global economy

Industry continues to decline in the eurozone, and the outlook is bleak

The industrial production decline of -0.3% confirms the steady downward trend and adds to expectations of another contraction in eurozone GDP in the fourth quarter of last year. The outlook for industry remains bleak for the months ahead.

 

Eurozoeon Industrial Production dropped for the third month in a row in November, broadly continuing the trend of contraction in output. Production is now 7.2% lower than it was in September 2022. This means that industry will continue to weigh on economic activity in the eurozone, clearly performing much weaker than services. The eurozone economy experienced negative growth in the third quarter and could well have seen another quarter of negative growth in 4Q too. The industrial figures at least point to that.

The outlook for eurozone industry remains pretty bleak at this point, according to surveys. New orders continue to deteriorate, albeit at a slower pace than a few mo

Long-Term Yields Soar Amidst Hawkish Fed: Will They Reach 5%?

Europe Remains In The Eye Of The Storm (War In Ukraine And High Energy Prices)

ING Economics ING Economics 09.10.2022 09:17
As the global economy slides into a winter recession, Europe is in the eye of the storm. High energy costs caused by the war in Ukraine and rising interest rates have sent a cold chill through the region, which is only set to get worse. And as ING's Carsten Brzeski explains, there is no easy way out More economic drama for Europe amid global shockwaves As energy prices skyrocket and central banks scramble, Europe currently finds itself at the epicentre of serious global economic shockwaves. With the entire region now sliding into recession and the risk of policy mistakes rising, ING's Carsten Brzeski questions just how severe the downturn could be. The rebound we're likely to see will no doubt be far from traditional, but we're certain of one thing: the current crisis will be a major game-changer for the eurozone. Share    Download article as PDF   The global economy has clearly not turned for the better in recent weeks. On the contrary, our earlier fears of a looming recession seem to have become a reality. All sentiment indicators point to a slowing of the global economy; the only question is how severe this slowdown will be. The deceleration in activity is being driven by high energy and commodity prices but increasingly also by higher interest rates. Let’s not forget that over the last 70 years, the most common trigger for a global recession has indeed been too aggressive monetary policy tightening. It is no surprise that Europe remains in the eye of the storm. The war in Ukraine continues to rage on and the risk of further escalation seems higher than a peace deal being reached any time soon. High energy prices have increasingly found their way into the real economy, denting private consumption, industrial production and shrinking profit margins. The silver lining of filled national gas reserves has recently become clouded again by the stoppage of the Nordstream 1 pipeline and the cold September weather. The risk of energy supply disruptions is back again. Even worse, there is an increasing awareness that high energy prices will not only be a problem for this winter but also for next. While everyone is still assessing the depth of a potential winter recession, another risk has not yet received sufficient attention; the eurozone may be witnessing the end of the business cycle as we knew it. Energy prices are very likely to remain high – very high – in the coming years. This will be a structural, not just cyclical burden on companies’ cost competitiveness and households’ purchasing power. It is a structural shift that could be compared with the deleveraging many eurozone countries saw after the financial crisis and which led to subdued growth for many years. Consequently, the risk is high that the eurozone economy will not experience a V-shaped or U-shaped recovery but rather, a J-shaped recovery. This distinction between a rather traditional cyclical recession and a recession at the start of a structural change is important as it has implications for the right policy answer. Currently, many governments have started to support the demand side of the economy with large fiscal stimulus packages. It is a recipe that worked well during the pandemic. However, the history of previous crises or downturns in the eurozone shows that such fiscal stimulus only works in the absence of structural issues. In the case of highly needed structural change and transition, fiscal stimulus aimed at the demand side of the economy rather runs the risk of delaying change at the cost of surging government debt. It is not easy to be a European policymaker these days. The potential economic fallout of the looming recession could be painful and in a worst-case scenario runs the risk of destroying production capacity for good. At the same time, the European economy is facing a structural energy shock which actually requires a policy answer aimed at the supply side of the economy. Currently, however, most efforts are aimed at the demand side, and monetary and fiscal policy are clearly not in sync. While the European Central Bank is hiking interest rates to fight inflation and inflation expectations, implicitly accepting a weakening of the demand side, governments are actually supporting the demand side. Delivering fiscal stimulus that is both aimed at the supply and demand side of the economy is possible in theory, but in practice, there are clear limits to such stimulus in the form of too high government debt, as the recent market reaction to the UK government’s fiscal stimulus plans showed. An uncomfortable truth is that the current crisis in Europe cannot be quickly and easily resolved. Indeed, it increasingly appears that it cannot be resolved without accepting economic damage. We are bracing for a tough winter.     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
UK Inflation Expected to Slow Sharply in July: Market Analysis and Insights - August 16, 2023

Chinese And European Services PMIs Fell

Kamila Szypuła Kamila Szypuła 05.12.2022 11:25
Today, the focus is on the Services PMI from multiple economies. ECB President Lagarde Speaks and Eurogroup Meetings This morning (2:45 CET) there was one and only speech of the day. the speaker was European Central Bank (ECB) President Christine Lagarde. As head of the ECB, which sets short term interest rates, she has a major influence over the value of the euro. Services PMI (Nov) At the beginning of the day data from Asia appeared, followed by data from Europe. The Japanese Services PMI rose slightly from 50.0 to 50.3. The Caixin China General Services PMI fell to 46.7 points in November 2022 from 48.4 in October, marking the third straight month of decline. It was also the biggest contraction in the services sector since May, due to Covid containment measures that could impact demand and service activity. Looking at the PMI results from the European Union, there was a decrease in the main economies of Reginau, and an increase in two others. Growth occurred in Spain and Italy. Spain's services PMI rose to 51.7, above the expected 50.5, and in Italy it rose significantly from 46.4 to 49.5. The German and French Services PMIs fell and were lower than expected. For Germany, the result was only 0.4 lower than the previous one and reached the level of 46.1, while in France there was a greater decrease from 51.7 to 49.3. Thus, there was a slight decrease in the euro area from 48.6 to 48.5. In the UK, the Services PMI (Nov) and Composite PMI (Nov) held their previous reading at 48.8 and 48.2 respectively. The United States will also release data on this indicator today. It is expected that the level will be the same as last time, i.e. 46.1. Eurogroup Meetings Today the Eurogroup brings together ministers from the euro area to discuss matters relating to their common currency. EU Retail Sales (MoM) (Oct) Retail sales in the European Union fell significantly. The current level of M/M retail sales is -1.8%, down from 0.8%. The level achieved is lower than expected. ISM Non-Manufacturing PMI (Nov) U.S. The ISM Non-Manufacturing Purchasing Managers Index (PMI) expects another decline. The last reading was at e54.4, also down from 56.7. The reading is expected to fall to 53.3 this time. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting. Currently, it remains above 50, but as the data shows, the downward trend continues, i.e. the sector is starting to contract. BCB Focus Market Readout and RBI MPC Meeting Minutes Brazil and India publish reports on the state of their economies or expectations. The Focus Market Report provides weekly mean market expectations for inflation over the following month, while The Monetary Policy Meeting Minutes are a detailed record of the Reserve Bank of India's policy setting meeting, containing in-depth insights into the economic conditions that influenced the decision on where to set interest rates. Canada Building Permits (MoM) (Oct) Canada awaits improvement in the change in the number of new building permits issued by the government. Canada Building Permits MoM is forecast to reach 3.9%, a large increase from the previous reading which was -17.5%. This may mean that the real estate market has improved in the analyzed term. Summary: 1:30 CET Japan Services PMI 2:45 CET ECB President Lagarde Speaks 2:45 CET Caixin Services PMI (Nov) 9:15 CET Spanish Services PMI (Nov) 9:45 CET Italian Services PMI (Nov) 9:50 CET French Services PMI (Nov) 9:55 CET German Services PMI (Nov) 10:00 CET EU Services PMI (Nov) 10:30 CET Services PMI (Nov) 11:00 CET Eurogroup Meetings 11:00 CET EU Retail Sales (MoM) (Oct) 12:25 CET BCB Focus Market Readout 12:30 CET RBI MPC Meeting Minutes 14:00 CET Canada Building Permits (MoM) (Oct) 15:45 CET Services PMI (Nov) 16:00 CET ISM Non-Manufacturing PMI (Nov) Source: Economic Calendar - Investing.com
The ECB to Hike, But Euro Rally May Be Short-Lived as Dollar Strength Persists

UK Santander Bank Fined USD 132 Million, Idris Elba in Cyberpunk 2077:Phantom Liberty

Kamila Szypuła Kamila Szypuła 09.12.2022 10:44
In the UK, many sectors are controlled. Yesterday there was an impromptu that the CMA imposed a fine on BMW, and today the FCA on the consumer bank Santander. Moreover, the investment attractiveness of the US still remains the best. CNBC will consider the magnitude of the consequences of the pandemic in the United States. In this article: Foreign direct investment UK Santander bank fined Consequences of the pandemic Idris Elba in the story expansion for Cyberpunk 2077 Megatrend potential Read more: Amazon, Google, Microsoft And Oracle Received A Cloud Deal From The Pentagon| FXMAG.COM The US is the best region for foreign direct investment Foreign investments due to the fact that they affect the economic profile of the region of location, because due to their impact on the production potential, changes in the labor market and the level of technological development. The more such investments in a given region, it indicates its attractiveness and builds its potential. Foreign investments have a positive impact on loyal markets because they generate new jobs (increase in employment - decrease in unemployment) and increase the circulation of money. As data showed the US, the Netherlands and China are at the forefront of regions with the largest number of foreign direct investments. The United States recorded the largest increase of inward foreign direct investment of all economies in 2021. The share of global foreign direct investment for the largest economies such as the United States and China has increased recently, while that of offshore financial centers has fallen. Our latest blog looks at how and why this happened: https://t.co/eWevJBEsYE pic.twitter.com/SpDiuJ0KBK — IMF (@IMFNews) December 8, 2022 UK Santander bank fined $132 million From a tweet of Reuters Business learns that Santander Bank has been fined by the UK Financial Supervision Authority (FCA). According to the FCA, the British branch of this bank did not perform its functions properly in order to prevent money laundering. Santander accepted the punishment. But what does this mean for the bank? This will largely affect its market image. Along with this, it may cause that in the UK it will be less likely to be chosen by new kilets. So far, the most important task for the British branch will be to improve its systems. UK financial watchdog fines Santander bank $132 million https://t.co/dZby7GFtPm pic.twitter.com/oLSu3SZXv1 — Reuters Business (@ReutersBiz) December 9, 2022 Consequences of the pandemic for the US The effects of the coronavirus pandemic are still underestimated. Every economy around the world is grappling with its direct consequences. Even the world's largest economy will have to bear high costs. They are currently valued at $3.7 trillion. Given the current economic situation, this can be a serious problem. You can find out more on CNBC's "This week, your wallet." Long Covid has affected millions of Americans — and it may cost the U.S. economy $3.7 trillion, according to one estimate.Join the conversation on "This week, your wallet." https://t.co/jlJPGtyvst — CNBC (@CNBC) December 8, 2022 Idris Elba and CD Projekt RED CD Projekt RED continues to work with Hollywood stars. After cooperating with Keanu Reeves, the studio announced that Idris Elba will play one of the main characters in the story expansion for Cyberpunk 2077. This time he will play Solomon Reed, an FIA Agent for the NUSA in Phantom Liberty. Introducing Idris Elba as Solomon Reed, an FIA Agent for the NUSA. Team up and take on an impossible mission of espionage & survival in #PhantomLiberty, a spy-thriller expansion for #Cyberpunk2077 set in an all new district of Night City. Coming 2023 to PC, PS5 & Xbox Series X|S. pic.twitter.com/jjTuv5PDXA — Cyberpunk 2077 (@CyberpunkGame) December 9, 2022 Megatrend potential Morgan Stanley has a habit of posting tweets that give clues not only to investors, but also, or rather, to average citizens in particular. Unpredictable markets and changing economic conditions make it difficult to know how to invest for the future and how to manage your portfolio. Financial institutions such as Morgan Stanley are constantly researching and drawing new ideas with which they are happy to share. This time he looks at megatrends and how they can help. There is no doubt that the changed has a big impact on everything, especially the social ones. What makes a trend a megatrend? Learn how structural changes in the economy and society can power growth in your portfolio for years to come. https://t.co/L4FLdkgSAz — Morgan Stanley (@MorganStanley) December 9, 2022
China Continues to Increase Gold Reserves, While Base Metals Face Mixed Fortunes

2023 Will Still Look Bleak for Containerised Trade, Supply Chains Will Also Remain Fragile

ING Economics ING Economics 11.12.2022 10:25
Global trade will continue to slow in 2023 amid economic headwinds. At the same time, trade patterns are changing and supply frictions persist in a volatile and more protectionist world. But transport costs of most overseas trade will be lower In this article World trade will hardly grow as consumer demand falters Frictions in supply chains persist despite resolving logistics bottlenecks Lower transport costs for overseas container trade, but not in tanker shipping   Global trade is set to continue to come down from its pre-pandemic highs 1World trade will hardly grow as consumer demand falters Global trade entered the slow lane at the end of 2022 and will continue to face headwinds in the new year. The push from industrial production will be weaker, while consumer product trade will slump following the surge seen during the Covid-19 pandemic. Inventories of products such as furniture, toys and accessories have piled up in the US and EU with consumers shifting back their spending to services. A reverse "bullwhip effect" of adapting high stock levels to lower consumer demand across the supply chain created an adverse overreaction after the summer of 2022, which will gradually normalise in the new year. Things will therefore look less gloomy than autumn figures on container throughput suggest. Nevertheless, 2023 will still look bleak for containerised trade (consumer products) which is normally a growth centre. In liquid bulk (liquefied natural gas, oil products, chemicals) and some dry bulk categories (grain) we still expect stronger trade development, but overall world merchandise trade growth is expected to be limited to only 1%, compared to a ten-year average of 2-3%. 2Frictions in supply chains persist despite resolving logistics bottlenecks Supply chains are expected to remain unbalanced in 2023, due to shifting trade patterns (because of sanctions on Russia and geopolitical tensions) and ongoing mismatches in supply chains for chips but also for other components, parts, as well as raw materials. Logistical bottlenecks started to subside in 2022 with the clearing of congestion at the US port LA-Long beach a turning point. But the recovery of schedule reliability will take us far into 2023 and this also holds for the normalisation of overseas lead times. Supply chains will also remain fragile during 2023 as Chinese Covid-19 policies are still unpredictable (potentially also leading to longer Chinese New Year closings), the war in Ukraine and related sanctions continue to impact trade, and strikes among the stretched workforce still pose a higher risk in a still inflationary environment.   3Lower transport costs for overseas container trade, but not in tanker shipping After spiking at the start of 2022, container spot rates have plummeted since the summer almost returning to pre-pandemic levels on major trade lanes just before the start of the new year. Container liners will try to manage excess capacity by blanking sailings, with the cost base of carriers being higher than pre-pandemic, but blocked capacity is gradually being released and a flood of incoming new build capacity will add to the downward pressure on freight rates in 2023. On the liquid bulk side of global trade, it’s a different story. The ban on Russian oil and the imposed cap for carrying and insuring Russian oil has impacted trade patterns and led to longer sailing routes. This has resulted in inefficiencies, and the rush to replace piped Russian gas will also continue to push up liquefied natural gas (LNG) tanker rates in 2023.   TagsTransport Supply chains 2023 outlook Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Asia Morning Bites - 22.05.2023

Poor data from China - Caixin manufacturing PMI fell to 49. IMF Chief Georgieva forecasts noticeable part of the world to be in recession in 2023

Ipek Ozkardeskaya Ipek Ozkardeskaya 03.01.2023 12:01
I know, all we hope is to leave the horrible 2022 behind, and lick our wounds this year, but the New Year started with the IMF Chief Georgieva warning that the global economy faces 'a tough year, tougher than the year we leave behind'. Great... The IMF expects a third of the world economy to be in recession this year, as the US, the EU and China are slowing. Good news for the US is that the Americans could avoid recession, but the bad news for the Europeans is that, the EU will hardly be as lucky; half of the union will be in recession this year, according to the IMF.   China will also be facing a 'tough year' - even the sudden U-turn from the Covid zero policy won't be enough to boost growth, as the incredibly disastrous management of both pandemic, and the exit from pandemic measures cause hundreds of millions of infections at the same time, and millions of death... and you can see the ravage in economic data. China's Caixin manufacturing PMI fell the most in 3 months, from 49.4 to 49 in December. It was slightly better than the expectations, but it was the fifth straight month of drop in Chinese factory activity. Output, new orders, and export sales all declined. Employment dropped for the 9th month, and there was no sign of a rebound.  Elsewhere, the German PMI data pointed at a faster than expected contraction in manufacturing activity in December, while the European manufacturing PMI came in at 47.8, in line with expectations.   We will have more PMI data today, but don't expect to see anything brilliant.   Read next: New Record For Electric Car Manufacturer - Tesla Deliveries Increased By 40% Year-On-Year| FXMAG.COM This being said, trading in European markets was rather optimistic on the first trading day of the year, as European nat gas futures eased on mild weather.   The DAX gained 1%, and held ground near the 14000 psychological mark, which also coincides with the 50-DMA, and the minor 23.6% Fibonacci retracement on September to December rally, while the French CAC 40 jumped nearly 2% for a reason I don't really know.   Activity in European futures hints at a bearish start on Tuesday, while the US futures are in the positive at the tie of writing.  Forex market In the FX...  The US dollar index kicked off the year on a subdued note, letting the dollar-yen tip a toe below the 130 mark. The EURUSD however, couldn't build on gains above the 1.07 mark, while Cable remained steady-ish a touch above its 200-DMA, which stands near 1.2030 level.   Gold jumped to $1843 per ounce despite the positive pressure on the yields recently, while oil remained offered into the 50-DMA, which stands a touch below the $81 per barrel mark.   This week's news and events...  The first week of the year will be marked with a couple of important data and events, which will start giving some justifiable direction to market moves after weeks of slow trading.   First, the FOMC minutes on Wednesday will likely confirm, again, the Federal Reserve's (Fed) tough stance to fight inflation.   But more importantly, Friday's jobs data will give an insight on whether the Fed is being successful fighting inflation.   Besides, the FOMC minutes and the US jobs data, the OPEC meets this week.   US crude is struggling to take over the 50-DMA resistance, as the slowing China story – despite the reopening, and the mild winter in Europe weigh on the bulls' appetite to boost the price rally.   But the oil bulls may have not said their last word yet. The limited oil supply, OPEC's willingness to keep oil prices sustained to fill in the coffers, the switching demand from gas to oil, the Americans who sold 180 million of their strategic petroleum reserves last year, but who will also need to refill them as soon as possible – and possibly around $70-80pb levels, and the slow green transition, all hint that the downside in oil will likely remain limited.   How limited? Levels around $75-76 could give support to price pullbacks for a potential rise toward the $88pb level.
The First Half Of 2023 Looks Like It Will Be Fairly Disinflationary For The Global Economy

The First Half Of 2023 Looks Like It Will Be Fairly Disinflationary For The Global Economy

Franklin Templeton Franklin Templeton 04.02.2023 08:15
The Global Economic Profile How do all these factors play out for the global trends that drive markets? The world’s two largest economies appear to be on completely opposite cycles: one stimulating and gunning for growth; the other very restrictive and prepared to incur a recession for the sake of reducing inflation. Sequencing will be important. Most leading indicators predict a softening in U.S. economic trends well into the year, based on what the Fed has already done, and further if the Fed continues to tighten. If inflation falls as fast as we suspect, and the Fed pauses, the growth slowdown would be more shallow but still slower for most of the year. In China, signs indicate that the pandemic may have already peaked across a range of big cities. How people react is unknown, particularly with another wave expected in May/ June. After years of indoctrination about the hazards of this virus, it may take a while to regain confidence. The measures to stimulate the economy are only beginning, and the scale of support required to turn the property sector around will have to be substantial. Netting it out, the first half of 2023 looks like it will be fairly disinflationary for the global economy, with spending and growth looking quite weak over the first six months of the year. Markets may front run the trends discussed here, but actual traction in the real economy, particularly in China, may not develop much momentum before the second half of the year. Read next: Starbucks Revenues Are High Despite High Costs| FXMAG.COM Definitions Deflation refers to a persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money. Disinflation is a temporary slowing of the pace of price inflation and is used to describe instances when the inflation rate has reduced marginally over the short term. Modern Monetary Theory (MMT), not widely accepted, has the following basic attributes: A government that prints and borrows in its own currency cannot be forced to default, since it can always create money to pay creditors. New money can also pay for government spending; tax revenues are unnecessary. Governments, furthermore, should use their budgets to manage demand and maintain full employment (tasks now assigned to monetary policy, set by central banks). The main constraint on government spending is not the mood of the bond market, but the availability of underused resources, like jobless workers. Author: Francis A. Scotland, Director of Global Macro Research This article is part of the report
Inflation Numbers Signal Potential Pause in Fed Rate Hikes Amid Softening Categories

This could well be a ‘fool’s spring’

ING Economics ING Economics 04.02.2023 08:40
We should guard against the premature return of optimism even if things seem better than expected. Watch: New year optimism may be short-lived The first month of the new year brought a couple of positive surprises to the global economy. The less complicated-than-expected reopening of the Chinese economy, lower energy prices and a bout of optimism from soft indicators out of Europe didn't only fuel a stock market rally but also led to a wider upward revision of many growth forecasts. However, as much as in times of darkness, even a sunrise is mistaken for a sunset, first signs of optimism do not always point to an upcoming growth party. We have said it before, but better is not necessarily good enough. Up to now, the sheer fact that the European economy has been holding up better than feared and could even have avoided a winter recession brings welcome relief. The same holds for the US economy, where it takes longer than initially expected before higher interest rates finally take their toll. Together with the reopening of China, the global economy is definitely in a better place than feared only a couple of months ago. However, we don’t think that this is yet the right time to become overly optimistic. In fact, the list of potential risks - but also very real drags - on many economies is still long. In this regard, particularly the idea that the latest improvements in soft European indicators could signal an upcoming rebound of the economy looks premature. Given that the European economy has now been lagging behind that of the US on so many aspects, be it inflation, monetary policy or growth, it is hard to see why the European economy would rebound when the US is staging a soft or hard landing. The latest soft indicators in Europe could have been like those rays of sunshine in January: temporary relief but too early to foretell spring weather. Read next: Japanese Startup Aerwins Technologies Will Be On NASDAQ| FXMAG.COM The example of the US illustrates that textbook economics still works: excess demand fueled higher inflation, triggered a strong monetary policy reaction, and higher interest rates are now pushing the economy into recession. The first cracks in the labour market have become visible, and the housing market has started to come down. As inflation will retreat sharply, we still expect the Fed to cut rates in the second half of the year, even if a milder recession and somewhat higher core inflation could lead to second-guessing at the Fed. The example of the US economy is also a good reminder for Europe. Here, headline inflation has also started to come down, but core inflation remains stubbornly high, partly driven by the ongoing pass-through of last year’s higher energy prices but also partly driven by fiscal stimulus. The risk here is that what initially was a supply-driven inflation shock could become demand-driven inflation as a result of fiscal stimulus. In any case, the US example should tell the eurozone that higher interest rates do matter and can bring down economic activity: traditional economic wisdom. However, for a long while, the dampening impact of higher ECB interest rates on the eurozone economy seems to have been ignored by many experts and policymakers. Finally, remember that decoupling between the US and the eurozone economy has never really existed. With a slowing economy, it looks almost impossible to see an outperforming eurozone economy when at the same time, the full impact of ECB rate hikes still needs to materialise, the region is still facing an energy crisis, and the war in Ukraine mercilessly continues to drag on.  The outlook for the global economy has improved, but better is still not good enough. The list of risks is long and the probably most underrated risk is central banks’ action to defeat inflation. Nothing’s wrong with that, but please remember that at least in the US, eight out of the last nine times the Fed embarked on a series of interest rate hikes to rein in inflation, a recession followed. TagsMonthly Economic Update 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
Asia Morning Bites - 10.05.2023

