In the case of CFDs, you can open a position with a minimal volume of 1 micro lot (1/100 of a lot), allowing you to engage with the market without committing significant capital. Who Should Consider CFD Contracts on Indices? When it comes to CFD contracts on indices, as mentioned earlier, they are certainly not suitable for everyone. Leading stock indices themselves exhibit considerable volatility, and with CFDs, this volatility is further amplified by a maximum leverage of twenty times, introducing significantly higher risk. Therefore, these instruments primarily serve a speculative purpose, typically in the short term. Nevertheless, for those comfortable with the risk and desiring to capitalize on prevailing trends, CFD contracts can serve as a more accessible and considerably lower-capital alternative to index futures. It's crucial, however, to employ risk management measures, such as trailing stop-loss orders, especially given the inherent risks associated with these instruments. CFDs can also present a more accessible and significantly lower-capital alternative to index futures.

Rates Spark: Near-term balance of risks still tilted towards higher rates Markets are geared for dovish outcomes this week, not just in rates where still notable probabilities are discounted for first cuts as early as March, but also across wider risk markets. This sets up markets for disppointments if they don't get exactly what they want. Data is a wild card, but the ECB will have this in mind if it is earnest about pushback.   Near-term balance of risks still tilted towards higher rates The thought of a soft landing actually materialising against all odds are supporting risk assets in all corners of the market. The S&P 500 closed at new record levels on Friday and also on Monday the equities rally pushed on through. In rates the pricing in of a soft landing has pushed down rates along the curve at the start of the week, supported by the idea that inflation is coming down as markets are eyeing this week’s PCE data. But markets are starting to fine-tune their expectations more in line with our thinking, even if we see more scope for correction in this direction: pricing for a March Fed cut is now down to 10bp, even though overall pricing for cuts this year has even deepened somewhat again to 134bp. Even though we also see inflation coming down steadily, we warrant caution about markets still getting ahead of themselves – especially in EUR rates. The European Central Bank will meet on Thursday and we expect a reiteration of their data-dependent path towards policy normalisation. Last week yields came down the day that Lagarde hinted at rate cuts in the summer. The best that markets can hope for is a reiteration of that comment, but given the guarded fashion of Lagarde’s statements we can see a scenario where she does not repeat this dovish message in the context of the policy meeting this week. We therefore see a chance that EUR 2Y rates will recalibrate higher again in response to the press conference when markets don’t get exactly what they are looking for. In the US there is also no guarantee that the nudge lower in rates we saw at the start of this week will extend. Markets have their eyes on a 2.0% core PCE inflation, in line with the Fed’s mandate that will be published on Thursday, which, if met, would keep the market pricing of a March rate cut as a realistic scenario. If, on the other hand, the actual number were to exceed 2.0%, even by a bit, we could imagine the market reacting more sensitively to such a disappointment. Similarly, we would expect an asymmetric reaction to the GDP growth figures, which our economist expects to come in firm on Thursday. On balance, if data come in as expected the further downside is moderate, but at least near term the potential could still be larger.   Tuesday's events and market views Japan will kick-off this week's central bank meetings but no change of the policy rate is expected. In terms of economic data releases Tuesday will be another light day. The EU Commission will publish the consumer confidence index and the ECB will release results of its bank lending survey. In the US we a few business indicators from regional Feds. It is the rest of the week will be of more interest, with eurozone PMIs on Wednesday, the ECB meeting and US GDP data on Thursday followed by the PCE on Friday. In primary markets Germany will sell 4Y and 30Y green bonds while the Netherlands taps a 15Y bond. The US Treasury sells new 2Y notes. In SSAs the EU has mandated syndicated taps of existing 7Y and 30Y bonds, which should also be Tuesday’s business.

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

German Ifo index drops to its lowest level since 2020 Pessimism is now fully back in Germany as new supply chain disruptions and a train drivers' strike increase the risk of yet another quarter with a contracting economy.   Pessimism strikes back in Germany as the country's most prominent leading indicator just dropped to the lowest level since the summer of 2020. In January, the Ifo index came in at 85.2, down from 86.3 in December. The tentative revival of optimism last autumn has turned out to be very short-lived and the index has now dropped for the second month in a row. Both the current assessment and the expectations component weakened in January.   New year and two new problems It sometimes feels as someone in Germany must have smashed a mirror, causing seven years of bad luck. As if the last four years of pandemic, war in Ukraine, supply chain frictions, energy crisis and structural shortcomings weren’t enough, 2024 has not started any better. On the contrary, the new year brought new problems for the German economy: there are the government’s austerity measures but also ongoing strikes by train drivers and supply chain disruptions as a result of the military conflict in the Red Sea. In fact, another contraction of the German economy in the first quarter of the year looks even more likely. Looking beyond the near term, we expect the current state of stagnation and shallow recession to continue. The risk that 2024 will be another year of recession is high. We expect the German economy to shrink by 0.3% YoY this year. It would be the first time since the early 2000s that Germany has gone through a two-year recession, even though it could be a shallow one.