China Has Shown Tentative Signs Of Becoming More Conciliatory Toward The United States

Saxo Bank Saxo Bank 07.02.2023 10:05
Summary:  The moves of China to shore up its economy through the reopening from pandemic containment, support to the real estate sector, ending of the crackdown on the internet platform companies, and attempts to thaw relations with key trading partners are in a positive confluence of an upturn in the credit impulse cycle. The combined impacts tend to support further rallies in Chinese equities in Q1 and lend support to global commodities and growth. The Chinese growth locomotive is battered As discussed in our Q3 and Q4 outlooks last year, China has been in the transformation to a new economic development paradigm, walking away from its labour-intensive, energy-intensive and export-oriented model that had been the backbone of the development of the Chinese economy in the prior decades to focus on high value-added industries, self-reliance and comprehensive national power. The terrain on which the transformation travels is rough. Transforming an economy with a declining working-age population, and with a workforce that is largely unskilled and from rural areas, is a daunting task. The surge in volatility in global energy prices and an increasingly hostile external environment driven by concerns about supply chains and geopolitical tension are additional hurdles. The crackdown on the real estate sector, the mega-cap internet platform companies, and the tycoons and vested interests behind both sectors to steer economic development to a new path, pursue the course of common prosperity, and claw back economic power have added further challenges on keeping the growth engine even moving forward. In Q4, China hit the gigantic pothole of the surge of the highly infective Omicron variant of Covid-19, which completely upended the pandemic containment model that had once been touted to symbolise the superiority of socialist China’s way of governance. The skyrocketing fiscal burdens of implementing quarantines and costs of tens of billions of PCR tests and the general disruption of economic activities and land sale revenues brought local governments to a fiscal cliff. Discontent first bubbled up on social media and eventually saw citizens taking to the street briefly in November of last year. Fixing the economic engine becoming the priority With economic growth grinding to a halt, refitting and reviving the economic engine brought a quick about-face in policies. On 11 November 2022, the Chinese health authorities relaxed guidelines for the country’s pandemic containment measures, with a series of further relaxations and the subsequent abandonment of the dynamic zero-Covid policy in December 2022. On 13 November last year, the People’s Bank of China and the Banking and Insurance Regulatory Commission jointly issued 16 measures to improve private property developers’ access to funding and opened the gate for a number of other additional policies to help shore up the balance sheets of property developers.  At the Chinese Communist Party’s Central Economic Conference held on 15 and 16 December 2022, the Chinese leadership sent out a clear signal of shifting to a conciliatory stance towards the private sector and pledged to support internet platform companies without mentioning preventing the disorderly expansion of capital which haunted internet platform companies since 2020. On 26 December 2022, the Chinese authorities announced a downshift of the handling of Covid-19 infections to category-B, the same as avian flu, hepatitis, tuberculosis and so on, and a lifting of border restrictions starting from 8 January 2023. On 9 January, Guo Shuqing, China’s top financial regulator, said that the campaign to rectify the 14 mega-cap internet platform companies’ financial business arms was basically completed.  In short, over the past two months, China has taken a U-turn in policies regarding Covid-19, the property sector and internet platform economy as it tries to fix the economy. The magnitude and pace of the shifts have far exceeded the expectations of many investors who were expecting a more gradualist approach and ‘opening up’ timing closer to March 2023 or later.  Facing down geopolitical hazards Besides the domestically oriented policy measures, China has shown tentative signs of becoming more conciliatory toward the United States and its allies after a sense of escalating confrontation. When they were in Bali, Indonesia for the G20 Summit in late November, China’s President Xi and US President Biden held a three-hour long meeting, with both leaders showing some goodwill gestures.  Further gestures towards the US were later deliberately expressed by the newly appointed minister of foreign affairs, Qin Gang, in an article in the Washington Post. Qin Gang turned up the charm and affectionately recollected his days as ambassador to the US, praising Americans as “broad-minded, friendly and hard-working” and saying that the “future of the entire planet depends on a healthy and stable China-U.S. relationship”.  Another move to thaw tensions was China’s invitation of Australia’s foreign minister to visit in December last year. China subsequently placed an order to import Australian coal for the first time in more than two years after it imposed an unofficial ban on Australian coal in 2020.  The confluence of the policy cycle and credit cycle amplifies the reacceleration potential These substantial policy shifts were rolled out rapidly in a matter of two months and clearly demonstrated the Chinese determination to adjust the direction of the new development paradigm from 2020 and dig the economy out of the Covid-19 containment pothole. We believe that China’s drive to structurally transform its economy into a new economic paradigm remains intact. The recent policy shifts are to fix the economy as if in a cyclical downturn. In spite of the short-termism potentially embedded in the policy shifts, they are in the confluence of an upturn in China’s credit cycle and can produce powerful impacts on the Chinese economy and its equity market. China’s credit impulse is an index that measures the flow of new credit as a percentage of GDP and its 12-month rate of change tends to lead the turn in the real economy by 10 to 12 months. In Figure 1, we plot the year-over-year percentage change of the Bloomberg China Credit Impulse Index 11 months forward against China’s Manufacturing Purchasing Manager Index. The Credit Impulse has bottomed and turned to trend upward since Q4 last year and points to expansion through most of 2023.  Source: Saxo Markets; Bloomberg LP. Moving from infrastructure to technology and consumption stocks in Q1 Investors are rightly looking through the initial shockwave of Covid-19 infection across the country in December and into the start of this year to the subsequent reacceleration of economic activities and credit expansion. The investment case for Chinese stocks in Q1 is strong. Last year, we preferred resorting to the infrastructure space for its benefits from the counter-cyclical policy tailwinds as the Chinese government was pouring money in that direction. For 2023, as the Chinese economy is moving into a cyclical upturn, we believe cyclical growth stocks, including technology and domestic consumption names, will outperform. Leading internet platform companies such as Alibaba, Tencent, JD.COM and Pindoudou, and consumer discretionary names China Tourism Group Duty Free, CR Beer, Jiumaojiu, Li Ning and many others, may offer interesting investment opportunities.  Spill-overs to global commodity markets and growth The reacceleration in economic growth in China may spill over to push up commodity prices globally, especially those of industrial metals and energy, as well as contribute to global industrial production and GDP growth. As an excellent paper from Fed researchers concludes, “what happens in China does not stay in China”.   Source: Refitting China’s broken growth engine | Saxo Group (home.saxo)
Credit Suisse Reported Its Biggest Annual Loss Since The 2008, Ukrainian President Is Asking For Help And More Weapons In Brussels

Credit Suisse Reported Its Biggest Annual Loss Since The 2008, Ukrainian President Is Asking For Help And More Weapons In Brussels

Kamila Szypuła Kamila Szypuła 09.02.2023 12:21
Credit Suisse shocks with very bad results. Ukraine needs even more support. In this article: The crucial battle for Bakhmut is coming IMF forecasts The Loss The crucial battle for Bakhmut is coming Ukrainian President Volodymyr Zelensky is in Brussels, where he is the third stop on his tumultuous European journey, to ask for help and more weapons to help his forces fight Russia. The stakes are high for Ukraine as it prepares for an expected large-scale offensive by Russian forces. Russian and Ukrainian forces had been fighting hard for Bakhmut for months, and Moscow saw its capture as a strategic objective and a way to cut off Ukrainian supply lines in Donetsk. Russian officials recently claimed that Moscow's forces had almost completely surrounded Bakhmut. Ukraine may soon face a critical decision regarding a tactical withdrawal from Bakhmut in eastern Donetsk Oblast as the city's fate hangs in the balance. Russia is fighting wars despite economic difficulties. Dependent on exports, the Russian economy withstood the impact of the sanctions better than initially expected, but still recorded a decline in GDP of around 2.5%. While Russia's economic outlook is not so bleak this year, with Russia facing labor shortages, lower oil and gas revenues due to price caps and embargoes, and a rapidly growing budget deficit, 2023 presents new challenges for the government. Zelenskyy on European mission for more aid, jets; Russian strikes intensify in Ukraine's east https://t.co/06AhAiudry — CNBC (@CNBC) February 9, 2023 Read next: Disney Plans To Cut Costs And Jobs, Google Is Now Rolling Out AI Chatbot| FXMAG.COM IMF forecasts Since the outbreak of the coronavirus pandemic, economic threats have accumulated. With inflation above the expected level of 2% and rising interest rates, an economic slowdown is expected. The IMF projects global growth to fall from an estimated 3.4% in 2022 to 2.9% in 2023. This forecast is based on the current geopolitical situation, severe health impacts in China could hold back recovery, Russian war in Ukraine could intensify and tightening global financing costs could worsen debt problems. Financial markets can also suddenly change prices in response to unfavorable inflation news, while further geopolitical fragmentation can hamper economic progress. Achieving sustainable disinflation remains a priority in most economies facing the cost of living crisis. Stronger multilateral cooperation is essential to preserve the benefits of a rules-based multilateral system and to mitigate climate change by reducing emissions and increasing green investment. Global growth is projected to fall from an estimated 3.4% in 2022 to 2.9% in 2023, before rising to 3.1% in 2024. Watch IMF Chief Economist @pogourinchas summarize the key findings of our World Economic Outlook Update: https://t.co/4ifKc9pKeL #WEO pic.twitter.com/YHBTCKzFxj — IMF (@IMFNews) February 9, 2023 The loss The Credit Suisse group posted its biggest annual loss since the 2008 global financial crisis. The bank, plagued by one scandal after another, saw a sharp acceleration in disbursements in the fourth quarter with an outflow of more than 110 billion Swiss francs ($120 billion). The bank's shares fell 5% in morning trading. Credit Suisse warns of more losses after sliding deep into the red https://t.co/l6kxIXz4wX pic.twitter.com/xDKpVCsErF — Reuters Business (@ReutersBiz) February 9, 2023
RBA Governor Announces Major Changes at RBA Board as US Inflation Expected to Decline

Meta Introduces Paid Verification Subscription Service

Kamila Szypuła Kamila Szypuła 19.02.2023 19:46
Updates and changes on social platforms are nothing new, but when a paid feature comes along, it raises a lot of excitement. And so it may be this time when it comes to Meta. In this article: Chinese banking system A new paid verification subscription service FTX.US supported the policy Global economy Chinese banking system China's Banking and Insurance Regulatory Commission and the People's Bank of China jointly released revised draft legislation on Saturday to help banks. The draft regulations, which bring the banking sector closer to global standards, will divide lenders into three groups depending on the scale of business and the level of risk. The rules will apply to banks in a diverse regulatory regime. In addition, the rules will include more detailed factors to measure banks' exposure to mortgage risk, such as property types, repayment sources and loan-to-collateral ratios. Both regulators stated that the implementation of the new rules will leave the capital adequacy ratios in the banking sector generally unchanged. China refines capital and risk management of commercial banks https://t.co/nqftiLkYb9 pic.twitter.com/xO57Z9V6Wc — Reuters Business (@ReutersBiz) February 19, 2023 A new paid verification subscription service Meta introduces a new paid verification subscription service called Meta Verified, CEO Mark Zuckerberg has announced. For $11.99/month on the web and $14.99/month on iOS, Instagram and Facebook Meta users will be able to submit their government ID and receive a blue verification badge. The service will roll out in Australia and New Zealand this week. In the past, Meta has vetted high-profile users such as politicians, executives, members of the press, and organizations to signal legitimacy. The company's new subscription service is similar to Twitter's revamped service called Twitter Blue, which also provides users with a verification badge if they pay a monthly fee. Meta is rolling out a new paid verification subscription service for Instagram and Facebook users https://t.co/Omc8fFNzO4 — CNBC (@CNBC) February 19, 2023 FTX.US supported the policy According to data from OpenSecrets.org, among the top 10 organizations supporting political campaigns in the US in 2022, FTX.US ranked third. Of the three former FTX directors, 67% of the contributions went to Democratic parties, candidates and liberal groups. The year before FTX collapsed, former FTX CEO Sam Bankman-Fried donated at least $46.4 million to political groups. Despite FTX's announcement in December 2022 of withdrawing donations, the growing influence of cryptocurrency executives on U.S. politics is evident as digital assets become more mainstream and politically significant. 1/ https://t.co/RgAGJ58UgP was ranked 3rd among the top 10 organizational contributors to political campaigns in the US in 2022 🇺🇸Read the full study: https://t.co/APy0C8yiAw pic.twitter.com/n8ebjvlwx4 — CoinGecko (@coingecko) February 19, 2023 Global economy The global economy is expected to slow down this year, only to pick up again next year. Growth will remain weak by historical standards as the fight against inflation and Russia's war in Ukraine take a toll on activity. Growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, solid household consumption and business investment, and a better-than-expected adaptation to Europe's energy crisis. Elsewhere, China's sudden reopening paves the way for a rapid recovery in activity. The outlook for 2023 has improved, but the road back to full recovery, with sustainable growth, stable prices and progress for all, is just beginning. Want to know what's next for the global economy? Watch our Charts in Motion or check out our blog post. https://t.co/0f3Ps3RYzr pic.twitter.com/h5NJyepNZx — IMF (@IMFNews) February 19, 2023
Sweden And Finland Are Getting Closer To Becoming NATO Members

Sweden And Finland Are Getting Closer To Becoming NATO Members

Kamila Szypuła Kamila Szypuła 22.02.2023 12:24
Over the centuries, countries have made alliances with each other, and in difficult situations they turned out to be crucial. Therefore, NATO membership may be crucial for many countries. In this article: Sweden and Finland are on track for NATO membership Increase in salaries in the automotive industry Difficult challenge Sweden and Finland are on track for NATO membership Sweden and Finland are on track for NATO membership this year, despite tense negotiations with Turkey over their admission. Currently, NATO consists of 30 countries - 28 European and two North American. Turkey's reasons for opposing Sweden and Finland's admission to NATO are complex, emotional, and steeped in decades. Turkey's opposition to Sweden's and Finland's membership in NATO focuses on their harboring fighters from the Kurdistan Workers' Party (PKK). Opposition to Finland's membership is of a slightly different nature. The country has a much smaller Kurdish population than the neighboring country, but the foreign policies of both are similar. Both Sweden and Finland blocked arms sales to Turkey in 2019 during its military clash with Kurdish groups in Syria. Turkish President Recep Tayyip Erdogan announced this week that the country was ready to resume negotiations after suspending them indefinitely at the end of January. Hungary is the second opponent of the ratification, although local media reported on Tuesday that its parliament could ratify Finland and Sweden's NATO membership early next month. These are signals that the membership of both countries is getting closer. Sweden and Finland's NATO membership just a 'matter of time,' Swedish foreign minister says https://t.co/lg4hrBPjSU — CNBC (@CNBC) February 22, 2023 Read next: Consumers Are Spending More On Food, So Walmart And Home Depot Are Making Cautious Predictions| FXMAG.COM Increase in salaries in the automotive industry As one of the largest employers in Japan, Toyota has long been a leader in spring employee talks, which are in full swing at large companies. Toyota will accept trade unions' demand for the biggest increase in basic wages and bonuses in 20 years. The automaker's future chief executive Koji Sato said the decision to fully accept the union's demands during the first round of talks was not just for Toyota, but for industries as a whole. Honda Motor said it had agreed to union demands for a 5% pay rise. Honda's average monthly base salary increase of 12,500 yen ($92.70) is the largest jump since at least 1990. Toyota, the world's biggest automaker, said it would accept a union demand for the biggest base salary increase in 20 years and a rise in bonus payments, as Japan steps up calls for businesses to hike pay. More here: https://t.co/8wSnCZe8Os — Reuters Business (@ReutersBiz) February 22, 2023 Difficult challenge It will be another challenging year. In times of heightened uncertainty for the global economy, India's strong performance remains a bright spot. The reality is that growth is still below normal and price pressure is still too high. And after three years of upheaval, too many economies and people are still suffering badly. Around the world, many households are struggling to make ends meet due to the high cost of living. Millions cannot afford fuel for heating or cooking. Subsequent upheavals increased poverty, threatening decades of progress. Supporting the weak is crucial in all countries. It all makes that the politicians of the G20 economies face a difficult challenge. This year could be a turning point for the global economy, but growth is still low, price pressures remain, and too many economies are still hurting badly after 3 years of shocks. Read more in a new #IMFBlog by @KGeorgieva ahead of the G20. https://t.co/LqPHQXSDmO pic.twitter.com/JP56Q1AQ9e — IMF (@IMFNews) February 22, 2023
New Zealand Dollar's Bearish Trend Wanes as Global Growth Outlook Improves

Visa Success At The Expense Of Small Businesses

Kamila Szypuła Kamila Szypuła 24.02.2023 10:34
Visa is a global market leader, but at what cost? In this article: 60% transaction were made by Visa Lawsuit against Volkswagen Global growth 60% transaction were made by Visa Costing from credit/debit cards has become commonplace. Card payments are not only convenient, but also fast. In the queue at the store, instead of waiting for the rest or looking for the right denominations, it is more convenient to apply the slices. Americans and others are increasingly using plastic to spend money, allowing Visa to increase its dominance in the credit and debit card space. According to a 2020 report by HSN Consultants, people in the US spent $6.7 trillion using credit and debit cards, an increase of 88% compared to 2009. Of these transactions, more than 60% were made with Visa cards. Visa has become one of the most valuable companies in the world. However, some retailers say Visa's success has come at the expense of merchants who rely on them to process payments. Some even claim that Visa's fees are too high. So there is a thought that Visa has gained success at the expense of small businesses. As debit and credit cards become more essential in our daily lives, Visa has quickly grown to become one of the most valuable companies in America. So how exactly does Visa make money? Watch the full video here: https://t.co/J1Rga4jjGc pic.twitter.com/nKfW9vcDil — CNBC (@CNBC) February 24, 2023 Read next: The Fight For Evidence Concerns A DoJ Lawsuit Filed Against Google| FXMAG.COM Lawsuit against Volkswagen A German court on Friday dismissed farmer Ulf Allhoff-Cramer's lawsuit against Volkswagen. The case, similar to another filed by two Greenpeace bosses and climate activist Clara Mayer, required Volkswagen to stop producing fossil fuel-emitting cars. Ulf Allhoff-Cramer has alleged that its carbon emissions may be causally related to droughts and other climate changes, which it claimed were damaging. German farmer's lawsuit against Volkswagen demanding tighter carbon emissions targets dismissed https://t.co/EwoS7jJSrG pic.twitter.com/3VFq5aA6xT — Reuters Business (@ReutersBiz) February 24, 2023 Global growth Growth will remain weak by historical standards as the fight against inflation and Russia's war in Ukraine take a toll on activity. Despite these headwinds, the outlook is less gloomy than in IMF’s October forecast. The global economy is expected to slow down this year, only to pick up again next year. Growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, solid household consumption and business investment, and a better-than-expected adaptation to Europe's energy crisis. Inflation also showed an improvement. A positive signal comes from the second largest economy in the world. India remains a bright spot. Together with China, it will account for half of global growth this year. China's abrupt reopening paves the way for a rapid recovery in activity. It is worth remembering that the war is still a problem. The escalation of the war in Ukraine remains a serious threat to global stability, which could destabilize energy or food markets and further fragment the global economy Stay up-to-date on the pulse of the global economy with our latest edition of Charts in Motion, or read the blog. https://t.co/0f3Ps3RYzr pic.twitter.com/MubKQ5If6y — IMF (@IMFNews) February 23, 2023
ADP Employment Surges with 497,000 Gain, Nonfarm Payrolls Awaited - 07.07.2023

European Markets Sink Amid Recession Concerns and Oil Price Slump

Michael Hewson Michael Hewson 31.05.2023 08:09
With the White House and Republican leaders agreeing a deal on the debt ceiling at the weekend markets are now obsessing about whether the deal will get the necessary votes to pass into law, as partisan interests line up to criticise the deal.   With the deadline for a deal now said to be next Monday, 5th June a vote will need to go forward by the end of the week, with ratings agencies already sharpening their pencils on downgrades for the US credit rating. European markets sank sharply yesterday along with bond yields, as markets started to fret about a recession, while oil prices sank 4% over demand concerns. US markets also struggled for gains although the Nasdaq 100 has continued to outperform as a small cohort of tech stocks contrive to keep US markets afloat. As we look towards today's European open and the end of the month, we look set for further declines after Asia markets slid on the back of another set of weak China PMIs for May. We'll also be getting another look at how things are looking with respect to economic conditions in Europe, as well as an insight into some key inflation numbers, although core prices will be missing from this snapshot. French Q1 GDP is expected to be confirmed at 0.2% while headline CPI inflation for May is expected to slow from 6.9% to 6.4%. Italian Q1 GDP is also expected to be confirmed at 0.5, and headline CPI for May is expected to slow from 8.7% to 7.5%. We finish up with the flash CPI inflation numbers from Germany, which is also expected to see a slowdown in headline from 7.6% to 6.7% in May. While this is expected to offer further encouragement that headline inflation in Europe is slowing, that isn't the problem that is causing investors sleepless nights. It's the level of core inflation and for that we'll have to wait until tomorrow and EU core CPI numbers for May, which aren't expected to show much sign of slowing.   We'll also get another insight into the US jobs markets and the number of vacancies in April, which is expected to fall from 9.59m in March to 9.4m. While a sizeable drop from the levels we were seeing at the end of last year of 11m, the number of vacancies is still over 2m above the levels 2 years ago, and over 3m above the levels they were pre-pandemic. The size of this number suggests that the labour market still has some way to go before we can expect to see a meaningful rise in the unemployment rate off its current low levels of 3.4%. EUR/USD – slipped to the 1.0673 area before rebounding with the 1.0610 area the next key support. We need to see a rebound above 1.0820 to stabilise.   GBP/USD – rebounded from the 1.2300 area with further support at the April lows at 1.2270. Pushed back to the 1.2450 area and the 50-day SMA, before slipping back. A move through 1.2460 is needed to open up the 1.2520 area.   EUR/GBP – slid to a 5-month low yesterday at 0.8628 just above the next support at 0.8620. A move below 0.8620 opens up the December 2022 lows at 0.8558. Main resistance remains at the 0.8720 area.   USD/JPY – ran into some selling pressure at 140.90 yesterday, slipping back to the 139.60 area which is a key support area. A break below 139.50 could see a return to the 137.00 area, thus delaying a potential move towards 142.50 which is the 61.8% retracement of the down move from the recent highs at 151.95 and lows at 127.20.   FTSE100 is expected to open 22 points lower at 7,500   DAX is expected to open 64 points lower at 15,845   CAC40 is expected to open 34 points lower at 7,175
BOJ's Ueda: 2% Inflation Target Not Yet Achieved as USD/JPY Pushes Above 149

Core Inflation Pressures Favor Hawkish Stance by ECB Officials Amid Uncertainty and Political Risks

ING Economics ING Economics 30.05.2023 08:43
Unacceptably high core price dynamics will lend a helping hand to ECB officials pushing for a hawkish line The most likely outcome to this week's inflation releases, still unacceptably high core price dynamics, will lend a helping hand to ECB officials pushing for a hawkish line.   Warnings that hikes may have to continue until September will stand a better chance of pushing longer term rates higher even if a subdued economic outlook, and growing doubts about the strength of China's post Covid recovery, should prevent European rates from rising as quickly as their US peers in the coming weeks. Wider USD-EUR rates differentials should only be a temporary development, however, and one resulting from a rise in global rates.   Market participants who, like us, expect lower rates into year-end, should also consider the possibility of US rates falling faster than their European peers, perhaps to sub-100bp levels for 10Y Treasury-Bund spreads.   This is all the more true since European markets have to contend with another dollop of political uncertainty in the form of early Spanish general elections on 23 July. The prime minister called for a vote after local elections defeat at the weekend and the opposition party PP is on the front foot, although it would likely rely on a coalition with another party due to the fragmented nature of the Spanish political landscape.   Spain’s still wide budget deficit (the European commission forecasts 4.1% of GDP this year and 3.3% next) mean a period of uncertainty is an unwelcome development and could lead to underperformance of Spanish government bonds vs peers such as Portugal and Italy.   Early elections mean Spanish bonds are at risk of underperformance vs Italy and Portugal   Today's events and market view Spain kicks off this week’s inflation releases. This will come on top of Eurozone monetary aggregate data and the European Commission’s confidence indicators for the month of May. One theme in European macro releases has been the softening of survey-based data, such as Germany’s Ifo (see above).   US releases feature house prices, the conference board’s consumer confidence, and the Dallas Fed manufacturing activity index.   Bond supply will take the form of Italian 5Y, 10Y fixed rate bonds, as well as 5Y floating rate bonds.    
ECB's Decision and its Implications for European Financial Markets: A Conversation with Petr Ševčík from BITMarkets

ECB's Decision and its Implications for European Financial Markets: A Conversation with Petr Ševčík from BITMarkets

FXMAG Team FXMAG Team 16.06.2023 09:02
The European Central Bank (ECB) has recently made a surprising shift in its approach towards financial stability, signaling a departure from its historically dovish stance. This decision, prompted by the challenges posed by inflation, has significant implications for both the performance of individual economies and the overall prosperity of the European Union.   In this article, we had the opportunity to discuss the ECB's decision with Petr Ševčík, an analyst from BITMarkets, who shared valuable insights into the repercussions of this move. BITMarkets, a platform that has been closely monitoring the rise of cryptocurrency trading in Europe, has observed increased trading activity in this sector since the beginning of the year. Cryptocurrencies, known for their volatility, have gained attention as a potential refuge in times of economic uncertainty and hardship. As inflationary pressures continue to burden traditional industries such as housing and banking, some investors are turning to alternative assets like cryptocurrencies.   The impact of the ECB's decision is already being felt across various sectors, with construction and materials stocks experiencing a 0.8% drop and bank stocks dwindling by 0.7%. These developments are a natural consequence of higher borrowing costs, leading to a slowdown in loan growth. However, amidst these challenges, there are signs of resilience in certain areas. Media stocks, for instance, enjoyed a 0.7% upside following the news, indicating that the markets may begin to respond more favorably to individual performance rather than being solely influenced by widespread conditions.    FXMAG.COM: Could you please comment on the ECB decision?   It's crystal clear that the reluctant ECB is that of the past. Historically known for adopting a very dovish approach towards financial stability of the bloc by avoiding sharp interest hikes, its decision to bump rates again highlights the struggles caused by inflation which are burdening the performance of individual economies and corporations and the livelihood of individuals; on a macro scale, this has been hindering the prosperity of the European Union for a daunting lengthy period. BITmarkets has witnessed the rise of crypto trading since the start of the year, and a notable portion of increased trading activity has stemmed from Europe. Cryptocurrency assets are volatile and always have been, but they have been regarded as refuge by some in times of economic uncertainty and hardship. What's apparent is that the housing industry and the banking sector are among the industries which are being damaged the most, with construction and materials stocks dropping 0.8% and bank stocks dwindling 0.7% following the news. From a wider perspective, this is only natural as borrowing costs increased which attributes the slowdown of growth in loans.  While the news was not taken very lightly as the continent's most popular indices shed their prices, I don't project much more dismay for Europe with regards to economic stability. Media stocks enjoyed a 0.7% upside and that speaks a thousand words. Inflation is cooling down and markets may begin to behave based on performance rather than being continuously-succumbed to widespread conditions. The European financial market has been a victim of calamitous market conditions for years, but the latest ECB move is one that can ultimately bring the EU out of its shell.
UK Wage Growth Signals Dovish Undertones in Jobs Report

The Dollar Takes a Backseat: Global Factors Shape FX Market in June

ING Economics ING Economics 16.06.2023 09:54
FX Daily: June tells us the dollar is not the only game in town Despite relatively low levels of volatility, June has so far seen some pretty large spot FX moves in both the G10 and emerging market space. These moves seem to reflect a growing conviction of a soft landing in the global economy and a more hawkish view across the G10 central banks outside of the US. Look out for inflation surveys and central bank speakers today.   USD: Two factors weighing on the dollar We have recently been talking about inverted yield curves and late-cycle dollar strength. Looking at USD/JPY, that seems a fair comment given that it is trading not far from its recent highs and the US 2-10 yield curve is inverting even further (now -94bp) on the back of a hawkish Federal Reserve. However, this month in the G10 space, the dollar is only stronger against the yen and is anywhere from 2% (Swiss franc) to 6% (Australian dollar) weaker against the rest of the G10 currencies. This looks like a function of two factors: The first is the increasing hawkishness shown by the rest of the central banks in the G10 space. Inflation forecasts and expected tightening cycles are being revised higher across the board and in some cases more aggressively than in the US. This includes recent surprise hikes from Australia and Canada, a very hawkish ECB meeting yesterday, and very aggressive expectations for Bank of England rate hikes. The second is the bullish global risk environment. Investors are cutting allocations to cash and look to be putting money to work in bonds, equities and emerging markets. Against all the odds the MSCI world equity index is up 14% year-to-date and fund managers are surprisingly suffering from a Fear Of Missing Out (FOMO) on a good rally in benchmark risk assets. Notably, USD/CNH reversed lower yesterday despite the People's Bank of China rate cut – suggesting that investors are instead more interested in the prospect of upcoming Chinese fiscal stimulus.   Of course, data remain crucially important and will determine whether central banks need to keep rates tighter for longer or can perhaps start to consider rate cuts – as is the case in some parts of Eastern Europe and potentially Latin America too. But that is ING's central call for the second half of the year – that US disinflation will become more evident through the remainder of this year and that a less hawkish Fed will allow the dollar to sell off. Back to the short term, the dollar may well stay soft against most currencies except the Japanese yen, with the Bank of Japan remaining resolutely dovish. Here, yen-funded carry trades will remain popular. For today's data, we have the University of Michigan inflation expectations. This occasionally moves markets and any meaningful drop could nudge the dollar lower. Equally, we have three Fed speakers, generally from the hawkish end of the spectrum.  We think the mood to put money to work probably dominates and barring any big upside surprise in US inflation expectations, DXY can probably edge down to the 102.00 area, if not below.
Unlocking the Future: Reforms in Korea's FX Market Amid Demographic Shifts

Amidst Rising Inflation Concerns And Gold Consolidates Amid Hawkish Central Bank Actions

Matt Weller CFA Matt Weller CFA 16.06.2023 08:50
In the ever-evolving landscape of financial markets, decisions made by major central banks have a significant impact on shaping trends. We recently had the opportunity to speak with Matthew Weller, an analyst at StoneX, to gain insights into the current state of affairs.   Read more   The European Central Bank (ECB) recently made headlines with its "Hawkish Hike," raising its key interest rate by 25 basis points to 3.5%. This move aims to combat the escalating inflation in the eurozone, marking the eighth consecutive rate hike since July 2022. The ECB's determination to bring inflation down from its current 6.1% to its target of 2% is evident. ECB President Christine Lagarde has hinted at the possibility of further rate hikes at the next meeting in July, emphasizing the need to tackle inflation head-on. Lagarde made it clear that the ECB has no plans to pause its rate hikes. While the ECB focuses on inflation control, other central banks, such as the US Federal Reserve, have taken a pause in their rate hikes to assess their impact on economic growth and employment. However, the Fed's projections indicate the potential for two more rate hikes this year. Similarly, central banks in Australia and Canada have resumed rate increases after a temporary pause, underscoring the global challenge of high inflation. The ECB's decision to raise rates comes at a time of economic uncertainty, influenced by factors such as the ongoing conflict between Russia and Ukraine and potential wage agreements that may further fuel inflationary pressures. The ECB acknowledges that short-term economic growth may remain subdued, but it expects improvements as inflation subsides and supply disruptions ease. While concerns persist regarding the potential negative impact of higher rates on the economy and the risk of a recession, the ECB remains committed to addressing inflation as a top priority   FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH? Gold Consolidates Amid Hawkish Central Bank Actions   With major central banks continuing to tighten monetary policy and inflation still receding (if more gradually than before) gold prices are likely to remain on the back foot in the near term. As of writing, the yellow metal is trading in the mid-$1900s, where it has spent the last three weeks consolidating. Bulls will be looking for a break above the June high near $1990 to signal a potential retest of the record highs near $2075 as we move into July, whereas a confirmed break below $1930 could open the door for a retest of the 200-day EMA near $1900 next.
Pound Slides as Market Reacts Dovishly to Wage Developments

Mixed Markets as UK Gilt Yields Surge and China Cuts Lending Rates

Michael Hewson Michael Hewson 20.06.2023 07:44
With US markets closed, markets in Europe underwent a weak and subdued session at the start of the new week with yesterday's declines predominantly on the back of the late Friday sell-off in the US, which saw markets there close off their highs of the week. The lack of any further details on a China stimulus plan, along with additional upward pressure on interest rates over uncertainty about further rate rises, and a slowing global economy, saw European investors engage with some modest profit taking.     Asia markets were mixed this morning, even as the People's Bank of China cut its 1 and 5 year lending rates by a modest 10 bps.     The UK gilt market was the main source of movement in the bond market, with 2-year yields pushing up to their highest level in 15 years, while 5- and 10-year yields came close to the highs we saw at the end of September last year, after the Kwarteng budget.       There is growing anxiety about the effect the recent rise in UK gilt yields is already having on the mortgage market, a concern that was played out in the form of weakness in house building and real estate shares yesterday, as 2-year mortgage deals pushed above 6%.     It is also feeding into a wider concern that economic activity in the second half of the year will be constrained by increased mortgage costs, which in turn will push up rents as well as shrinking disposable income.     All eyes will be on tomorrow's inflation numbers with Bank of England policymakers praying that we start to see rapid slowdowns in how fast prices are rising before the end of the summer.     While prices have been slowing here in the UK they have been slowing more rapidly in the US as well as in Europe, although in Europe they also fell from much higher levels.     Today we get the latest Germany PPI numbers for May which have been slowing sharply from peaks of 45.8% back in August, and had come down to 17.6% by January this year. In today's numbers for May it is expected to see annualised price growth slow further to 1.7%, while seeing a -0.7% decline month on month.     Another monthly decline in today's numbers would be the 7th monthly decline in the last 8 months, in a sign that disinflation is working its way through the system, and could also manifest itself in this week's UK PPI numbers as well.     The puzzle is why it is taking so long to bleed into the headline CPI and core CPI numbers, though it could start to by the beginning of Q3. The Bank of England will certainly be praying it does. As we look towards today's European open its likely to be a modestly higher one.          EUR/USD – have slipped back from the 1.0970 area having broken above the 50-day SMA at 1.0880 which now acts as support. We still remain on course for a move towards the April highs at the 1.1095 area.     GBP/USD – slipped back from 1.2845/50 area with support now at 1.2750 which was the 61.8% retracement of the 1.4250/1.0344 down move. If we slip below 1.2750, we could see further weakness towards 1.2680. Still on course for a move towards the 1.3000 area.      EUR/GBP – remains under pressure and on course for further losses toward the 0.8470/80 area. Currently have resistance at 0.8580 area and behind that at 0.8620.     USD/JPY – still on course for a move towards the next resistance at 142.50 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 unchanged at 7,588     DAX is expected to open unchanged at 16,201     CAC40 is expected to open 7 points lower at 7,307
USD Weakness Boosts Commodity Complex as Oil Supply Disruptions Drive Prices Higher

Oil Prices Flat and Range-Bound, Market Braces for Economic Uncertainty. Gold Drifts as Data Awaited, Fed's Stance Holds Firm

Craig Erlam Craig Erlam 20.06.2023 13:07
Oil remains choppy but flat and in lower range Oil prices are relatively flat today, mirroring yesterday’s session which was broadly choppy but ultimately directionless. Crude has rebounded strongly since falling toward its 2023 lows early last week but remains in its lower range, roughly between $70-$80 per barrel and it’s showing little sign of breaking that in the short term. While some believe the market will be in deficit later in the year, aided by the Saudi-driven OPEC+ cuts, which could support prices closer to what we saw late last year and early this, the economy remains one significant downside risk to this amid an adjustment in the markets toward higher rates for longer.   Gold drifting as we await more data Gold has started the week slightly softer but very little has changed, in that it remains in the $1,940-$1,980 range that it has spent the vast majority of the last month. It was a very quiet start to the week which is why gold has basically continued to drift and that may continue until we see a significant change in the data. The Fed last week made it perfectly clear that it doesn’t believe it’s done and its commentary this week, including Chair Powell’s appearing in Congress on Wednesday, isn’t likely to change in any significant way from that. It will be interesting to see if we get any response to UK inflation data as a potential signal of stickiness more broadly but then, there’s every chance it could be viewed as a UK issue, rather than an indication of something more, considering how much more the country has struggled until now.  
Market Highlights: US CPI, ECB Meeting, and Oil Prices

UK CPI Data Sets the Stage for Bank of England Rate Decision

Michael Hewson Michael Hewson 21.06.2023 08:32
UK CPI set to tee up tomorrow's Bank of England rate decision    We've seen a lacklustre start to the week for markets in Europe, as well as the US as disappointment over a weak China stimulus plan, gave investors the excuse to start taking some profits after the gains of recent weeks. Weakness in energy prices also reinforced doubts about the sustainability of the global economy as we head towards the second half of this year.   As we look towards today's European open the main focus is on the latest UK inflation numbers for May ahead of tomorrow's Bank of England rate decision.   Today's UK CPI numbers could make tomorrow's rate decision a much less complicated decision than it might be, especially if the numbers show a clear direction of travel when it comes to a slowing of price pressures. Nonetheless, whatever today's inflation numbers are, we still expect to see a 25bps rate hike tomorrow, however what we won't want to see is another upside surprise given recent volatility in short term gilt yields.   When the April inflation numbers were released, there was a widespread expectation that headline inflation would fall back sharply below 10% and to the lowest levels since March last year. That did indeed happen, although not by as much as markets had expected, falling to 8.7%.       It was also encouraging to see PPI input and output prices slow more than expected in April on an annual basis, to 3.9% and 5.4% respectively.   Unfortunately, this is where the good news ended as while we saw inflation fall back in April it wasn't as deep a fall as expected with many hoping that we'd see headline inflation slow to 8.2%. The month-on-month figure was much hotter than expected at 1.2% and core prices surged from 6.2% to 6.8%, and the highest level since 1990.   The areas where inflation is still looking hot is around grocery prices which saw an annual rise of 19.1%, only modestly lower than the 19.2% in March, while services inflation in hotels and restaurants slowed from 11.3% to 10.2%. Since then, food price inflation has slowed to levels of around 16.5%, still very high, while today's headline number is forecast to slow to 8.5%. More worryingly core prices aren't expected to change at all, remaining at 6.8%, however if we are to look for crumbs of comfort then we should be looking at PPI where in China and Germany we are in deflation.   Given that this tends to be more forward-looking we could find that by Q3 headline CPI could fall quite sharply. Both PPI input and output prices are expected to both decline on a month-on-month basis, while year on year input prices are expected to rise by 1.1%.   In the afternoon, market attention will shift to Washington DC and today's testimony by Fed chair Jerome Powell to US lawmakers in the wake of last week's decision to hold rates at their current levels, while issuing rather hawkish guidance that they expect to hike rates by another 50bps by year end.   This was a little surprising given that inflation appears to be a problem that could be subsiding. Powell is likely to also face further questions from his nemesis Democrat Senator Elizabeth Warren who is likely to further press the Federal Reserve Chairman on the costs that further rate hikes might have in terms of higher unemployment.   Her dislike for Powell is well documented calling him a "dangerous man", however despite these comments her fears of higher unemployment haven't materialised despite 500bps of rate hikes in the past 15 months.   We could also get further insights into last week's discussions with a raft of Fed speakers from the likes of Christopher Waller, Michelle Bowman, James Bullard and Loretta Mester this week.          EUR/USD – currently holding above the 50-day SMA at 1.0870/80 which should act as support. We still remain on course for a move towards the April highs at the 1.1095 area, while above 1.0850.     GBP/USD – slipped back from 1.2845/50 area sliding below 1.2750 with the next support at the 1.2680 area. 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 with resistance at the 0.8580 level. While below the 0.8620 area bias remains for a move toward the 0.8470/80 area.     USD/JPY – slipped back from just below the next resistance at 142.50 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 4 points higher at 7,573     DAX is expected to open 42 points higher at 16,153     CAC40 is expected to open 3 points higher at 7,297     By Michael Hewson (Chief Market Analyst at CMC Markets UK)
Barclays H1 2023: Mixed Performance with Strong Investment Banking and Consumer Division

Navigating Uncertainty: Shifting Sentiment in European and US Stock Markets

ING Economics ING Economics 26.06.2023 08:04
European and US stock markets have seen a significant shift in sentiment over the past few days when it comes to the global economy. Rising bond yields, driven by more hawkish central banks, which has prompted investors to reassess the outlook when it comes to valuations and growth.     While European markets saw their biggest weekly loss since March, US markets also took a tumble, albeit the first one in 8 weeks, as a succession of central banks pledged that they had significantly further to go when it comes to raising rates. Bond markets also started to flash warning signs with yield curves becoming more inverted by the day whether they be France, Germany, or the UK. Friday's weak finish hasn't translated into a strongly negative vibe as we start a new week for Asia markets, even allowing for events in Russia at the weekend which aren't likely to have helped the prevailing mood, with the US dollar slightly softer this morning after getting a haven bid at the end of last week.     With economic data continuing to show varying signs of vulnerability, particularly in manufacturing the situation could have got even spicier over the weekend when Wagner Group boss Yevgeny Prigozhin set his troops on the road to Moscow in an insurrection against the Kremlin, and Russian President Vladimir Putin.   As it turns out a crisis was quickly averted when it was announced that Prigozhin would go into exile in Belarus, with any charges against him dropped, and Wagner troops would return to their bases. One can only imagine the reaction if that news had broken if markets had been open at the time, however it only adds to the general uncertainty surrounding the war in Ukraine and how quickly things can start to unravel.   This weekend's events also serve to indicate how fragile Vladimir Putin's position is given that one of his most trusted advisors suddenly went rogue.   As we look ahead to the final week of June and the end of the quarter, as well as the first half of the year we can reflect to some extent that markets have held up rather well when all things are considered. They have been helped in that by the sharp falls in energy prices back to pre-Russian invasion of Ukraine levels, as well as the low levels of unemployment which have served to keep demand reasonably resilient.     The elephant in the room has been the stickiness of core inflation as well as signs that demand is starting to falter, and this week we could get further confirmation of that trend.   Today we get the latest Germany IFO Business Climate survey for June, which if last week's flash PMI numbers are any guide could well show that the confidence amongst German business is faltering, with expectations of a slowdown to 90.6, from 91.7.     We also get flash CPI inflation numbers from Germany, France and the EU where headline prices are likely to show further signs of softening, with core prices set to remain sticky. At around the same time we get the latest PCE inflation numbers from the US for May.   These are likely to be important in the context of the Federal Reserve's stated intention to raise interest rates at least twice more before the end of the year.     In April the core PCE Deflator edged up from 4.6% to 4.7%, an area it has barely deviated from since November last year. You would have thought that even with the long lags seen from recent rate hikes they would start to have an impact on core prices.   This perhaps explains why central banks are being so cautious, even as PPI prices are plunging and CPI appears to be following.       EUR/USD – pushed briefly back above the 1.1000 level yesterday before slipping back, with the main resistance at the April highs at 1.1095. This remains the next target while above the 50-day SMA at 1.0870/80 which should act as support. Below 1.0850 signals a move towards 1.0780.     GBP/USD – currently holding above the lows of last week, and support at the 1.2680/90 area. Below 1.2670 could see a move towards the 50-day SMA. Still on course for a move towards the 1.3000 area but needs to clear 1.2850.      EUR/GBP – failed to rebound above the 0.8630/40 area last week. The main support is at last week's low at the 0.8515/20 area. A move through 0.8640 could see a move towards 0.8680. While below the 0.8630 area the bias remains for a return to the recent lows.     USD/JPY – has finally moved above the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move, as it looks to close in on the 145.00 area. This now becomes support, with further support at 140.20/30.      FTSE100 is expected to open 6 points higher at 7,468     DAX is expected to open 28 points higher at 15,858     CAC40 is expected to open 8 points higher at 7,171
German Business Confidence Dips, ECB's Lagarde Hosts Central Banking Conference in Portugal, EUR/USD Drifts Higher

German Business Confidence Dips, ECB's Lagarde Hosts Central Banking Conference in Portugal, EUR/USD Drifts Higher

Kenny Fisher Kenny Fisher 26.06.2023 15:53
German Business Confidence falls for second straight month ECB’s Lagarde hosts central banking conference in Portugal EUR/USD is drifting higher on Monday. In the European session, EUR/USD is trading at 1.0917, up 0.20%.   German business confidence slips Germany once prided itself as being the locomotive of the eurozone, which blazed the way with a strong economy. The country is still by far the largest economy in the bloc, but hard times in the global economy haven’t spared Germany. The week started with disappointing news as the German Ifo Business Climate index dropped for a second straight month, falling from 91.7 to 88.5 in June. This missed the consensus of 90.7 and was the index’s weakest level this year. The Ifo release did not indicate reasons for the decline, but a weak global economy, exacerbated by China’s wobbly recovery, and the ECB’s aggressive tightening appear to be weighing on business sentiment. Last week’s German PMI data indicated slower activity in manufacturing and services. Manufacturing has been mired in a recession and fell from 43.5 to 41.0 points. Services is showing growth, but slipped from 54.7 to 54.1 points. The 50 line separates contraction from expansion. The ECB has been playing catch-up with inflation but has made progress as higher rates have dampened economic activity in the eurozone. The ECB has hinted strongly that it will raise rates in July and there is a strong possibility of another hike in September or October. ECB President Christine Lagarde will be in the spotlight as host of the ECB forum on Central Banking in Sintra, Portugal this week. The markets will be monitoring her remarks and looking for insights into future rate policy, which could result in stronger movement from the euro. . EUR/USD Technical EUR/USD is testing resistance at 1.0916. Next, there is resistance at 1.0988 1.0822 and 1.0780 are providing support
Challenges in the Philippines: Rising Rice and Energy Costs Threaten Inflation Stability

Yen Plummeting to Multiyear Lows Sparks Market Attention

Michael Hewson Michael Hewson 28.06.2023 08:10
Yen in focus as it falls to multiyear lows   After 6 days of declines, European markets managed to break their recent losing streak yesterday, closing marginally higher after a day when the direction could have gone either way. The catalyst for the recovery off the day's lows was a strong US session which was driven by two sets of strong US economic numbers. US consumer confidence for June hit its highest levels in 17 months, while new home sales jumped by 12.2%, the highest number in over a year. If the US economy is starting to struggle then there is little evidence of that in yesterday's numbers, which in turn helped drive a strong finish for US markets, led by the Nasdaq 100.     Yesterday's resilience came in spite of another slide in crude oil prices, which have continued to suffer under the weight of concerns about a slowing global economy and a drop in demand over the second half of the year. The increased stridency of hawkish central bank rhetoric coming out of Sintra in Portugal at the ECB central bank conference, when it comes to future rate hikes is helping to drive yields higher, yet stock markets appear unfazed.     Yesterday we heard from several ECB governing council members, including President Christine Lagarde pushing back against the idea of rate cuts in 2024, as well as signalling a commitment to another rate hike at the July meeting. This seems set in stone now, although this week's June flash CPI number might cast some doubts as to whether the rate hikes might continue beyond July. Today's speaker slate at Sintra could well create more headlines with the likes of Bank of England Governor Andrew Bailey, Bank of Japan governor Kazuo Ueda, Fed chair Jay Powell and Christine Lagarde speaking on a panel discussing monetary policy.     Of particular interest will be any comments from Governor Ueda given the declinesseen in the Japanese yen over the past few days, seeing it sink to 15-year lows against the euro, as well as 8-year lows against the pound, and record lows against the Swiss franc in the last 24 hours. We've already heard from Japanese Finance Minister Suzuki in the last couple of days warning that excessive movements in the yen might prompt an appropriate response. While yen traders are focussing on the 145.00 area against the US dollar it can't have escaped their attention that their currency is getting hit even harder away from the spotlight of the greenback. If a response is coming it could well come soon.     Staying with currencies the Australian dollar plunged overnight after headline CPI slowed sharply on May from 6.8% to 5.6%, well below forecasts of 6.1%, and with the RBA meeting next week this slowdown could prompt the central bank to re-pause the pace of the current rate hiking cycle.   After the European close we also get the latest results from the US bank stress tests, which couldn't be more timely given recent events in March, however they aren't likely to offer much insight into what took place, as the US regional banks were not covered under the various scenarios, as they were considered too small and not systemically important enough. This was a major oversight, as recent experience in Europe has taught us, and particularly in Spain over 10 years ago, where a large cohort of Spanish Cajas nearly brought the economy to its knees and resulted in a banking bailout. Just because a bank is small doesn't mean it won't cause a financial meltdown if its troubles spread. The tests also had a rather big flaw in them in that they didn't factor a sharp rise in interest rates into any of the scenarios, the very scenario that started the dominos tumbling with the collapse of SVB.     EUR/USD – holding above the 50-day SMA and support at the 1.0870/80 area. We have resistance back at last week's high just above the 1.1000 level, with the main resistance at the April highs at 1.1095. Below 1.0850 signals a move towards 1.0780.     GBP/USD – a positive session yesterday 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 – appears to be building up to move higher but needs to move through the 0.8630/40 area. 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 – 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 19 points higher at 7,480     DAX is expected to open 45 points higher at 15,892     CAC40 is expected to open 25 points higher at 7,240       By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Recent Economic Developments and Upcoming Events in the UK, EU, Eurozone, and US

Equity Markets: Reflecting on the First Half and Looking Ahead to the Second

Michael Hewson Michael Hewson 03.07.2023 09:20
The last six months have been an eventful one for equity markets in general with many of the questions that we were faced with at the start of the year, still just as relevant now.   The main question was whether the rebound that started from the lows back in October was simply part of a bear market rally, or whether it was the beginning of a move towards new record highs.   Others included how many more rate hikes could we expect to see, and when would rates start to come down again, with markets pricing in rate cuts in the second part of 2023.   We got the answer to the main question with new record highs for the FTSE100, CAC 40 and the DAX, while US markets also managed to continue their strong performance, breaking out of their own downtrend from their 2021 peaks, during February, shrugging off a March wobble in the process.   Despite the records highs being set by European markets in the first half of this year, one index above all the others has disappointed, that being the FTSE100, which managed to get off to a flier in the early part of the year, hitting a record high above 8,000, before sinking to a six-month low in the space of 4 weeks. Of all the major indices its greater weighting towards banks, and commodities has seen it underperform, largely due to the weakness of the rebound in the Chinese economy, and the fall in oil and gas prices.   The FTSE100 aside, what has been surprising is that, aside from a couple of exceptions, the stock market gains of the last few months have given few signs of disappearing despite interest rates that are significantly higher than they were at the start of the year, with little sign that they will come down any time soon.   That fact alone is a significant shift from where we were at the start of the year, where we had bond markets pricing in rate cuts as soon as Q3 of this year. This always came across as wishful thinking on the markets part, however we've shifted to the other side of the spectrum of market pricing in the prospect of another 100bps of rate hikes by the Bank of England by the end of the year.   In the same way that rate cuts by year end proved to be mispriced, at the start of the year, this pricing by the market could well go the same way.   One thing that has come as a surprise is how resilient equity markets have been in the face of a much sharper rise in 2-year yields from where we were in early January.   What's more there is no sign that central banks are in any mood to slow down their pace of rate hikes, something that is very much reflected in the way 2-year yields have pushed higher this year. US 2-year yields are higher by almost 50bps year to date, UK 2-year gilt yields by an astonishing 169bps, and German 2-year yields by 43bps.   This big jump in UK yields has seen the pound outperform against its peers, rising by 5% against the US dollar, and by as much as 13.5% against the Japanese yen.   While financial markets try to determine how many more rate hikes are coming, the next question is how long they will have to stay at current levels, and what happens when the deflation that is already being seen in the PPI numbers starts to manifest itself in the core inflation numbers.   For now, there is little evidence of that happening with the focus this week more on the continued divergence between manufacturing and the services sector in the form of the PMI numbers, as well as the US payrolls numbers on Friday.     Today's manufacturing PMIs are set to confirm the weak nature of this part of the global economy, with Spain, Italy, France, and Germany PMIs all forecast to slip back to 47.9, 45.3, 45.5, and 41 respectively. UK and US are also expected to remain soft at 46.2 and 46.3 respectively, while the US ISM manufacturing survey, is also forecast to remain below 50, at 47.2, with prices paid at 44.     Markets are already pricing in further rate hikes this month from the Federal Reserve, as well as the ECB, followed by the Bank of England in August, however the bigger question is what comes after these. One suspects we may not see many more after these hikes, however for now markets seem reluctant to come to that conclusion.   That said as we look towards H2 the bigger question is having seen such a positive H1, is there anything left in the tank, to build on those gains over the course of the rest of the year?   A decent Asia session looks set to translate into a positive start for European markets although current unrest in France is likely to prompt questions about economic activity there in the coming weeks.         EUR/USD – finding support at the 1.0830/40 area and 50-day SMA for now, 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 holding above the 50-day SMA at 1.2540, as well as trend line support from the March lows. If this holds, the bias remains for a move back to the 1.3000 area. Currently have resistance at 1.2770.       EUR/GBP – capped last week just below resistance at the 50-day SMA which is now at 0.8663. Behind that we have 0.8720. Support comes in at the 0.8570/80 area.     USD/JPY – saw a key reversal day after popping above 145.00 last week. We currently have support at the 143.80 area, with a break below targeting the 142.50 area. Above 145.20 opens up 147.50.      FTSE100 is expected to open 32 points higher at 7,563     DAX is expected to open 50 points higher at 16,198     CAC40 is expected to open 30 points higher at 7,430
Stocks Rebound Amid Rising Volatility: Analysis and Outlook

Navigating the Economic Landscape: Three Calls for the Second Half of 2023

ING Economics ING Economics 06.07.2023 13:06
For the global economy, the first half of the year was packed with action. The remainder of the year will see a further weakening of the global economy, a rapid fall in headline inflation, and a dearth of central bank rate cuts.   Our three calls for the remainder of 2023  It’s halftime for 2023 but not halftime like at the Super Bowl with Snoop Dogg, Shakira or Rihanna. It’s halftime of the economic year, and economists are taking a deep breath with no singing or dancing (even if some of us might have hidden talents). It is simply the moment to assess the first half of the year and to sharpen our minds (and calls) for the second half. For the global economy, the first half of the year was packed with enough action for an entire year. An energy crisis in Europe that was avoided thanks to a mild winter and fiscal stimulus. A reopening of China that is more sluggish and wobblier than hoped for. A banking crisis in the US and Switzerland which hasn’t ended in a global financial crisis as feared. Unprecedented central bank tightening and gradually retreating inflation, with the latter not necessarily the result of the former. Against this backdrop, the age-old question of whether the glass is half-empty or half-full comes to mind. Should we cherish the current resilience of many economies and the financial system as things could have become much worse? Or should we moan about the missed opportunities, lacklustre growth and a still very long list of potential risks? As is so often the case, the truth is probably somewhere in the middle.     Looking ahead, the risk for every forecaster is the temptation to spread optimism and predict an upturn of almost everything towards the end of the year (or the end of the forecast horizon as many traditional macro models do). We are more cautious. The fact that things didn’t get as bad as feared does not automatically lead to a return of optimism or a surge of economic activity. In fact, the structural themes of the last few years are still pressing and impacting the economic outlook. Think for example of geopolitical tensions, the war in Ukraine, demographics, climate change more generally and more specifically the energy transition, and high government debt. It is impossible to tell how and when exactly these factors will affect growth or an inflation forecast profile but we definitely know that these effects are here and they are here to stay. Let’s be a bit more precise and come back to economic developments in the second half of this year. Bold or not, we have three major calls for the remainder of the year: Further weakening and not strengthening of the global economy. Headline inflation will retreat faster than central banks currently think. Rate cuts are a 2024 but not a 2023 story. Let's look at these three calls in more detail. The global economy will further slow down and "slowcessions" are likely in several parts of the developed world. The Chinese reopening will continue to stutter, the US economy is likely to experience a winter recession and the eurozone will remain in this twilight zone between stagnation and recession. Besides negative base effects from energy and food prices, the cooling of many economies will lower wage pressure, reduce inflation pipeline pressures and will increasingly lead to price discounts. Headline but also core inflation are likely to come down faster than central banks anticipate towards the end of the year. The phenomenon of "slowcessions" is a new challenge for central banks. Reacting to a more pronounced cycle is much easier as it takes much longer to identify a "slowcession". Until central bankers have realised that we are in a "slowcession" for good, they will continue hiking rates, not cutting them. If we are right, central bankers will adjust to the new reality in the last months of the year, acknowledging weaker growth, broader disinflation and no further need for rate hikes. It might not be as eye-catching as Janet Jackson and Justin Timberlake, but it is definitely an exciting view of the global economy. Have a good summer.  
Navigating the Risks: The Consequences of Aggressive Interest Rate Hikes and Banking Crisis on the Global Economy

Navigating the Risks: The Consequences of Aggressive Interest Rate Hikes and Banking Crisis on the Global Economy

ING Economics ING Economics 06.07.2023 13:07
What happens if central banks hike interest rates too much, and how a renewed crisis in the banking system could weigh on the global economy.   Aggressive interest rate hikes trigger a ‘hard landing’ Our base case: The most aggressive rate hike cycle in decades will no doubt take its toll. We’re more concerned about the US, where a tightening in lending standards post-banking crisis is likely to trigger more noticeable weakness in hiring and investment. Europe is currently enjoying the benefit of lower energy prices, which partly offsets the impact of higher rates in the short term. But the longer-term outlook for Europe remains one of subdued growth at best. In the US, we’re not expecting a deep downturn, and developed economies are insulated by the greater prevalence of fixed-rate mortgages relative to past crises. That makes for a longer/more drawn-out transmission to the economy. Stagnation is likely, and the impact of higher rates is less concentrated in any single quarter. Risk scenario and how it plays out: There are three ways things could be worse than we expect. Firstly, central banks hike more aggressively than currently expected – and with rates already well into restrictive territory, that would make deeper recessions in 2024 more inevitable. Rates at 6% or above in the UK and US, or 5% in the eurozone, would be challenging. Secondly, businesses begin to feel the pinch more acutely. Corporates have enjoyed pricing power over the past couple of years as economies emerge from Covid. But that’s fading as consumer demand – especially for goods – abates, and the impact of interest rates on unemployment could accelerate as debt servicing becomes a greater challenge. Finally, a high interest rate environment raises the risk of something breaking in the financial system. March’s banking crisis was a taster of that, and despite central banker assurances to the contrary, persistently higher interest rates clearly risk having knock-on effects for financial stability. The feedback loop could tighten lending standards yet further, adding to the pressure on smaller businesses as well as real estate and the construction sector. Wider economic impact: We’d expect to see many major economies enter recession through the early part of 2024, or perhaps earlier. Where economic weakness has so far been concentrated in manufacturing, we’d expect the service sector to enter a downturn too. That would see a corresponding easing in service-sector price pressure, via lower wage growth. Central banks would turn to rate cuts much earlier than we’re currently forecasting.  
Market Insights: Dollar Position Shifts and Central Bank Speeches Drive Currency Trends

The Economic Twilight Zone: A Closer Look at ING's July Monthly Economic Update

ING Economics ING Economics 06.07.2023 13:45
ING’s July Monthly: The economic twilight zone. Following an action-packed first half of the year, the remainder of 2023 will see a further weakening of the global economy, a rapid fall in headline inflation, and a dearth of central bank rate cuts.   Executive summary For the global economy, the first half of the year was packed with enough action for an entire year. An energy crisis in Europe that was avoided thanks to a mild winter and fiscal stimulus. A reopening of China that is more sluggish and wobblier than hoped for. A banking crisis in the US and Switzerland which hasn’t ended in a global financial crisis as feared. Unprecedented central bank tightening and gradually retreating inflation, with the latter not necessarily the result of the former. Against this backdrop, the age-old question of whether the glass is half-empty or half-full comes to mind. Should we cherish the current resilience of many economies and the financial system as things could have become much worse? Or should we moan about the missed opportunities, lacklustre growth and a still very long list of potential risks? As is so often the case, the truth is probably somewhere in the middle. Looking ahead, the risk for every forecaster is the temptation to spread optimism and predict an upturn of almost everything towards the end of the year (or the end of the forecast horizon as many traditional macro models do). We are more cautious. The fact that things didn’t get as bad as feared does not automatically lead to a return of optimism or a surge of economic activity. We have three major calls for the remainder of the year: Further weakening and not strengthening of the global economy. Headline inflation will retreat faster than central banks currently think. Rate cuts are a 2024 but not a 2023 story. Catch all of the details from our global team of economists and analysts in our latest Monthly Economic Update for an insight into what could be next for the global economy over the second half of the year.  
Challenges in the Philippines: Rising Rice and Energy Costs Threaten Inflation Stability

Outlook for the Global Economy: Weakening Growth, Falling Inflation, and Delayed Rate Cuts

ING Economics ING Economics 06.07.2023 13:47
For the global economy, the first half of the year was packed with action. The remainder of the year will see a further weakening of the global economy, a rapid fall in headline inflation, and a dearth of central bank rate cuts   Our three calls for the remainder of 2023 It’s halftime for 2023 but not halftime like at the Super Bowl with Snoop Dogg, Shakira or Rihanna. It’s halftime of the economic year, and economists are taking a deep breath with no singing or dancing (even if some of us might have hidden talents). It is simply the moment to assess the first half of the year and to sharpen our minds (and calls) for the second half.   For the global economy, the first half of the year was packed with enough action for an entire year. An energy crisis in Europe that was avoided thanks to a mild winter and fiscal stimulus. A reopening of China that is more sluggish and wobblier than hoped for. A banking crisis in the US and Switzerland which hasn’t ended in a global financial crisis as feared. Unprecedented central bank tightening and gradually retreating inflation, with the latter not necessarily the result of the former   Against this backdrop, the age-old question of whether the glass is half-empty or halffull comes to mind. Should we cherish the current resilience of many economies and the financial system as things could have become much worse? Or should we moan about the missed opportunities, lacklustre growth and a still very long list of potential risks? As is so often the case, the truth is probably somewhere in the middle.   Looking ahead, the risk for every forecaster is the temptation to spread optimism and predict an upturn of almost everything towards the end of the year (or the end of the forecast horizon as many traditional macro models do). We are more cautious. The fact that things didn’t get as bad as feared does not automatically lead to a return of optimism or a surge of economic activity.   In fact, the structural themes of the last few years are still pressing and impacting the economic outlook. Think for example of geopolitical tensions, the war in Ukraine, demographics, climate change more generally and more specifically the energy transition, and high government debt. It is impossible to tell how and when exactly these factors will affect growth or an inflation forecast profile but we definitely know that these effects are here and they are here to stay   Let’s be a bit more precise and come back to economic developments in the second half of this year. Bold or not, we have three major calls for the remainder of the year: • Further weakening and not strengthening of the global economy. • Headline inflation will retreat faster than central banks currently think. • Rate cuts are a 2024 but not a 2023 story.     Let's look at these three calls in more detail. The global economy will further slow down and "slowcessions" are likely in several parts of the developed world. The Chinese reopening will continue to stutter, the US economy is likely to experience a winter recession and the eurozone will remain in this twilight zone between stagnation and recession.   Besides negative base effects from energy and food prices, the cooling of many economies will lower wage pressure, reduce inflation pipeline pressures and will increasingly lead to price discounts. Headline but also core inflation are likely to come down faster than central banks anticipate towards the end of the year.   The phenomenon of "slowcessions" is a new challenge for central banks. Reacting to a more pronounced cycle is much easier as it takes much longer to identify a "slowcession". Until central bankers have realised that we are in a "slowcession" for good, they will continue hiking rates, not cutting them. If we are right, central bankers will adjust to the new reality in the last months of the year, acknowledging weaker growth, broader disinflation and no further need for rate hikes.   It might not be as eye-catching as Janet Jackson and Justin Timberlake, but it is definitely an exciting view of the global economy. Have a good summer.
Tokyo Core CPI Falls Short at 2.8%, Powell and Ueda Address Jackson Hole Symposium, USD/JPY Sees Modest Gains

Tapping into Tourism: Spain's Growth Driven by the Tourism Sector

ING Economics ING Economics 12.07.2023 14:16
Tourism will be the main growth driver this year The slowdown in the Spanish economy can be attributed to the overall deceleration of the global economy. Nevertheless, Spain is poised to become the best-performing economy among the larger eurozone countries this year. We forecast average growth of 2.2% for Spain this year, well above the eurozone average of 0.4%. Continued growth in the tourism sector will be the main driver of Spain's higher growth rates. Although the number of international tourists entering Spain in 2022 was still 14% below pre-pandemic levels, the gap may be closing this year. In May, the number of international visitors had already risen to 104% of the pre-pandemic level, compared with 88% in May 2022. Strong travel demand points to a promising tourist season ahead. Contributing about 15% to GDP, the tourism sector will remain one of the main catalysts for economic growth throughout the year.   The number of foreign tourists increased above pre-Covid levels in April and May (in millions)     Spanish headline inflation reaches 1.9% Spanish inflation has fallen faster than in other eurozone countries. In June, Spanish inflation stood at 1.9% year-on-year, while the eurozone recorded 5.5%. These positive developments can be attributed to more favourable base effects from energy prices, which rose faster in Spain than in other countries last year. However, if these favourable base effects fade in the coming months, Spanish headline inflation could rise again. In addition, the phasing out of several government measures by early 2024 is expected to have an upward effect on inflation. Spanish core inflation, excluding energy and food prices, remains remarkably high at 5.9% and is even above the eurozone average of 5.4%. Core inflation is expected to remain at a high level throughout the year and gradually decline. Yet there are indications that core inflation is also on a sustained downward trend. For instance, inflation in the buoyant hospitality sector, which accounts for 14% of the inflation basket, is cooling markedly despite strong sustained demand on the back of a strong tourist season. Core inflation is expected to remain at high levels throughout the year and only gradually decline.   Slowing momentum despite tourism recovery For 2023, we expect growth of 2.2%, well above the eurozone average of 0.4%. Although the economy performed strongly in the first quarter, momentum is expected to wane as financial conditions tighten. The main driver of growth will be net exports, supported by the continued recovery of the tourism sector, which surpassed pre-pandemic levels in May and April. Although headline inflation fell to 1.9% in June, it is expected to rise in the coming months due to less favourable base effects for energy and persistent core inflation.   Spanish economy in a nutshell (%YoY)  
Uncertain Path Ahead: Will Silver Regain Historic Highs?

Uncertain Path Ahead: Will Silver Regain Historic Highs?

Walid Koudmani Walid Koudmani 12.07.2023 15:42
The financial market is always keenly interested in the fluctuations of commodity prices, and silver, a crucial metal in the global economy, is no exception. In recent months, the price of silver has exhibited remarkable volatility, surging to a high of over $26 per ounce in April before retracing back to the $22 level. This intriguing situation prompts us to ponder what lies ahead for this precious metal. Will silver have the opportunity to revisit historic highs? To shed light on this matter, we turn to the expertise of renowned financial analyst, Walid Koudmani. With his extensive knowledge and insights into market dynamics, Koudmani delves into the various factors that could influence the future trajectory of silver prices in the coming months.   FXMAG.COM:  The silver price has made a retreat back to the area of $22 per ounce. What's next for the metal - does it have a chance to head toward historic highs?   Walid Koudmani: The price of silver has been very volatile in recent months, reaching a high of over $26 per ounce in April before falling back to the $22 level and the situation continues to be interesting. There are a few factors that could influence the price of silver in the coming months.  First, the global economy is facing a number of headwinds, including rising inflation, slowing growth, and the ongoing war in Ukraine which could weigh on demand for silver, as investors may turn to other assets, such as gold, for safety. Second, the Federal Reserve is expected to continue raising interest rates in an effort to combat inflation even though it seems to be nearing the end of its cycle which could also put pressure on the price of silver, as higher interest rates make it more expensive to borrow money and invest in commodities. However, there are also some factors that could support the price of silver in the coming months since silver is a relatively rare metal, and demand for it is expected to grow in the coming years as the global economy focuses on electric energy which utilizes the metal for many of the components needed in those devices such as batteries. Second, silver is often used in industrial applications, such as electronics and solar panels and as these industries grow, demand for silver is likely to increase. Overall, the outlook for the silver price in the coming months is uncertain as the metal is facing a number of obstacles while there are some things that point to some potential room for growth.It is too early to say whether silver will reach historic highs, but it is certainly a metal to watch in the coming months.
Chinese Data Shakes Dollar, US Stocks Higher Amid Disinflation Concerns and Bank Earnings Awaited

Chinese Data Shakes Dollar, US Stocks Higher Amid Disinflation Concerns and Bank Earnings Awaited

Ed Moya Ed Moya 18.07.2023 08:22
Dollar wavers post Chinese data 10-year Treasury yield down 2.3 points to 3.809% JPMorgan extends gains post Friday’s earnings US stocks are slightly higher after some disappointing Chinese GDP data raised concerns about the global economy but supported the argument that disinflation pressures are firmly in place.  The disinflation story won’t be going away after Ford announced some big cuts with their electric F-150 truck prices.  The disinflation process should remain intact and that should support calls that the Fed will be done after one more rate hike at the end of this month.  Wall Street is bracing for some big bank earnings that might not mirror what JPMorgan said last week. The key to the stock market remains the mega-cap tech trade and many traders won’t do any major positioning until we hear from Netflix and Tesla.     China’s slowdown dragged European stocks.  Another record high for China’s youth unemployment won’t do any favors for demand for European goods in the coming months.  China still expects growth around 5% to be reached but that will be hard unless the PBOC delivers more stimulus.    US Data The first Fed regional survey showed that NY state factory activity managed to stay in expansion territory, while prices paid fell to the lowest levels since August 2020.  The headline general business conditions index dropped 6 points to 1.1. The manufacturing sector is expected to rebound here despite a slight rise with new orders and as shipments expanded.  The report noted that optimism remained subdued and that capital spending will remain soft.      The rest of the Fed regional surveys will likely show overall weakness in the manufacturing sector, along with optimism that pricing pressures are easing.    
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

RBA Takes Another Breather, Leaves Room for Future Tightening

ING Economics ING Economics 01.08.2023 10:25
Reserve Bank of Australia takes another breather Pausing for a second consecutive meeting, today's rate decision is in line with some better inflation data this month and means the Bank can respond to future data events with less fear of overdoing the tightening.   Not clear why market was even looking for a hike It is a genuine mystery to us why there was a small majority of forecasters looking for a hike at today's meeting. We certainly were not. The June inflation data came in better than most of the expectations, including on the core measures. So that alone should have been enough to keep the RBA on hold. And none of the other data since the last meeting have been particularly alarming. Sure, the labour data wasn't exactly soft, but it wasn't super-strong either, and the unemployment rate while still very low, was stable from the previous month.  In the statement in July, Governor Philip Lowe noted that further tightening "will depend upon how the economy and inflation evolve", and in the event, the economy and inflation tended to indicate that they were on the right track. For a central bank that has been keen to give the economy a chance where at all possible, there was simply no good argument for a hike today.   There will be better excuses to hike than existed this month   More hikes are possible - probably one, maybe two That doesn't mean that there is no chance of any further tightening in this cycle. And while the June inflation figures were lower than expected, the month-on-month increase was not even close to what is required to get inflation back to target. And that will have to change. Today's statement notes that there is still a chance for some further tightening and that the RBA will "continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market"  We think that this broad assessment means the RBA can be a bit more choosy when it does decide to tighten again. If it responded to every tiny mishap in the data, then rates would rapidly rise, and by the time the economy did finally show more evidence of turning, the odds are that they would by then have gone too far. This way, they are giving a soft landing the best chance of happening.  Base effects will become far less helpful after the July CPI release later this month, and the July reading of CPI will also incorporate substantial electricity tariff hikes which means that inflation could backtrack higher for July and August readings. That puts a September rate hike firmly into the frame, and possibly leaves the door open for a further hike before the base effects should turn more helpful once more - absent seasonal supply chain shocks, which is harder to take for granted in these climate-changed times.     So we will be looking for one more rate hike to 4.35% at the RBA's next meeting in September. And we will be reserving judgement on another and hopefully final one in October or November, if the macroeconomy remains resilient and if inflation is making insufficient progress lower. The September meeting would be Lowe's last meeting as governor, as the new Governor, Michele Bullock, will take over from 18 September. It would be a nice handover gift if the tightening were largely completed before she takes the helm. 
Rates Reversal: US Long Yields on the Rise as Curve Dis-Inverts

German Exports Stuck in Stagnation Despite Post-Lockdown Period

ING Economics ING Economics 03.08.2023 10:15
German exports still stuck in stagnation After the post-lockdown volatility, German exports have entered a new phase. A phase of stagnation.   German exports remain sluggish. After the severe March plunge and a minor rebound in April, exports continue to lack momentum and are currently stuck in stagnation. In June, exports increased by 0.1% month-on-month (from a slightly upwardly revised +0.1 MoM in May). On the year, exports were down by almost 2%. Don’t forget that this is in nominal terms and not corrected for high inflation. With imports decreasing by 3.4% MoM, from 1.4% MoM in May, the trade balance widened to €18.7bn.   Stuck in stagnation From last summer until the start of this year, German exports had been extremely volatile. For a couple of months now, the volatility has gone and exports - like the entire economy - have fallen into stagnation, basically going nowhere. As a result, trade is no longer the strong resilient growth driver of the German economy that it used to be, but rather a drag. Supply chain frictions, a more fragmented global economy and China increasingly being able to produce goods it previously bought from Germany, are all factors weighing on German exports. In the first half of the year, the share of German exports to China dropped to 6% of total exports, from almost 8% before the pandemic. At the same time, however, Germany’s import dependence on China remains high as the energy transition is currently impossible without Chinese raw materials or solar panels. The collapse of export order books since the start of the year suggests a further weakening of exports in the very near term. The expected slowdown of the US economy (which accounts for roughly 10% of total German exports), still high inflation and high uncertainty will also leave their marks on German exports. One of the few silver linings for German exports remains the Central and Eastern European countries, which currently account for more than 11% of total German exports. All in all, today’s export numbers confirm the picture painted by last week's initial GDP growth estimate: the German economy remains stuck in stagnation.
Market Reaction to Eurozone Inflation Report: Euro Steady as Data Leaves Impact Limited

Dangerous Complacency Amidst Eurozone's Economic Resilience: ECB Tightening and USD Strength

InstaForex Analysis InstaForex Analysis 08.08.2023 12:05
The resilience of the eurozone's economy breeds complacency. This is an extremely dangerous feeling given the ongoing monetary policy tightening by the European Central Bank, which is in effect with a time lag. According to Bloomberg's research, a 425 bps increase in the interest rate since the beginning of the cycle will harm the currency bloc's GDP by 3.8%. Taking into account the negative impact of the energy crisis and the withdrawal of fiscal stimulus measures, this figure will rise to 5%. It's no wonder that members of the Governing Council are starting to doubt whether monetary tightening should be continued in September, and EUR/USD is falling.     In reality, most investors, according to ING's opinion, still believe that the euro will rise against the US dollar by the end of the year. Bloomberg's expert consensus on the main currency pair stands at 1.12. Moreover, the corrections of 5% in February, 4% in May, and 3% in July-August in EUR/USD indicate the strength of the uptrend. It is becoming more challenging for the bears to push the quotes lower. However, expectations are one thing, and reality is another.   Strengthening the euro requires an improvement in the health of the global economy. Then procyclical currencies will become the favorites. Unfortunately, this is not happening at the moment. Meanwhile, the strength of the US labor market makes the Federal Reserve keep its finger on the pulse. FOMC official Michelle Bowman believes that the central bank will need to raise the federal funds rate from 5.5% to 5.75%. The US dollar is supported by a favorable external backdrop, such as rising bond yields due to massive Treasury issuances, credit rating downgrades by Fitch, and the start of the normalization of the Bank of Japan's monetary policy.   At the same time, there is a pullback in stock markets that have been surging for five consecutive months. The worsening global risk appetite is a powerful driver of EUR/USD's decline. In this scenario, investors' demand for the dollar as a safe-haven asset increases. The bears have one more trump card up their sleeve.   Despite the stability of the US economy, the business cycle has not been canceled. 67% of investors-respondents of MLIV PULSE believe that by the end of 2024 a recession will hit the US. Moreover, 20% of those polled predict a recession already in the current year. It's as if they don't believe the Fed, which no longer considers a downturn scenario in 2023.       Thus, the euro is currently not living up to expectations, and the weakness of the eurozone's economy could lead to a premature end to the cycle of monetary tightening by the ECB. On the contrary, the US dollar is in demand among investors due to the strength of the US economy, its safe-haven status, and the rally in Treasury bond yields.   Technically, on the daily chart of EUR/USD, the Three Indians pattern continues to unfold. We successfully utilized the retracement by shorting on the bounce from the resistance at 1.1035. We are holding the position and raising it on a breakthrough below the support level at 1.0965    
EUR: Stagflation Returns Amid Weaker Growth and Sticky Inflation

US Inflation Takes Center Stage: Expectations and Impact on Markets

Ipek Ozkardeskaya Ipek Ozkardeskaya 10.08.2023 09:10
All eyes on US inflation!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   US equities fell, while yields pushed higher in the run up to today's most important US inflation data. Inflation in the U.S. is expected to have rebounded from 3 to 3.3% in July and core inflation may have steadied at around 4.8%. Any bad surprise on the inflation front could revive the Federal Reserve hawks, but we are far from pricing another hike in September just yet; activity on Fed funds futures assesses more than 85% chance for pause in September FOMC meeting. Rising oil, crop and rice prices are the major upside risks, while potential downside pressure on shelter could counter higher raw material prices. According to a latest publication from SF Fed shelter prices could see significant disinflation or deflation in the months ahead. They wrote that their 'baseline forecast suggests that year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024', and that we could see 'the most severe contraction in shelter inflation since the Global Financial Crisis of 2007-09'.  The idea of further Fed hikes is not helping sentiment in bond markets, especially since Fitch downgraded the U.S. credit rating from AAA to AA+. That's bad news for two reasons. First a lower credit rating means that the US should compensate for the higher risk investors take while buying the US government bonds so it's an additional upside pressure on yields. And combined to Fed hikes, the US interest payments will become an increasingly growing burden. In numbers, the US spends $1.8 bn interest payments every day. According to Peter Peterson foundation this number will double in the next decade and interest payments will become the fastest growing part of the federal budget. And if that's not enough, Moody's downgraded credit ratings for 10 small and midsize US banks, citing higher funding costs, potential regulatory capital weaknesses and risks tied to commercial real estate loans. And speaking of banks, Italian banks also sold off earlier this week on news of a new windfall tax. The latter triggered some risk averse inflows into bonds until Italy issued a clarification of its new tax on banks' windfall profits, saying that the impact may be limited for some banks and the levy won't exceed 0.1% of a firm's assets. Banks that have already increased the interest rates they offer to depositors 'will not have a significant impact as a consequence of the rule approved yesterday'. Phew....  The U.S. 2-year yield rebounded past 4.80%, while the 10-year yield is back to around%, after a spike to 4.20% on Fitch downgrade.  Troubled China  Chinese indices are up and down. Up, thanks to measures that the Chinese government announced to support the economy, down because of plunging export/import, deflation worries following another round of soft trade, CPI and PPI numbers since the start of the week, and the jitters that the US could limit investments to China. One interesting point is that the Chinese stock market shows decorrelation from the stock markets of developed countries. KraneShares CSI China Internet ETF saw $342.23 million inflows last week, the biggest weekly inflow in 14 months. Yet impressive growth numbers are probably not in China's near future as the population is shrinking, the real estate crisis fuels the local debt crisis with Country Garden's potential default on its debt now making the headlines, investor and consumer confidence in Chinese government will take time to be restored, and further restrictions of US investments in China, especially in cutting-edge sectors like AI and quantum computing could further dampen appetite.   
Key Economic Events and Corporate Earnings Reports for the Week Ahead – September 5-9, 2023

Inflation Dynamics: New Zealand Expectations Rise, China's Slump Continues

Kenny Fisher Kenny Fisher 10.08.2023 09:34
New Zealand inflation expectations rise to 2.83% China’s inflation decreases for the first time since February 2021 The New Zealand dollar is showing limited movement on Wednesday, trading at 0.6060 in the European session. New Zealand inflation expectations nudge higher to 2.83% Like most major central banks, the Reserve Bank of New Zealand has been waging a long and tough battle against inflation by raising interest rates. CPI fell to 6.0% in the second quarter, down from 6.7%. That’s certainly good news, but let’s remember that inflation is still rising sharply and is much higher than the RBNZ’s 2% target. The central bank is also concerned about inflation expectations, which can become embedded when inflation is high and translate into even higher inflation. Wednesday’s 2-year inflation expectations release showed a rise to 2.83% in the third quarter, up from 2.79% in the second quarter. One-year inflation expectations fell to 4.17% in Q3, down from 4.17% in Q2. The data indicates that inflation expectations remain high, and that perception could make the life of policy makers more difficult in the fight to bring down inflation. The RBNZ has a long way to go before inflation falls to the 2% target, and that will likely mean further rate hikes unless inflation levels fall sharply. The RBNZ held rates at 5 .50% in July and meets next on August 16th.   China is experiencing a bumpy recovery, and that is bad news for the global economy. Commodity currencies such as the New Zealand dollar are sensitive to Chinese economic releases and a soft Chinese trade release on Tuesday sent NZD/USD lower by as much as 80 basis points. The bad news continued on Wednesday as China’s CPI for July declined by 0.3% y/y, down from 0.0% in June and just above the consensus estimate of -0.4%. This marked the first decrease in CPI since February 2021 and points to weakness in the Chinese economy, which will likely mean less demand for New Zealand exports, a negative scenario for the New Zealand dollar.   NZD/USD Technical NZD/USD continues to put pressure on support at 0.6031. Below, there is support at 0.5964 0.6129 and 0.6196 are the next resistance lines  
BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

BRICS Summit's Expansion Discussion: Impact on De-dollarisation Speed

ING Economics ING Economics 17.08.2023 09:20
Would a larger bloc mean faster de-dollarisation? The BRICS grouping of major emerging economies, Brazil, India, China, South Africa and Russia, is holding its fifteenth summit later this month. Up for discussion: an expansion of the bloc, greater use of local currencies and the possibility of a BRICS currency which may have the potential to challenge the dominance of the US dollar. Any expansion of the BRICS grouping could determine the speed with which the bloc adopts commercial and financial systems outside of the dollar sphere. Speculation is rife as to how many countries, if any, will join the club – for the first expansion in a decade.   In order to evaluate how the political ambitions correlate with underlying economic trends, we take a closer look at the overall evolution of the US dollar’s role in the various areas of the global economy and markets. Here are the observations so far: There has been a drop in the dollar’s share of central banks’ FX reserves, but dollar usage has held up very well in commerce, private assets, debt issuance, and generally on the global FX market. Among the potential dollar challengers, the euro may seem like a runner-up, but its dominance is seen only in Europe. Looking at the BRICS, China’s amplification of renminbi swap lines seems to have helped promote the use of its currency in trade and international reserves, and Russia’s geopolitical aversion to the dollar gave CNY an additional boost, but China’s capital controls and low issuance of panda bonds remain an obstacle. The rising usage of alternative currencies does not seem to be threatening the dollar but rather increasing the competition among the regional currencies amid fragmentation of the trade and capital flows. No currency has made any inroad to the dollar’s pre-eminent status as the issuance currency of choice. Having been a major factor in removing sterling’s crown last century, challenging the dollar’s status in the international debt market has to be a central strategy for the young pretenders.     Overall, we do not see any conclusive evidence that the dollar is on the path of structural decline at this point. However, it is still facing challenges, stemming from both economics and geopolitics.
US August CPI: Impact on USD/JPY and Trading Strategies

China's Less-Than-Expected Key Loan Rate Cut Amplifies Market Concerns

Michael Hewson Michael Hewson 21.08.2023 09:56
06:10BST Monday 21st August 2023 China cuts key loan rate by less than expected  By Michael Hewson (Chief Market Analyst at CMC Markets UK)     The last 3 weeks haven't been good ones for markets in Europe, with the FTSE100 bearing the brunt of recent weakness posting its worst daily run of losses since October last year, as well as revisiting its March lows last week. The DAX has fared little better, revisiting the lows in July, as weakness in Asia markets, and China especially, pushed the Hang Seng down 5.89% and into bear market territory, as concerns over China's economy, the solvency of its real estate sector, and any risks of contagion into its financial system.   These concerns were amplified last week after Chinese asset manager Zhonghzi missed a coupon payment, as investors increasingly looked towards possible measures from Chinese authorities to support the economy and their financial system. Thus far we've seen little significant indication of support apart from some modest rate cuts or stimulus at a time when the economy is teetering in deflation, as well as a distinct lack of domestic demand.   This morning China did announce that they were cutting their one-year lending rate by 10bps to 3.45%, however they left their 5-year loan rate unchanged at 4.20%, having cut the medium-term loan rate last week. Unsurprisingly markets were less than impressed by this move, expecting authorities to be much more forceful. This lack of urgency has weighed on Asia markets and is unlikely to spark demand in an economy where loan demand appears to be low anyway. In the UK, the latest Rightmove House price survey saw asking prices cut by 1.9% in August the biggest decline this year as higher mortgage rates weighed on demand for houses. The prospect of another rate hike next month is also likely to be affecting confidence, although the fact we are in August, and in the middle of the school holidays probably also has a part to play.   US markets, which until recently had proved to be much more resilient have also succumbed to the recent weakness in equity markets, also sliding for the third week in succession, with both the S&P500 and Nasdaq 100 breaking below their respective 50-day SMA's in a sign that further losses could be on the way.   The weakness in US markets is altogether being driven by a different concern, namely that of higher interest rates for longer as the US economy, which continues to defy expectations of an economic slowdown, sees Fed policymakers push the prospect of more rate hikes in the coming months, pushing up long term yields to multiyear highs in the process, as the prospect of rate cuts gets pushed even further into the future. With that the main investors focus has become less on how high rates might go, and more on how long they will stay there.     This week is likely to see investor attention on the Jackson Hole Symposium where the topic up for discussion is "Structural Shifts in the Global Economy" This will be closely scrutinised for evidence that we might see a rate pause next month when the Federal Reserve next meets to decide on monetary policy.       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. His tone this week is unlikely to be anywhere near as hawkish, although he will also be reluctant to declare inflation victory either. It is clear that the Fed believes the fight against inflation is far from over, and in that context it's unlikely he will deliver any dovish surprises       EUR/USD – still looking soft with the main support area at the 1.0830 area. Still feels range bound with resistance at the 1.1030 area. Below 1.0830 targets the 200-day SMA.     GBP/USD – while above the twin support areas at 1.2610/20 bias remains for a move through the 1.2800 area, and on towards 1.3000. A break below 1.2600 targets 1.2400.        EUR/GBP – finding support for now 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 – continues to edge higher, towards the 147.50 area. Below the 144.80 area, targets a move back to the 143.10 area.       FTSE100 is expected to open 10 points higher at 7,272     DAX is expected to open 15 points higher at 15,589     CAC40 is expected to open 10 points higher at 7,174  
Positive Start Expected as Nvidia's Strong Performance Boosts Market Confidence

BRICS Summit Focuses on Bolstering Trade and Currency Cooperation Amid Yuan's Weakening

Kenny Fisher Kenny Fisher 23.08.2023 11:05
Xi meets Ramaphosa and discuss how to bolster trade in their own currencies Yuan still weakens despite PBOC’s most forceful fixing on record BRICS might lead to more investment in Africa, potentially bolstering rand   The annual BRICS Summit begins in Johannesburg with China’s President Xi meeting South African President Ramaphosa.  China and India have enjoyed 25 years of diplomatic ties and are looking to bolster trade and investment with more countries.  The three-day summit will be attended by leaders of China, India, Brazil and South Africa, as well as 30 African leaders. Russian President Putin will be participating via video conference as he has an international arrest over alleged war crimes in Ukraine.  Russian Foreign Minister Lavrov will represent Russia at the summit. BRIC nations make up a quarter of the global economy, so their voice will clearly be listened to, especially if they expand.  So far, 22 other countries have formally applied to join the bloc, but it seems difficult for the institution given they do not have a BRICS currency that can challenge the dollar.  The current members have lots of challenges to go all-in with de-dollarization and embrace a BRICS currency.  India does not want a China-led initiative. Given all the sanctions Russia is facing, they have billions of rupees that are stranded. There is no easy solution that can address all the problems facing the key members, which means they will take small steps, which include expanding use of a development bank to help with lending.   5-year USD/CNH, USD/INR, and USD/BRL The 5-five year chart above shows how robust the dollar has been against the yuan and rupee in 2023, with Brazil and their attractive interest differential being the one standout.  Alternatives to the dollar in trade will grow, but for now the big risk is the great refinancing that will occur over the next year could lead to extreme turmoil for emerging markets and that might keep the dollar supported against most of the BRIC currencies. The weekly USD/CNH and USD/INR chart below exemplifies how overbought this dollar trade has become.  There is a lot of macro risk on the table this week and FX markets could see either a strong extension of dollar strength or a major pullback.    
Persistent Stagnation: German Economy Confirms Second Quarter Contraction

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

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

Oil Prices React to Economic Uncertainty Amid Ongoing Supply Cuts

Kenny Fisher Kenny Fisher 28.08.2023 09:19
Investors becoming wary about the economic outlook Supply cuts remain supportive Head and shoulders neckline provides support Oil prices recovered a little toward the back end of the week after coming under some pressure this month. Supply cuts from OPEC+ continue to support the market but uncertainty over the global economic outlook – sluggish recovery in China, possible recession in the US and Europe – are weighing a little.  Recent economic data has not been encouraging and central banks are maintaining their hawkish positioning which could compound that pressure further going into the end of the year. But with supply cuts continuing to be extended, particularly the voluntary monthly reductions from Saudi Arabia and Russia, the market is being supported, perhaps in a new higher trading range above $80 in Brent.     A major area of support Brent crude ran into support over the last couple of days in a very interesting area, around $82.50, a break of which could have sent a very bearish signal.   This area coincides with support from earlier this month as well as the 200/233-day simple moving average band which it only broke back above a month ago for the first time since August last year. A rebound off here could be viewed as confirmation of the initial breakout. A move below would not only have sent a bearish signal, it would also have triggered the break of the neckline of a suspected head and shoulder pattern which could have been quite significant.     
Oil Prices Find Stability within New Range Amid Market Factors

Oil Prices Find Stability within New Range Amid Market Factors

Craig Erlam Craig Erlam 30.08.2023 10:11
Oil prices stabilize after establishing a new range Hurricane season may have a greater influence amid tight market Head and shoulder neckline remains intact   Oil prices appear to be stabilizing around the middle of their new higher range, in the aftermath of OPEC+ cuts (voluntary Russia and Saudi in particular). Brent crude currently sits a little shy of $85 after rebounding higher off $82 last week and peaking just above $88 earlier this month. There remains considerable uncertainty around the outlook for the global economy, from China’s sluggish rebound to interest rates and possible recessions elsewhere. But on the supply side, major producers appear committed to ensuring the market remains tight and prices higher. They had little success earlier in the summer but that is no longer the case and the market is now vulnerable to spikes on the back of surprise outages and hurricane-related issues in the US.     The failure to break the neckline of the head and shoulders last week suggests there’s plenty of support for Brent following on from what was a potentially very bullish move just a month ago.   The break above the 200/233-day simple moving average band was the first time in almost a year that the price had traded above it. Whether that is now failing or the price is naturally stabilizing having been heavily manipulated on the supply side, only time will tell. If it had in fact turned bearish, the neckline may have fallen, at which point we could have seen a decent corrective move, based on the size of the pattern. Instead, it’s edging higher and a move above the right shoulder could be seen to weaken or break the pattern altogether.  
UK PMI Weakness Supports Pause in Bank of England's Tightening Cycle

China's Economic Pulse: Continued Downbeat Signals in PMIs Amidst Mixed Recovery

ING Economics ING Economics 31.08.2023 10:22
China PMIs remain downbeat A further slowdown in the service sector recovery coupled with a slight moderation in manufacturing contraction does not amount to any meaningful improvement to the overall economic backdrop.   Mixed news - but no real improvement in total The latest official PMI data were not uniformly bad. The manufacturing index actually rose slightly, to 49.7, and this is the third consecutive increase since the May trough of 48.8. But it remains below the 50-level that is associated with expansion, and so merely represents a moderation in the rate of decline. That may be of some comfort to those of a sunny disposition.  The non-manufacturing series, which had reflected the bulk of the post-re-opening recovery, fell further in August. The index of 51.0 was a little lower than the forecast figures (51.2) but it is at least still slightly above contraction territory.   China official PMIs (50 = threshold for expansion / contraction)   Brighter signs in manufacturing Looking at the components underlying both series and starting with the manufacturing series: the latest data show an improvement in production to a point which actually points to expansion. That has to be tempered by the forward-looking elements of orders. Here, the data is mixed. Total orders have improved to hit the 50 threshold signalling that contraction has ended. This must be mainly domestic orders, as the export orders series remains bombed out. But that at least provides some encouragement about the near-term outlook.    Manufacturing PMI components   Outlook for service sector remains negative The forward-looking elements of the service sector PMI index remain in contraction territory, unlike their manufacturing counterparts, and that suggests that the headline index has probably not yet troughed and will fall further. A glimmer of hope may be in the export series, which, while clearly continuing to signal contraction, did fractionally rise this month.  Overall, though, both series seem to be converging on a point close to 50 consistent with an economy that is neither expanding nor contracting. Things could be worse. But markets are not likely to take too much comfort from this set of data.      Non-manufacturing PMI sub-components
Summer's End: An Anxious Outlook for the Global Economy

Summer's End: An Anxious Outlook for the Global Economy

ING Economics ING Economics 01.09.2023 08:48
Remember that 'back to school' feeling at the end of summer? A tedious car journey home after holiday fun, knowing you'll be picking up where you left off? I'm afraid we've got a very similar feeling about the global economy right now. 'Are we nearly there yet?'. No.  Very few reasons to be cheerful Lana del Rey's Summertime Sadness classic comes to mind as we gear up for autumn. And I'm not just talking about chaotic weather or even, in my case, disappointing macro data. Most of us have had the chance to recharge and rethink over the past couple of months. and I'm afraid all that R&R has done little to brighten our mood as to where the world's economy is right now. Sure, the US economy has been holding up better than we thought. And yes, the eurozone economy grew again in the second quarter. Gradually retreating headline inflation should at least lower the burden on disposable incomes. And let's be thankful for the build-up of national gas reserves in Europe, which should allow us to avoid an energy supply crisis this winter unless things turn truly arctic. But that's about as upbeat as I can get. We still predict very subdued growth to recessions in many economies for the second half of the year and the start of 2024. The stuttering of the Chinese economy seems to be more than only a temporary blip; it seems to be transitioning towards a weaker growth path as the real estate sector, high debt and the ‘de-risking’ strategy of the EU and the US all continue to weigh on the country's growth outlook. In the US, the big question is whether the economy is resilient enough to absorb yet another potential risk factor. After spring's banking turmoil, the debt ceiling excitement, and more generally, the impact of higher Fed rates, the next big thing is the resumption of student loan repayments, starting in September. Together with the delayed impact of all the other drag factors, these repayments should finally push the US economy into recession at the start of next year. And then there's Europe. Despite the weather turmoil, the summer holiday season seems to have been the last hurrah for services and domestic demand in the eurozone. Judging from the latest disappointing confidence indicators, the bloc's economy looks set to fall back into anaemic growth once again.   Little late summer warmth This downbeat growth story does have an upbeat consequence; inflationary pressure should ease further. It's probably not going to be enough to bring inflation rates back to central banks’ targets, but they should be low enough to see the peak in policy rate hikes. Central bankers would be crazy to call an end to those hikes officially; they don't want to add to speculation about when the first cuts might come, thereby pushing the yield further into inversion. And there's also the credibility issue - you never know, prices might start to accelerate again. So, expect major central bankers to remain hawkish at least until the end of the year. In our base case, we have no further rate hikes from the US Federal Reserve and one final rate rise by the European Central Bank. However, in both cases, these are very close calls, and the next central bank meetings are truly data-dependent. Sometimes, a Golden Fall or Indian Summer can make up for any summertime sadness. But it doesn’t look as if the global economy will be basking in any sort of warmth in the coming weeks. The bells are indeed ringing loud and clear. Vacation's over; school is here. And while I'm certainly too old for such lessons, I'm taken back to that gloomy, somewhat anxious feeling I had as a kid as summer wanes and the hard work must begin once again.      
Summer 2023: A Cool Down on the Inflation Front and Implications for Fed Policy

Metals and the Green Transition: Supply Chain Vulnerabilities and Geopolitical Risks

ING Economics ING Economics 01.09.2023 08:53
Metals and global supply chain vulnerabilities Metals are another obvious vulnerability in the global economy, particularly those linked to the green transition. Scarcity due to a lack of production capacity and/or geopolitics are important risks. The challenges in scaling up the production of electric vehicle batteries are a good example, as we highlighted in a recent report. Nickel-based batteries, currently favoured for their superior driving range, not only face constraints from long lead times on new mining development, but 20% of high-grade nickel, the type used in batteries, is sourced from Russia, and trade restrictions are also a key risk for supply. Supply chains of alternative battery technologies – lithium iron phosphate (LFP) and sodium iron (Na-ion) – are almost entirely reliant on China. Geopolitics is clearly a risk here too. That battery story can be expanded to other metals associated with the green transition. While lithium and nickel are the most exposed to critical supply risks, according to analysis by the US Department for Energy (chart below), plenty of others are seen as near-critical. Those include aluminium, where more than 80% of inventory on the London Metals Exchange is Russian material. Meanwhile copper prices – currently dampened by China’s weak recovery – are more likely to rise in the longer term, in part owing to a lack of investment in mining facilities in South America.     Against this backdrop, near-shoring (or “friend-shoring”) will undoubtedly rise – though it’s early days and evidence of companies exiting the likes of China in favour of alternatives is mixed. Green industrial policy, like the US Inflation Reduction Act, is also beginning to reshape supply chains at the margin. Near-shoring is likely to be a slow-moving ship, but ultimately, if firms are trading lower costs for greater resilience, that’s likely to be inflationary. A recent ECB working paper concludes that re-shoring increases the price level for both producers and consumers, particularly in trade-intensive manufacturing. Is any of this capable of pushing inflation to the sorts of levels seen in 2022? Perhaps not. However, the glut of new vehicles and the resulting demand for used cars alone succeeded in adding more than a percentage point to US CPI in 2021. That showed that disruption for key products is capable of generating sizable upward inflation moves.        
Germany's Economic Challenges: The 'Sick Man of Europe' Debate and Urgent Reform Needs

Germany's Economic Challenges: The 'Sick Man of Europe' Debate and Urgent Reform Needs

ING Economics ING Economics 01.09.2023 09:49
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.    
Summer's End: Gloomy Outlook for Global Economy

Summer's End: Gloomy Outlook for Global Economy

ING Economics ING Economics 01.09.2023 10:08
Remember that 'back to school' feeling at the end of summer? A tedious car journey home after holiday fun, knowing you'll be picking up where you left off? I'm afraid we've got a very similar feeling about the global economy right now. 'Are we nearly there yet?'. No. Very few reasons to be cheerful Lana del Rey's Summertime Sadness classic comes to mind as we gear up for autumn. And I'm not just talking about chaotic weather or even, in my case, disappointing macro data. Most of us have had the chance to recharge and rethink over the past couple of months. and I'm afraid all that R&R has done little to brighten our mood as to where the world's economy is right now. Sure, the US economy has been holding up better than we thought. And yes, the eurozone economy grew again in the second quarter. Gradually retreating headline inflation should at least lower the burden on disposable incomes. And let's be thankful for the build-up of national gas reserves in Europe, which should allow us to avoid an energy supply crisis this winter unless things turn truly arctic. But that's about as upbeat as I can get. We still predict very subdued growth to recessions in many economies for the second half of the year and the start of 2024. The stuttering of the Chinese economy seems to be more than only a temporary blip; it seems to be transitioning towards a weaker growth path as the real estate sector, high debt and the ‘de-risking’ strategy of the EU and the US all continue to weigh on the country's growth outlook. In the US, the big question is whether the economy is resilient enough to absorb yet another potential risk factor. After spring's banking turmoil, the debt ceiling excitement, and more generally, the impact of higher Fed rates, the next big thing is the resumption of student loan repayments, starting in September. Together with the delayed impact of all the other drag factors, these repayments should finally push the US economy into recession at the start of next year. And then there's Europe. Despite the weather turmoil, the summer holiday season seems to have been the last hurrah for services and domestic demand in the eurozone. Judging from the latest disappointing confidence indicators, the bloc's economy looks set to fall back into anaemic growth once again   Little late summer warmth This downbeat growth story does have an upbeat consequence; inflationary pressure should ease further. It's probably not going to be enough to bring inflation rates back to central banks’ targets, but they should be low enough to see the peak in policy rate hikes. Central bankers would be crazy to call an end to those hikes officially; they don't want to add to speculation about when the first cuts might come, thereby pushing the yield further into inversion. And there's also the credibility issue - you never know, prices might start to accelerate again. So, expect major central bankers to remain hawkish at least until the end of the year. In our base case, we have no further rate hikes from the US Federal Reserve and one final rate rise by the European Central Bank.   However, in both cases, these are very close calls, and the next central bank meetings are truly data-dependent. Sometimes, a Golden Fall or Indian Summer can make up for any summertime sadness. But it doesn’t look as if the global economy will be basking in any sort of warmth in the coming weeks. The bells are indeed ringing loud and clear. Vacation's over; school is here. And while I'm certainly too old for such lessons, I'm taken back to that gloomy, somewhat anxious feeling I had as a kid as summer wanes and the hard work must begin once again.   Our key calls this month: • United States: The US confounded 2023 recession expectations, but with loan delinquencies on the rise, savings being exhausted, credit access curtailed and student loan repayments restarting, financial stress will increase. We continue to forecast the Federal Reserve will not carry through with the final threatened interest rate rise. • Eurozone: The third quarter may still be saved by tourism in the eurozone, but the latest data points to a more pronounced slowdown in the coming months. Inflation is falling, but a last interest rate hike in September is not yet off the table. The European Central Bank will be hesitant to loosen significantly in 2024. • China: The latest activity data has worsened across nearly every component. Markets have given up looking for fiscal stimulus, and have started making comparisons with 1990s Japan. We don’t agree with the Japanification hypothesis, but clearly a substantial adjustment is underway, and we have trimmed our growth forecasts accordingly. • United Kingdom: Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. • Central and Eastern Europe (CEE): Economic activity in the first half of the year has been disappointing, leading us to expect a gloomier full-year outlook. Despite this, we see a divergence in economic policy responses, driven by countryspecific challenges. • Commodities: Oil prices have strengthened over the summer as fundamentals tighten, whilst natural gas prices have been volatile, with potential strike action in Australia leading to LNG supply uncertainty. Chinese concerns are weighing on metals, but grain markets appear more relaxed despite the collapse of the Black Sea deal. • Market rates: The path of least resistance is for longer tenor rates to remain under upward pressure in the US and the eurozone and for curves to remain under disinversion (steepening) pressure. We remain bearish on bonds and anticipate further upward pressure on market rates from a tactical view. • FX: Stubborn resilience in US activity data and risk-off waves from China have translated into a strengthening of the dollar over the summer. We still think this won’t last much longer and see Fed cuts from early 2024 paving the way for EUR:USD real rate convergence. Admittedly, downside risks to our EUR/USD bullish view have grown.     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.
Turbulent FX Markets: Peso Strength, Renminbi Weakness, and Dollar's Delicate Balance

Turbulent FX Markets: Peso Strength, Renminbi Weakness, and Dollar's Delicate Balance

ING Economics ING Economics 01.09.2023 10:28
FX Daily: Peso too strong, renminbi too weak, dollar just right FX markets await today's release of the August US jobs report to see if we've reached any tipping point in the labour market. Probably not. And it is still a little too early to expect the dollar to embark on a sustained downtrend. Elsewhere, policymakers in emerging markets are addressing currencies that are too weak (China) and too strong (Mexico).   USD: The market seems to be bracing for soft nonfarm payrolls data Today's focus will be the August nonfarm payrolls jobs release. The consensus expects around a +170k increase on headline jobs gains, although the "whisper" numbers are seemingly nearer the +150k mark. Importantly, very few expect much change in the 3.5% unemployment rate. This remains on its cycle lows, continues to support strong US consumption, and keeps the Fed on its hawkish guard. We will also see the release of average hourly earnings for August, which are expected to moderate to 0.3% month-on-month from 0.4%. As ING's US economist James Knightley notes in recent releases on the US economy and yesterday's US data, there are reasons to believe that strong US consumption cannot roll over into the fourth quarter and that a recession is more likely delayed than avoided. But this looks like a story for the fourth quarter. Unless we see some kind of sharp spike higher in unemployment today, we would expect investors to remain comfortable holding their 5.3% yielding dollars into the long US weekend. That is not to say the dollar needs to rally much, just that the incentives to sell are not here at present. If the dollar is at some kind of comfortable level, policy tweaks in the emerging market space over the last 24 hours show Beijing trying to fight renminbi weakness and Mexico City trying to fight peso strength (more on that below). We suspect these will be long, drawn-out battles with the market. DXY can probably stay bid towards the top of a 103-104 range.
Portugal's Growing Reliance on Retail Debt as a Funding Source and Upcoming Market Events"

Metals Surge on China's Property Sector Stimulus and Positive Economic Data

ING Economics ING Economics 01.09.2023 10:59
Metals – Fresh stimulus from China for the property sector Base metals prices extended this week’s gains this morning as healthy economic data and fresh stimulus measures in China buoyed sentiment. Caixin manufacturing PMI in China increased to 51 in August compared to 49.2 in July; the market was expecting the PMI to remain around 49. This is the strongest manufacturing PMI number since February. Meanwhile, Beijing has announced fresh stimulus measures aimed at supporting the property sector. The People’s Bank of China has lowered the minimum downpayment for mortgages for both first-time buyers (from 30% to 20%) and second-time buyers (from 40% to 30%) while the minimum interest premium charged over the Loan Prime Rate has also been reduced. China is also allowing customers and banks to renegotiate interest rates on existing housing loans which could reduce interest expenses for borrowers. LME continues to witness an inflow of copper into exchange warehouses. LME copper stocks increased by another 3,675 tonnes yesterday, taking the total inventory to a year-to-date high of 102.9kt. Meanwhile, cancelled warrants for copper remain near zero levels, hinting that there may not be any inventory withdrawals from LME in the short term and total stocks could continue to climb over the coming weeks. Europe witnessed an inflow of 2,700 tonnes yesterday whilst 950 tonnes were added in the Americas and 25 tonnes in Asia. Gold prices have held steady at around US$1,940/oz as the latest economic data from the US eased some pressure on the Federal Reserve to continue with rate hikes. The core PCE (Personal Consumption Expenditure) deflator in the US increased at a flat 0.2% month-on-month in July, the second consecutive month at 0.2% which should help the Fed in getting inflation back on track to around 2%. On the other hand, data from Europe was not that supportive with core CPI falling gradually from 5.5% to 5.3% and CPI estimates remaining flat at 5.3%. The focus is now turning to today’s US non-farm jobs report which is expected to show a smaller rise in payrolls in August.
Gold Prices Show Signs of Recovery, Key Levels to Watch

German Exports Decline in July, Raising Concerns of Economic Contraction

ING Economics ING Economics 04.09.2023 10:51
German exports disappoint in July Disappointing export and retail sales data shows that the German economy started the third quarter on a weak footing. The risk of falling back into contraction remains high. Going down again. German exports disappointed again and dropped by 0.9% month-on-month in July, from +0.2% MoM in June. At the same time, imports increased by 1.4% MoM, from -3.2% MoM in June. As a consequence, the trade balance narrowed to 15.9bn euro, from 18.7bn euro in June. Don’t forget that this is in nominal terms and not corrected for high inflation.   Risk of falling back into contraction remains high From last summer until the start of this year, German exports had been extremely volatile. Since then, exports have fallen into stagnation and are basically going nowhere. As a result, trade is no longer the strong resilient growth driver of the German economy that it used to be, but rather a drag. Since the start of 2022, net exports have been a drag on the economy in four out of six quarters. Supply chain frictions, a more fragmented global economy and China increasingly being able to produce goods it previously bought from Germany, are all factors weighing on the German export sector. With last week’s drop in retail sales and today’s disappointing export data, the third quarter for the German economy has started on a very weak footing, suggesting that the risk of sliding back into contraction remains high
Moody's Decision on Hungary's Rating: Balancing Risks or False Security?

Moody's Decision on Hungary's Rating: Balancing Risks or False Security?

ING Economics ING Economics 04.09.2023 15:39
Moody's latest decision on Hungary gives false sense of security Moody’s decision to affirm Hungary’s Baa2 rating with a stable outlook came as a positive surprise. However, we are not entirely comfortable with their argument, particularly the balanced risk assessment, which could lead decision-makers to become complacent.   On 1 September, Moody's affirmed Hungary's rating at Baa2 with a stable outlook. The stable outlook indicates that the risks are balanced, but we disagree, as we believe the risks are tilted to the downside, hence our earlier expectation of a downgrade to the outlook. In our view, the recent decision provides a false sense of security and may lead policymakers to become complacent at a time when growth prospects are deteriorating, and fiscal problems are mounting. These risks have led us to be more downbeat overall. The rating agency highlighted in its statement that it expects Hungarian GDP to stagnate this year. Given the economic performance in the first half of 2023, this would require GDP to grow by at least 1.9% quarter-on-quarter in both the third and fourth quarters, which we consider highly unlikely. The last time we saw such a solid performance was in late 2021 and early 2022. But back then, growth was fuelled by positive real wage growth, supportive monetary policy, very accommodative fiscal policy and, of course, some Covid rebound dynamics. Before the Covid-rebound period, such a sequence of strong growth had never happened. Although we expect the economy to perform better in the second half of the year, we are concerned that the hole dug in the first half of the year is too deep to climb out of quickly. In this regard, we have downgraded our full-year GDP forecast from 0.2% to -0.5% year-on-year, as we now see a recession in 2023.   CDS and sovereign credit rating (Moody's)   As for the nominal growth outlook, the GDP deflator is around 8% based on the first-half data, while the government had planned for 15% for the year combined with a 1.5% real GDP growth. Although the GDP deflator will definitely rise in the second half of the year (based on seasonal patterns), we believe that the risk of not reaching 15% is non-negligible. On top of that, as we mentioned earlier, real wage growth will be negative this year, in our view.   And nominal growth matters a lot when it comes to fiscal measures where the nominal GDP is the denominator, like in the deficit-to-GDP and in the debt-to-GDP ratios. The latter reached 75% at the end of the second quarter, which is 5.3 percentage points higher than the government's 2023 target in the latest Convergence Programme. With further weakness in the nominal GDP, the goal to reduce the debt-to-GDP ratio is getting harder, especially with the recent slippage in the deficit. In addition, the Hungarian government has not given up on the acquisition of Budapest Airport, which would be financed by FX bond issuance in our view, and hence would add to the debt burden of the country. Speaking of the budget shortfall, Moody's expects a 0.3ppt increase in this year's deficit target to 4.2% and a 0.6ppt increase in the 2024 target to 3.5% but does not hold the government accountable or flag this as negative. In the wake of the reinstallation of the Excessive Deficit Procedure, admitting that the government will miss the 2024 sub-3% deficit target and being negligent looks interesting. Moreover, like us, they include the scenario of an agreement with the EU but do not highlight this as a very significant risk factor. Moreover, we respectfully disagree with the positive elements listed by Moody's. It cited Hungary's "strong embeddedness in manufacturing" as a positive factor, which seems very odd to us at a time when the global economy is in a manufacturing recession. It also noted that the improvement in the trade and current account balances was due to a much lower dependence on Russian energy sources, which we see as a false interpretation of data. First, Russian energy dependence has not fallen significantly based on import statistics. Second, the improvement in external balances has occurred because domestic demand has collapsed, reducing the need for imports (including energy and non-energy goods), while energy prices are very much lower than last year. And finally, Russian contractor Rosatom started works on the first phase of construction of the new Paks Nuclear Power Plant (Paks II) units in Hungary, which hardly can be seen as a reduction of energy dependency. Taking all these factors into account, we believe that Moody's has underestimated the negative risk impact of economic activity, fiscal policy and geopolitical issues, thereby providing a false sense of security at a time of heightened uncertainty about the country’s short-term general outlook.
Unlocking Japan's AI Potential: Investment Opportunities and Risks

Finance in Flux: UBS's Record-Breaking Profits and Shifting Industry Tides

FXMAG Education FXMAG Education 05.09.2023 12:13
In the ever-evolving world of finance, recent developments have brought about significant changes in the banking sector. From historic profits to a shift away from remote work, these developments are reshaping the industry. Let's explore the key events that are making waves in the financial world.   Historic Profits at UBS One of the standout events in the financial sector is UBS's remarkable Q2 profit of $28.8 billion. This achievement can be largely attributed to the bank's acquisition of Credit Suisse, marking it as a historic milestone. This financial juggernaut's success underscores the importance of strategic acquisitions in the banking industry.   Return-to-Office Initiatives In a noteworthy shift, banks are taking a tougher stance on employees who prefer remote work. The era of widespread remote work, necessitated by the pandemic, is slowly coming to an end. Banks are now urging their staff to return to the office, signaling a return to pre-pandemic work norms. This change carries implications for work culture and the future of office spaces in the banking world.   Carbon Credit Market Uncertainty Confidence in the carbon credit market is waning. Carbon credits have been a vital tool in mitigating climate change, but recent events have raised concerns. As major players step back from the market, questions are being raised about its future effectiveness. The uncertainties surrounding carbon credits could have far-reaching consequences for environmental policies and sustainability efforts.   China's Economic Boost China, a key player in the global economy, is actively taking steps to boost its economic standing and strengthen its currency. As the world watches China's efforts to stimulate its economy, the implications for global markets are significant. The strategies employed by China could influence trade, investment, and currency dynamics on a global scale.   Airline Earnings Under Pressure The airline industry is facing headwinds as earnings outlooks dim. Factors such as rising fuel costs and economic uncertainties are impacting the profitability of airlines. As travelers cautiously return to the skies, airline companies are navigating a complex and challenging landscape.   NYC's Pension CIO Perspective In the realm of investment, the Chief Investment Officer (CIO) of New York City's Pension Fund provides insights into the impact of Wall Street's Environmental, Social, and Governance (ESG) pullback. Despite the recent trend of ESG considerations in investments, NYC's Pension Fund remains resilient, shedding light on the varying responses of institutional investors to ESG factors. The banking and financial sector is undergoing a period of significant transformation. UBS's historic profit, the return-to-office trend, carbon credit market concerns, China's economic endeavors, airline industry challenges, and the nuanced response to ESG factors are all contributing to a dynamic landscape. These developments not only shape the industry but also have broader implications for the global economy. As the financial world continues to evolve, staying informed and adaptable is key to navigating these changes successfully.    
The AI Impact: Markets and the Inflation Surprise - 12.09.2023

From Burning Man to Wall Street: A Week of Unpredictable Twists and Turns

FXMAG Education FXMAG Education 05.09.2023 13:26
In a world where the unpredictable often takes center stage, last week provided no exception. From the surreal landscapes of the Burning Man festival to the bustling stock markets, events unfolded that left people both exhilarated and perplexed. This rollercoaster ride of a week saw stranded festival-goers, restless investors, and soaring airline rankings, all while diamond prices took a dramatic plunge and another Binance executive bid farewell. Let's embark on a journey through the past week's fascinating headlines. Burning Man's Mud-Filled Exodus Thousands of adventurous souls set out for the annual Burning Man festival, eager to immerse themselves in a unique blend of art, music, and self-expression in the arid Nevada desert. However, nature had other plans. A fierce storm swept through the festival grounds, transforming the desert into a mucky quagmire. Festival-goers found themselves stranded in a surreal landscape, battling the elements in a quest to return to civilization. As the desert turned to mud, it was a stark reminder that even the most carefully planned adventures can take an unexpected turn.   Wall Street's Unease Meanwhile, on the bustling streets of Wall Street, investors were grappling with their own set of uncertainties. After a summer rally that saw markets surging to new heights, the fall season brought with it a sense of unease. The latest US jobs report became a focal point, with investors closely analyzing the data for clues about the economy's direction. The Dow led the indices with a 0.33% gain, showcasing its resilience amidst the fluctuations. Asian markets also experienced surges, particularly Hong Kong's HSI, proving that the global financial landscape remains as unpredictable as ever.   Delta's Soaring Success Amidst the turbulence, there was a beacon of success for Delta Airlines. The airline secured its place as the No. 1 domestic carrier in several categories, including on-time arrivals, service quality, and passenger comfort. In an industry often fraught with challenges, Delta's achievement serves as a testament to its dedication to passenger satisfaction and operational excellence.   Xi's G20 Summit Decision On the global stage, Chinese President Xi Jinping made a surprising decision. He opted to skip the upcoming G20 summit in India, instead sending Premier Li Keqiang as the country's representative. This move raised questions and sparked discussions about China's diplomatic strategy and priorities. As the world watches, it's clear that even international politics is not immune to unexpected twists.   Diamonds Lose Their Sparkle In the realm of luxury and glamour, there was a stark contrast as diamond prices experienced a significant and unexpected decline. While diamonds have long been a symbol of wealth and beauty, one key segment of the market saw prices plummet. This shift left industry experts and enthusiasts pondering the reasons behind this sudden change and its potential repercussions.   A Farewell at Binance To add to the week's intrigue, another executive bid farewell to the cryptocurrency exchange giant Binance. This departure is part of a larger trend of key figures leaving the company. Such transitions in the world of cryptocurrency can have far-reaching implications, leaving stakeholders and enthusiasts wondering about the future direction of the industry. In a world filled with surprises, last week's events served as a compelling reminder of the unpredictable nature of life, whether one is reveling in the desert at Burning Man, navigating the turbulent waters of financial markets, or witnessing shifts in global politics and industry dynamics. As we move forward, one thing remains clear: the only constant is change, and embracing the unexpected is the key to navigating the twists and turns that lie ahead.    
Asia Morning Bites: Australia's CPI Inflation Report and Chinese Industrial Profits

In a Defining Move, Bank of Canada Keeps Interest Rates Unchanged Amidst Global Economic Uncertainty

FXMAG Education FXMAG Education 06.09.2023 13:37
In a pivotal decision, the Bank of Canada has chosen to maintain its benchmark interest rate at 5%, opting for stability amidst a backdrop of increasing uncertainty in the global economy. This move underscores the delicate balancing act that central banks worldwide are currently navigating as they seek to foster economic growth while mitigating the persistent threat of inflationary pressures.   At the Heart of the Matter The Bank of Canada's steadfast commitment to keeping interest rates at their current level is emblematic of the institution's concerns regarding the fragility of the global economic recovery. While inflation remains a prevalent worry, policymakers are treading cautiously to avoid the potential adverse consequences of premature rate hikes.   A Global Ripple Effect The Bank of Canada's stance on interest rates carries significant implications that extend well beyond its borders. As one of the world's leading economies, Canada's monetary policy decisions hold the power to influence the strategies adopted by central banks in other nations. Additionally, these decisions reverberate through global financial markets, shaping investor sentiment and influencing asset prices. In a rapidly evolving economic landscape, the Bank of Canada's decision to maintain interest rates provides a snapshot of the nuanced considerations faced by central banks worldwide. As they grapple with uncertainty and attempt to strike a delicate balance between economic growth and inflation control, the world watches with keen interest, cognizant of the potential ripple effects that each policy move may bring.   This article aims to provide readers with a succinct yet comprehensive overview of the Bank of Canada's recent interest rate decision and its broader implications within the global financial landscape. Optimized for SEO, it offers valuable insights into the current challenges facing central banks and the evolving dynamics of the global economy.   The decision by the Bank of Canada to maintain interest rates at 5% highlights the central bank's cautious approach to addressing economic challenges. In the face of uncertainties such as the ongoing global supply chain disruptions and the potential impact of new variants of the COVID-19 virus, central banks worldwide are opting for prudence. By holding the benchmark rate steady, the Bank of Canada aims to support domestic economic recovery while closely monitoring inflationary pressures. This stance reflects a broader trend among central banks, as they grapple with the complexities of an ever-evolving economic landscape.   The Bank of Canada's decision will undoubtedly be scrutinized by economists, policymakers, and financial markets, as it provides valuable insights into the delicate balancing act of managing economic growth and inflation in a post-pandemic world. In this interconnected global economy, the implications of such decisions ripple across borders, affecting businesses, investors, and individuals alike.   As economic conditions continue to evolve, central banks remain at the forefront of efforts to navigate the path forward, seeking to foster stability and sustainable growth in an uncertain world. In a rapidly shifting economic landscape, the Bank of Canada's choice to maintain interest rates provides a snapshot of the multifaceted considerations confronting central banks worldwide. As they grapple with an atmosphere of uncertainty and endeavor to strike an intricate balance between stimulating economic growth and effectively managing inflation, the world watches with acute interest. It is well aware of the potential far-reaching consequences that each policy decision can bring.  
Assessing the Future of Aluminium: Key Areas to Watch

Assessing the Future of Aluminium: Key Areas to Watch

ING Economics ING Economics 08.09.2023 13:17
Watch: Four areas to keep an eye on for aluminium It's no secret that aluminium prices have been facing a challenging outlook over the last few months, and after hitting a peak in January, they've now dipped by more than 7%. But are encouraging signs of life slowly beginning to emerge?   It's fair to say that aluminium prices have seen better days. But what's causing the slump? As major economies across the globe slipped into a widespread slowdown, aluminium products have followed suit – and it isn't quite clear just yet how long the weakness we're currently seeing could last. For the rest of 2023, we're keeping our eye closely on a few key areas that could help clear up a rather gloomy outlook. As the world's largest consumer of aluminium, developments in China will be crucial for determining the direction of metals prices as we head into the last few months of the year. Encouraging signs are slowly beginning to unfold in recent data following the introduction of new stimulus measures, and we believe the boost to consumer spending could help to alleviate rising concerns over lagging demand. The US dollar, Russia's market share of aluminium, and European production also have key roles to play – and while we're not entirely convinced that aluminium prices will return to their year-to-date highs anytime soon, we're just about starting to see the light at the end of the tunnel. In this video, ING's Ewa Manthey delves into the details.
Tesla's Market Surge, Apple's Recovery, and Market Dynamics: A Snapshot

Tesla's Market Surge, Apple's Recovery, and Market Dynamics: A Snapshot

Ipek Ozkardeskaya Ipek Ozkardeskaya 12.09.2023 08:49
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. 
Crude Oil Prices Continue to Rise Amid Tight Supply and Economic Uncertainty

Downside Risks Loom Over Global Economy as Oil Market Remains in Deficit

Craig Erlam Craig Erlam 13.09.2023 09:00
Downside risks to the global economy remain Output restrictions from Saudi Arabia and Russia push oil market further into deficit Oil accelerates higher after brief consolidation   Oil prices are creeping higher again on Tuesday, with Brent trading around $92 despite there being a mixed view on the economic outlook. As we heard from the European Commission yesterday, growth in the euro area is going to be relatively minor, with Germany struggling to avoid another recession. The UK has shown a lot more resilience than anticipated but still faces recession risks and marginal growth at best. People are feeling a little more optimistic about the US, with last week’s services PMI backing that up, but even here there are significant downside risks. While China is a big unknown with efforts to stimulate the economy being targeted and far from guaranteed to boost growth substantially. That said, one thing we’re guaranteed is supply to continue to be restricted until the end of the year at least following the recent announcement by Saudi Arabia and Russia. That has created a deficit in the market that is supporting oil prices, with OPEC forecasting that the shortfall will run at around three million barrels per day, accelerating the drawdown in inventories.   Momentum appears to be picking up again The OPEC report gave oil prices an extra boost and that appears to have lifted the momentum indicators with it which could be a bullish signal if it continues.   BCOUSD Daily OANDA on Trading View     There’s no obvious resistance ahead of $100 which isn’t to say it will necessarily reach this level, or quickly, but last time it traded around here it was quite volatile between $90 and $100. An interesting level over the last year or so was $93.50 so it will be interesting to see how it trades around here again. The late-August and early-September rally was quite powerful and if we have now seen a break higher after consolidation, it will also be interesting to see whether that momentum continues or it faces more resistance.    
Japan's Economic Outlook: BoJ Policy and Scenarios

Japan's Economic Outlook: BoJ Policy and Scenarios

FXMAG Team FXMAG Team 14.09.2023 08:38
At the G20 New Delhi Summit, the leaders of key economies agreed that “headwinds to global economic growth and stability persist” and shared concerns of a potential global economic slowdown. The BoJ seems to be maintaining the view that “there are extremely high uncertainties for Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior”. In order to pull Japan completely out of deflation, the BoJ seems ready to be one policy cycle behind key central banks in starting the normalisation process. We expect the government to maintain its commitment to the current accommodative fiscal/monetary policy framework even after the PM Fumio Kishida reshuffles the cabinet and LDP leadership. The government will likely maintain its accommodative fiscal policy stance under the banner of “new capitalism” to further stimulate investments and in turn economic growth. With the government maintaining a strong commitment to the Abenomics policy framework, the BoJ will likely remain cautious of any major policy changes in order to not repeat past mistakes of premature policy tightening. On the other hand, the risk scenario is if the global economy remains resilient and markets stop pricing policy rate cuts by key central banks next year, the BoJ could start the normalisation process in 2024 under the assumption that the global economy will continue to remain strong.   At the G20 New Delhi Summit, the leaders of key economies agreed that “headwinds to global economic growth and stability persist” and shared concerns of a potential global economic slowdown. The BoJ seems to be maintaining the view that “there are extremely high uncertainties for Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior”. In order to pull Japan completely out of deflation, the BoJ seems ready to be one policy cycle behind key central banks in starting the normalisation process. As long as markets are pricing in a Fed rate cut sometime next year, the BoJ will likely continue with the current monetary easing policies. We continue to expect the BoJ will likely start the normalisation process by exiting from the YCC framework in 2025, once the global economy enters the next cyclical recovery. Meanwhile, we expect the government to maintain its commitment to the current accommodative fiscal/monetary policy framework even after the PM Fumio Kishida reshuffles the cabinet and LDP leadership. The government will likely maintain its accommodative fiscal policy stance under the banner of “new capitalism” to further stimulate investments and in turn economic growth. With many key ministers having experienced posts within METI, the government’s fiscal policy stance will likely focus on stimulating the economy rather than balancing the budget. With the government maintaining a strong commitment to the Abenomics policy framework, the BoJ will likely remain cautious of any major policy changes in order to not repeat past mistakes of premature policy tightening. On the other hand, the risk scenario is if the global economy remains resilient and markets stop pricing policy rate cuts by key central banks next year, the BoJ could start the normalisation process in 2024 under the assumption that the global economy will continue to remain strong.   The main scenario is that the central bank policy tightening cycle is approaching its end and the global economy will show stronger signs of slowing down as the cumulative effects of policy rate hikes so far suppress demand and dampen inflationary pressures. An economic slowdown and expectations for interest rate cuts by key central banks including the Fed will likely strengthen downward pressure on global bond yields and give the BoJ room to reduce its JGB purchases while maintaining the current YCC framework.   Based on the latest US financial accounts, the household savings rate (net asset change as percentage of GDP) seems to have bottomed out at around 2.2% of GDP in Q422, and has increased since then to 4.4% as of Q223. The household savings rate rising again combined with economic data showing signs of weakness and weaker inflationary pressures is likely the basis in which many market participants continue to see a soft-landing scenario as their main scenario.   The upside risk scenario is that the global economy remains resilient and inflationary pressures remain. Under such a scenario, central banks will be forced to continue tightening monetary policy and market expectations of a policy rate cut in 2024 would disappear. In such a scenario, upward pressure on JGB yields would strengthen and the JPY would weaken further. The BoJ will likely be forced to adjust or abandon YCC in such a scenario. However, to finance the continued increase of consumption activities, households will be forced to sell assets which will likely lead to a peak in asset prices. Combined with higher policy rates, the economy could face strong headwinds in such a scenario and an upside risk scenario could be followed by a hard landing scenario   The downside risk scenario is that the effect of cumulative rate hikes by central banks so far appears much stronger than anticipated. Under such a scenario, businesses will likely strengthen their cautious attitudes and lead to a much stronger-than-expected deleveraging move. Central banks will likely be forced to respond by cutting policy rates at a much faster pace than anticipated. In such a world, the JPY would likely appreciate significantly and the risk that Japan falls back into deflation will likely strengthen. The BoJ will likely be forced to respond by implementing additional easing measures, such as further cuts to its negative interest rate policy, while implementing measures to alleviate the side effects of further easing policies simultaneously. Under such a scenario, the global economy could fall back into a deflationary state but we believe the likelihood of such a scenario materialising at this juncture remains small        
BoJ's Normalization Process: Factors and Timing Considerations

BoJ's Normalization Process: Factors and Timing Considerations

FXMAG Team FXMAG Team 14.09.2023 08:53
The timing of the BoJ’s start to the normalisation process will likely depend on whether the Bank of Japan moves quickly or slowly to normalise its monetary policy and on the expectation of whether the Fed will move to cut rates next year. The main scenario for the US is that the central bank policy tightening cycle is approaching its end and the global economy will show stronger signs of slowing down as slows the cumulative effects of policy rate hikes so far to suppress demand and dampen inflationary pressures. An economic slowdown and expectations for interest rate cuts will likely strengthen downward pressure on global bond yields and give the BoJ room to reduce its JGB purchases while maintaining the current YCC framework. Based on the latest US financial accounts, the household savings rate (net asset change as a percentage of GDP) seems to have bottomed out at around 2.2% of GDP in Q422, and it has increased since then to 4.4% as of Q223. The household savings rate rising again combined with economic data showing signs of weakness and weaker inflationary pressures is likely the basis for many market participants continuing to see a soft-landing scenario as their main scenario. As long as markets are pricing in a Fed rate cut sometime next year, the BoJ will likely continue with its current monetary easing policies. We continue to expect the BoJ to likely start the normalisation process by exiting from the YCC framework in CY25, once the global economy enters the next cyclical recovery.   At the G20 New Delhi Summit, the leaders of key economies agreed that “headwinds to global economic growth and stability persist” and shared concerns of a potential global economic slowdown. The BoJ seems to be maintaining the view that “there are extremely high uncertainties for Japan’s economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms’ wage- and price-setting behavior”.   The BoJ will likely remain cautious of any major policy changes as long as the central bank holds such views, so as to not repeat past mistakes of premature policy tightening, especially as the government is maintaining a strong commitment to the Abenomics policy framework to pull Japan completely out of deflation. On the other hand, the risk scenario is if the global economy remains resilient and markets stop pricing policy rate cuts by key central banks next year, the BoJ could start the normalisation process in CY24 under the judgement that the global economy will remain strong  
BOJ's Ueda: 2% Inflation Target Not Yet Achieved as USD/JPY Pushes Above 149

BOJ's Ueda: 2% Inflation Target Not Yet Achieved as USD/JPY Pushes Above 149

Kenny Fisher Kenny Fisher 26.09.2023 14:55
BoJ Ueda says 2% inflation target not yet achieved USD/JPY pushes above 149 The Japanese yen is unchanged on Tuesday, trading at 148.85. BOJ’s Ueda says monetary policy to continue The Bank of Japan maintained its policy settings on Friday, which really should not have been all that surprising, given the dovish messages that BoJ Governor Ueda and other BoJ members have been sending out for weeks. The BoJ does not appear to be in any rush to phase out its ultra-loose stimulus, given the weakness in Japan’s economy. Domestic consumption remains weak and the slowdown in the global economy is hurting the critical export sector. BoJ Governor Ueda reiterated this stance on Monday, stating that the 2% target of “stable, sustainable” inflation was not yet in sight. Ueda acknowledged that inflation had exceeded 2% for a “prolonged period”, but that was not enough to indicate that the target of stable and sustainable 2% inflation had been achieved. Ueda added that the BoJ would continue to patiently maintain its monetary stance. Inflation has remained above 2% for close to 1.5 years, but that does not seem sufficient for the BoJ. Earlier today, the BoJ Core CPI index, which is closely monitored by the central bank, remained unchanged at 3.3% in August, above the market consensus of 3.2%.   The yen has paid the price for the BoJ’s insistence on maintaining an ultra-loose policy and has had only one winning week against the dollar since July. The US/Japan rate differential continues to rise as Japanese yields stay put while US Treasury yields continue to move higher. USD/JPY broke above the 149 line on Tuesday and the symbolic 150 level seems very close at hand. Japanese officials have responded with some rhetoric about their concern over the depreciating yen and the threat of intervention is rising as the yen falls lower.   USD/JPY Technical There is resistance at 149.19 and 149.93 USD/JPY tested support at 148.79 earlier. Below, there is support at 148.05    
Uncertain Waters: Saudi's Oil Production Commitment and Global Economic Jitters

Uncertain Waters: Saudi's Oil Production Commitment and Global Economic Jitters

Ipek Ozkardeskaya Ipek Ozkardeskaya 05.10.2023 08:17
Saudi's commitment is not written into a law By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Markets are on an emotional rollercoaster ride this week. The slightest data is capable of moving oceans. Yesterday, the significantly softer-than-expected ADP report, and the announcement that 75'000 healthcare workers at Kaiser went on strike sparked a positive reaction from the market in a typical 'bad news is good news' day. The US economy added only 89K new private jobs in September, much less than 153K penciled in by analysts. It was also the slowest job additions since January 2021. The rest of the data was mixed. US factory orders were better than expected in August, but the services PMI came close to slipping into the contraction zone, and the ISM's non-manufacturing component also hinted at slowing activity. Mortgage activity in the US fell to the lowest levels since 1995, as the 30-year mortgage rates spiked higher toward 8%. Housing and services are among the biggest contributors to high inflation besides energy prices, therefore, seeing these sectors cool down has a meaningful impact on inflation expectations, hence on Federal Reserve (Fed) expectations. As such, yesterday's soft-looking data tempered the Fed hawks, after the stronger-than-expected JOLTs data triggered panic the day before. The US 2-year yield took a dive toward the 5% mark, the 10-year yield bounced lower after flirting with the 4.90% level, while the 30-year hit 5% for the very first time since 2007 before bouncing lower on relieving news of soft job additions. Hallelujah.  The US dollar index retreated across the board, and equities rebounded. The S&P500 jumped from the lowest levels since the beginning of June. The score is now one to one. One good news for the US jobs market, and one bad news. Everyone is now holding his or her breath into Friday's jobs data, which will determine whether we will end this week with a sweet or a sour taste in our mouth. Sweet would be loosening jobs data, sour would be a still-strong jobs data which would fuel the hawkish Fed expectations and further boost US yields while the US yields are at a critical moment.   For the first time since 2002, the US 10-year yield comes at a spitting distance from the S&P500 earnings. The index is just about 60 points above its critical 200-DMA. Looking at the seasonality chart, the S&P500 could dip at about now. In this context, there is a chance that soft jobs data from the US marks a dip in the S&P500 selloff. But one thing is sure: the yields and the US dollar must come down to keep the S&P500 on a rising path. Profits at the S&P500 companies are inversely correlated with the US dollar as their international profits account for about a third of the total. If the yields and the US dollar continue to rise, the S&P500 will face severe headwinds into the year end.    Oil fell nearly 6%!  Rising suspicions that the global economy is headed straight into a wall didn't spare oil bulls yesterday. The barrel of American crude dived almost 6%, slipped below the 50-DMA ($85pb), and below the positive trend base building since the end of June. The 6.5-mio-barrel build in gasoline stockpiles last week helped bring the bears back to the market even though the data also showed a more than 2-mio-barrel draw in crude inventories over the same week.   Yesterday's move shows that what matters the most for intraday moves is the rhetoric. This summer, the market focus was on the tightening global oil supply and how the US will 'soft land' despite the aggressive Fed tightening. Now we start talking about slowing economies and recession worries.   OPEC decided to maintain its oil production strategy unchanged at yesterday's decision. Saudi and Russia repeated that they will keep their production restricted to maintain the positive pressure on oil. But if global demand cools down and volumes fall, both Saudi and Russia will be tempted to increase profits by selling more oil at a cheaper price. Saudi Arabia shouldering all the production cuts for OPEC is not written into a law, it could become uncertain if market conditions turn sour.
Rates Spark: Escalating into a Rout as Bond Bear Steepening Accelerates

Market Jitters: Strong US Jobs Data Sparks Fear of Tightening Labor Market and Rising Yields

Michael Hewson Michael Hewson 05.10.2023 08:54
The fear of strong jobs By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Even a hint of an improving US jobs market sends shivers down investors' spines.  This is why the stronger than expected job openings data from the US spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the US jobs market will continue to loosen.  But the market reaction to yesterday's JOLTS data was sharp and clear. The US 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the US House Speaker McCarthy lost his position after last week's deal to keep the US government open certainly didn't help attract investors into the US sovereign space. The US blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.  In the FX, the US dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in US private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an - God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.   The EURUSD consolidates below the 1.05 level, the USDJPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising US yields increase the opportunity cost of holding the non-interest-bearing gold.  The barrel of American crude remains under pressure below the $90pb level. US shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak. 
Shift in Central Bank Sentiment: Czech National Bank Hints at a 50bp Rate Cut, Impact on CZK Expected

Tepid Start for Euro and Pound as Corrective Waves Unfold: Market Analysis and Outlook

InstaForex Analysis InstaForex Analysis 17.10.2023 15:39
Both instruments were relatively muted on Monday. The euro and the pound started a new upward movement, presumably as part of the third wave within wave 2 or b. I previously mentioned that wave 2 or b should be a three-wave structure because the first wave was extended for both instruments. Therefore, the price increase at the beginning of the week was expected. If it hadn't happened today, it would have occurred tomorrow. Moreover, there was no significant news. Therefore, I conclude that positive news is not necessary for building the corrective waves for the euro and the pound.     Over the weekend, European Central Bank President Christine Lagarde delivered a speech. As I previously mentioned, Lagarde did not say anything that was particularly important. The members of the ECB Governing Council have not been providing any interesting or critical information for the markets. This is easily explained by the fact that the ECB has generally completed the process of tightening monetary policy and does not intend to ease it in the near future. Consequently, the market does not expect any changes either, so what can de Guindos, Lagarde, and others report in such a case? Lagarde mentioned wages and inflation with no significant consequences, so to speak. She noted that the pace of wage growth remains too high, and core inflation is far from the target. At the same time, the EU labor market shows no signs of weakening, but the European economy may slow down even further as the global economy could weaken due to new geopolitical conflicts. Economic growth could be stronger if consumer confidence rises due to a stronger labor market, income growth, and reduced uncertainty. Regarding monetary policy, the ECB plans to maintain a cautious approach. Based on everything, it will be very difficult for the euro to find support until a downtrend is fully developed. I believe that the news background will not affect the framework of the corrective wave 2 or b. It won't impact the next, third wave either.     Based on the analysis conducted, I conclude that a bearish wave is currently being built. The targets around the 1.0463 level have been achieved, and the fact that the market has yet to breach this mark indicates that it is prepared to build a corrective wave. In my recent reviews, I warned you that it would be wise to consider closing short positions because there is currently a high probability of constructing an upward wave. The unsuccessful attempt to break the 1.0637 level, corresponding to the 100.0% Fibonacci, indicates the market's readiness to resume the decline, but I believe that wave 2 or b will be a three-wave structure. The wave pattern of the GBP/USD instrument suggests a decline within a new downtrend segment. The most that the British pound can hope for in the near future is the construction of wave 2 or b. However, as we can see, even with the corrective wave, significant challenges are currently emerging. I wouldn't recommend opening new shorts at this time, but I also don't advise buying because the corrective wave may turn out to be relatively weak.  
Hungary's National Bank Maintains Easing Path Amid External Risks: A Review of November's Rate-Setting Meeting

Spanish Economic Slowdown: Analyzing Factors and Projecting Future Challenges

ING Economics ING Economics 27.10.2023 15:04
Why a slowdown in Spanish growth could be here to stay Spain's economy grew by 0.3% in the third quarter, a slowdown from 0.5% growth in the second quarter which we think is likely to continue in the coming months.   Spanish economy grows 0.3% in third quarter As expected, Spanish GDP grew 0.3% quarter-on-quarter in the third quarter, according to figures released this morning by Spain's statistical service INE. This is a cooling off from the first half of the year. In the second quarter, the Spanish economy still grew by 0.5% QoQ. On an annual basis, Spain's third-quarter economic output expanded by 1.8%. Growth was mainly driven by domestic demand – more specifically, consumption –  while business investment contracted and government spending slowed in the third quarter. Looking at the different sectors, these levels were sustained by the growing services sector, while manufacturing and construction contracted last quarter.   Spanish economy more buoyant than rest of eurozone despite slowdown Despite slowing down, Spain is expected to head for growth of 2.5% in 2023, well above the 0.5% growth forecast for the eurozone. Due to some favourable structural differences, Spain's economy has proved much more resilient than other countries. The larger weight of the tourism sector underpinned growth. Spain experienced a strong tourism season and benefited from a further recovery of all tourism-related activities to their pre-Covid levels. In addition, the struggling manufacturing sector has a smaller weight in Spain. Manufacturing represents only 12% of gross value added, significantly less than the 22% in the German economy, for example. Finally, the Spanish economy is much less exposed to the ailing Chinese economy than others.   Increasing headwinds for the economy in coming months We expect the slowdown to continue. The European Central Bank's tightening cycle has taken a lot of oxygen out of the economy, and we'll surely begin to feel the impact in the coming months. The ECB's latest bank lending survey released on Tuesday shows credit standards tightening further and credit demand from businesses and households fell sharply in the third quarter in Spain, which does not bode well for investment activity. In addition, household finances will come under more pressure in the coming months. Spanish growth was boosted this year by a recovery in purchasing power thanks to higher nominal wage growth, strong job growth and cooling inflation. However, jobs growth is slowing, with higher interest rates and increased fuel prices also threatening to put pressure on household finances. This is certainly the case for households that financed the purchase of their home with variable interest rates (around a third of all households), who will have less budget left over to spend. Lastly, the contribution of the tourism sector will also be smaller next year now that the sector is roughly back to its pre-Covid level. In addition, we should not expect a strong rebound for the manufacturing sector. The manufacturing sector is struggling with dwindling order books and energy-intensive companies are still struggling with a competitiveness handicap. Add to this a slowing global economy, with a stagnant eurozone economy, a US economy that seems to be at its peak and a Chinese economy struggling to get up to speed, and a further slowdown in the coming months seems likely. All of these headwinds will curb Spain's growth momentum. While we still assume an average growth rate of 2.5% for 2023, we expect it to slow to 1.2% next year.  
Metals Market Update: Aluminium Surges on EU Sanction Threats, Chinese Steel Mills Restock, Nickel Faces Global Supply Surplus, and Copper Positions Adjust

Federal Reserve to Maintain Rates Amid Global Economic Concerns: Market Analysis by Michael Hewson

Michael Hewson Michael Hewson 02.11.2023 12:24
Fed set to hold rates again with Powell press conference to set the tone  By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European stocks underwent their 3rd successive monthly decline yesterday, despite ending the month on a positive note, with the DAX falling 3.75%, with the FTSE100 also losing 3.75%, and posting its weakest monthly close since October last year US markets also finished lower for the third month in a row, despite a similarly positive finish yesterday, with the S&P500 and Nasdaq 100 both losing more than 2% on concerns about future earnings growth and a possible economic slowdown at a time when rates are expected to remain higher for longer, even as US economic data continues to show little sign of slowing markedly.     It's a different story altogether when it comes to the economic numbers in Europe, where yesterday we saw EU GDP in Q3 slide into contraction territory having seen little to no growth at all in Q1 and Q2.    Inflation across the entire euro area is also showing increasing signs of slowing sharply, calling into question the decision by the ECB to hike rates by 25bps in September in the face of warnings that they could well be overdoing it when it comes to raising rates.   Today's focus shifts back to the US with the penultimate Federal Reserve rate meeting for 2023, as well as the latest ADP payrolls report for October, September job openings numbers, and the latest ISM manufacturing survey.   While the US labour market has held up well this year, we've seen this come against a backdrop of a global manufacturing recession. The last time the ISM manufacturing survey posted a positive reading above 50, was October last year, with expectations that we'll see an unchanged reading of 49. Prices paid is expected to edge higher to 45, from 43.8, while employment is set to slow from 51.2 to 50.9.     Before that we have the latest ADP employment for October which is expected to improve on the surprisingly weak 89k we saw in September, with 150k new positions. Vacancies have been falling over the last few months and are expected to slow again given the rise in the participation rate seen in recent months, with today's JOLTs numbers expected to slow from 9610k to 9400k. Against such a resilient labour market attention will then shift to tonight's Fed meeting.   Having overseen a pause in September the US Federal Reserve looks set to undertake a similar decision today, although they still have one more rate hike in their guidance for this year, which markets now appear to be pricing for December.     Fed chair Jay Powell, in comments made just before the blackout, appeared to indicate that a status quo hold is the most likely outcome at today's meeting, with the key message continuing to be higher for longer. This is certainly being reflected in market pricing especially in the longer dated part of the treasury curve, as the yield curve continues to un-invert.     Most policymakers appear to be of the mind that more time is needed to assess the effects that previous rate hikes have had on the US economy which seems eminently sensible. While the unemployment rate has remained stubbornly low, US consumption patterns have remained resilient while the US economy grew strongly in Q3, however there is this nagging doubt that it could be on the cusp of a sharp slowdown in Q4, and recent payrolls data has shown a large proportion of part time jobs being added.   With US mortgage rates already at 8% there comes a point when further rate increases could destabilise the housing market, as well as increase the pressure further when it comes to tightening financial conditions.   The pound will also be in focus today with the latest house price data from Nationwide expected to show further weakness in house prices in October, with a decline of -0.4% expected.     The latest UK manufacturing PMIs for October is expected to improve from 44.3 to 45.2.               EUR/USD – ran out of steam at the 1.0680 area and 50-day SMA, with support back at the lows of last week at 1.0520, with the next support at the recent lows at 1.0450. Resistance at the 1.0700 area and 50-day SMA.  GBP/USD – rallied to 1.2200 before slipping back with support at the lows of last week at the 1.2070 area last week. Major support remains at the October lows just above 1.2030. Below 1.2000 targets the 1.1800 area. Resistance at 1.2300. EUR/GBP – squeezed up to 0.8755 in a classic bull trap before sliding sharply back. A move below 0.8680 and the 200-day SMA targets the 0.8620 area. USD/JPY – rallied hard from the support at 148.75 and the lows from 2-weeks ago and looks set to retest the highs from last year at 151.95, and the longer term target at 152.20. FTSE100 is expected to open 11 points higher at 7,332 DAX is expected to open 32 points higher at 14,842 CAC40 is expected to open 17 points higher at 6,902
Market Echoes: USD Gains Momentum Amid ECB Presser, PCE Numbers Awaited

German Exports Fall Again, Adding to Economic Woes

ING Economics ING Economics 03.11.2023 14:12
German exports disappoint once again Exports drop in September and continue to act as a drag on the economy.   Things are still looking pretty downbeat for Germany's economy. German exports disappointed again and dropped by 2.4% month-on-month in September. The only positive of this data release is that the August drop was revised into an increase of 0.1% MoM. September imports fell by 1.7% from -0.3% MoM in August. As a consequence, the trade balance narrowed to €16.5 billion from €17.7 billion in August. Don’t forget that this is in nominal terms and not corrected for high inflation. To warp up another disappointing macro morning from Germany, exports were down by 7.5% compared with September last year.   Exports remain drag on economy Today’s trade numbers do not only indicate that the contraction of the German economy in the third quarter was probably driven by more than only the reported weak private consumption but also that a downward revision of the first GDP estimate is possible. Like the rest of the German economy, exports remain stuck in the twilight zone between recession and stagnation. Since the start of 2022, net exports have been a drag on the economy in four out of six quarters. Supply chain frictions, a more fragmented global economy and China moving from a dynamic export destination to competitor are all factors weighing on the German export sector. The cooling of global demand is currently worsening the structural problems and the weakening of the euro since the summer is still too small to have any significant impact on exports. Export order books remain weak. Last but not least, recently German technology groups warned that they were being hit by customs delays for exports to China. As a result, trade is no longer the strong resilient growth driver of the German economy that it used to be, but rather a drag. Maybe the only upside of today’s disappointing data is that things can hardly get worse. However, as positive signals remain absent, the base case for the German economy over the next months remains stagnation at best.
Worsening Crisis: Dutch Medicine Shortage Soars by 51% in 2023

AUD Weakens Post RBA Hike, Oil Takes a Hit: Market Analysis by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

Ipek Ozkardeskaya Ipek Ozkardeskaya 07.11.2023 15:47
AUD weakens after RBA hike, oil downbeat By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The US bond yields rebounded, and the equity rally slowed on Monday. The US 10-year rebound from last Friday low, and the S&P500 consolidate gains near three-week highs. There are divergent opinions regarding whether last week's risk rally is on sufficiently solid ground to extend into a Santa rally, or it would simply fade away. And it all depends on what matters the most for investors. The softening Federal Reserve (Fed) and other central bank expectations and falling sovereign yields are positive for stock valuations, but the chatter of potentially higher-for-longer rates, growing signs of slowing global economy and the rising recession odds don't offer a bright outlook for equities into the year end. Seasonally speaking, November and December are known to be good months for the S&P500 stocks. In the past, the S&P500 stocks gained, on average, 1.8% in November and 0.9% in December. But this year, the picture is overshadowed by a lot of weak guidance and revenue warnings.   The chatter of weak demand and profit warnings are not great for equities but the worst news would be sticky inflation despite slowing growth and a persistently long period of high interest rates. For now, the Fed is perceived as being 'done' with interest rate hikes. But Powell is due to speak this week and he will probably leave the door open for a rate hike... otherwise he knows that all the past 1.5-year's efforts will be instantaneously thrown out of the window with everyone rushing to US treasuries – which would pull the yields lower and loosen the financial conditions and eventually boost growth and inflation. This is something the Fed doesn't want.   And despite a series of no rate hike news that we received over the past few weeks from major central banks including the Fed, the ECB and the BoE, the Reserve Bank of Australia (RBA) raised its rates by 25bp, as broadly expected, today. The RBA hike came as a sour reminder that there is no rule that says that a bank can't hike rates after pausing for four meetings. Interestingly, the AUDUSD fell after the decision, along with the Australian stock markets. Today's rate hike revived fears of economic slowdown more than appetite for higher Aussie yields – while a broad-based recovery in the US dollar and weak Chinese trade data certainly didn't help.  Speaking of weakness  The Chinese exports which are a good gauge of global economic health, are down for the 6th consecutive month and Iranian oil exports fell for the 2nd straight month to 1.43mbpd as demand in Asia weakened. That's certainly why we haven't seen oil prices react to the news of escalation tensions in the Middle East and the news that Saudi and Russia will keep their oil production curbs in place during the weekend. The barrel of crude is trading a touch above the $80pb psychological mark this morning. We revise our medium-term outlook for crude oil from neutral to negative. Last week's persistent selloff despite a broad-based risk rally, oil bulls' unresponsiveness to normally price-positive geopolitical developments and the fact that the market focus is shifting from supply to demand side hint that a fall below the $80pb is increasingly possible, and a verbal intervention from Saudi or OPEC won't prevent a deeper decline in the short run. Iran's implication in the Gaza war could be a game changer but the American crude is now in the medium-term bearish consolidation zone, and will remain downbeat below $81.50, the major 38.2% Fibonacci retracement on this summer's rally
German Ifo Index Hits Lowest Level Since 2020 Amidst New Economic Challenges

The Dollar's Long Goodbye: Unraveling Trends and Shifting Dynamics in Global FX Markets for 2024

ING Economics ING Economics 16.11.2023 12:17
The dollar’s long goodbye This time last year we were forecasting fewer trends in global FX markets and more volatility. In fact, 2023 has proved a year of two halves: the first half more trendless and the second half characterised by a very orderly and powerful dollar bull trend. This dollar rally has been built on the exceptionalism of the US economy – registering an incredible growth rate of 4.9% quarter-on-quarter annualised in the third quarter. And despite headline inflation dipping, there is really not enough evidence, yet, for the Fed to drop its hawkish guard. Holding dollars has therefore become the ‘no-brainer’ trade as investors price slowing aggregate demand globally – a theme that has weighed on the more open economies and currencies of Europe and Asia.   Will this theme continue into 2024? It feels like a wrestling match and the dollar will not roll over that easily. Yet our simple thesis is that tighter interest rates finally catch up with the US economy next year, growth registers a paltry 0.5% and the Fed, in line with its dual mandate to focus on inflation and maximum employment, cuts rates back into less restrictive territory. We forecast 150bp of Fed easing next year starting in the second quarter. The end of US exceptionalism will allow greater diversification amongst the investor community and a lower bar to seek returns outside of the dollar. Portfolio capital can refloat some of those stranded non-dollar currencies. In advance of the first Fed cut, we would expect the US yield curve to start a bullish steepening trend. This is a particular segment in the business cycle that favours a weaker dollar and is bullish for commodity currencies. It just so happens that some of the commodity currencies are incredibly undervalued based on our medium-term fair value model. This is the area of the FX market in which we see the most value. Or at least the commodity currencies are offered some protection by their extreme undervaluation, whereas the euro and sterling have no such support. A lower US rate environment should also allow the recovery of what we term ‘growth’ currencies – similar to growth stocks such as tech and real estate. We consider the Swedish krona one such currency. Our baseline view for 2024 therefore sees the dollar bear trend picking up pace through the year. Compared to year-end 2024 forwards, currencies could be as little as 2% (China’s renminbi) to as much as 13% (Scandinavian FX) firmer against the dollar.   ING forecasted performance versus year-end 2024 USD forwards
Bank of Japan Keeps Rates Steady, Paves the Way for April Hike Amidst Market Disappointment

Global Economic Insights: RBA Rate Decision and China Trade Trends

Michael Hewson Michael Hewson 04.12.2023 13:33
RBA rate decision – 05/12 – back in November the RBA took the decision diverge from its peers and hike rates again, by 25bps to 4.35%, after 5 months of keeping it at 4.10%. In a sign that this could well be the last hike the guidance was tweaked from "further monetary tightening may be required" to "whether monetary tightening may be required" which at the time sent the Australian dollar sharply lower, although the recent weakness in the US dollar has seen the Aussie recover since then. Despite increasing evidence that inflation is slowing in the global economy the RBA clearly felt it necessary to close the gap on its peers when it comes to rate policy, in a sign that perhaps they are concerned about domestic price pressures. That said we are already seeing the economic numbers in China starting to respond to the piecemeal measures by authorities there to stimulate the economy, although the improvements have been fairly modest. We also saw another upside surprise in headline CPI, while Q2 GDP came in at 0.4%, above forecasts of 0.2% to the economy continues to remain resilient. No changes to policy are expected this week, however some ex-RBA staffers have suggested that we could see another rate hike if wages growth continues to remain strong.   China Trade (Nov) – 07/12 – the recent set of Chinese Q3 GDP numbers pointed to a modest pickup in economic activity over the quarter in a sign that we are starting to see an improvement in the underlying numbers underpinning the Chinese economy. The recent October trade numbers helped to support the idea of a modest improvement however they don't change the fact that the economy still has some way to go when it comes to domestic demand which has remained subdued over the last 6 months. In October Chinese import data broke a run of 10 consecutive negative months by rising 3% in a sign that perhaps domestic demand is returning, beating forecasts of a 5% decline. Slightly more worrying was a bigger than expected decline in exports which fell -6.4%, the 6th month in a row they've been lower, and a worrying portend that global demand remains weak, and unlikely to pick up soon.       
Continued Growth: Optimistic Outlook for the Polish Economy in 2024

Market Musings: Powell's Mixed Signals, Oil's OPEC Struggles, and FX Crossroads

Ipek Ozkardeskaya Ipek Ozkardeskaya 04.12.2023 13:49
Mixed feelings By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) President Jerome Powell pushed back against the rate cut bets at his speech given in Atlanta last Friday. He is of course playing the card of 'high for long' rates to tame inflation, yet he hinted that the Fed will probably not hike rates when it meets this month. He said that the US monetary policy is 'well into restrictive territory' and that the fell of effect of higher rates to combat inflation is working its way through economy. 'We are getting what we wanted to get,' said Powell. And indeed, inflation is cooling, people start to spend less, and the job market loosens. But in parallel, the financial conditions are loosening fast, as well. Hence the market optimism and stocks/bond gains become increasingly vulnerable to hawkish Fed comments, and/or strong economic data. The US jobs data will take the center stage this week. Investors expect further fall in US jobs openings, less than 200'000 job additions last month with slightly higher pay on month-on-month basis. The softer the data, the better the chances of keeping the Fed hawks away from the market.   Unsurprisingly, the part of Powell's speech where he pushed back against rate cut expectations went fully unheard by investors on Friday. On the contrary, the Fed rate cut expectations went through the roof when it became clear that the Fed will stay pat again this month. The US 2-year fell to nearly 4.50% on Friday, the 10-year yield tipped a toe below the 4.20% mark. The S&P500 flirted with the summer peak, flirted with the 4600 level and closed the week a touch below this level, while the rate sensitive Nasdaq closed a few points below the 16000 and iShares core US REIT ETF jumped nearly 2.70% last Friday.   The SPDR's energy ETF, on the other hand, barely closed above its 200-DMA, as last week's OPEC decision to cut the production supply by another 1mbpd and to extend the Saudi cuts into next year barely impressed oil bulls – even less so given the apparent frictions at the heart of the group regarding this supply cut strategy when prices keep falling. The decline in oil prices continues this Monday. The barrel of US crude remained aggressively sold near the 200-DMA last week, and we are about to step into the $70/73pb region which should give some support to the market. With the clear deterioration of the positive trend, and the lack of any apparent boost to the oil market following last week's OPEC meeting, there is a chance that we will see oil finish the year below the $70pb mark. An increasingly shaky OPEC unity, record US production, a slowing global economy, deteriorating global demand outlook and efforts to shift toward cleaner energy sources weigh heavier than the supply worries. As such, the $100pb level becomes an increasingly difficult target to reach. And even though the COP28 president Mr. Al Jaber said last weekend that there is 'no science' behind demands for phase-out of fossil fuels – yes 70'000 people flew to Dubai to hear that there is no evidence that fossil fuel is destroying climate – efforts to phase-out fossil fuel continues at full speed with solar panel installation surpassing the most optimistic estimates according to Climate Analytics.  In the FX, the US dollar's positive attempt above the 200-DMA was halted by Powell's speech on Friday – or more precisely by investors' careful extraction of all the dovish elements in that Powell speech. Both the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) will likely keep their rates unchanged this week, but the RBA will certainly sound hawkish faced with worries of 'home-grown' inflation. The AUDUSD stepped into the bullish consolidation zone following a 6+% jump since the October dip and could gather further strength this week. The EURUSD, on the other hand, remains under growing selling pressure despite FX traders' hesitancy regarding what to do with the US dollar. The pair sank to 1.0830 on Friday and is preparing to test the 200-DMA, which stands near 1.0820, to the downside. The easing Eurozone inflation, along with slowing European economies, boost the dovish ECB expectations. The final PMI data will confirm further contraction in the Eurozone last month, as the Eurozone GDP read will likely confirm a 0.1% contraction last quarter. Coming back to the EURUSD, the pair will likely see a solid support near 1.0800/1.0820, which includes the 200-DMA and the major 38.2% Fibonacci retracement on October – November rebound. And clearing this support should pave the way for an extended selloff toward 1.0730.    
All Eyes on US Inflation: Impact on Rate Expectations and Market Sentiment

Cautious Tone of Polish MPC Governor Press Conference: Rates Expected to Remain Unchanged Until March 2024

InstaForex Analysis InstaForex Analysis 12.12.2023 13:49
Cautious tone of Polish MPC Governor press conference The NBP president's conference was short and cautious in its tone. The NBP may be heading in the direction of the conservative Czech National Bank. In our view, rates will remain unchanged until at least March 2024   Weak global economy, signs of recovery at home During his press conference, the NBP Governor Adam Glapinski assessed that the data received since the previous MPC meeting does not fundamentally change the assessment of the economic situation and its outlook. The external environment remains weak. The Eurozone is in stagnation and activity in Germany is declining. In Poland, economic activity remains subdued, but there are increasing signs of recovery. After declines in 1H23, 3Q23 saw GDP growth of 0.5% YoY. According to. Glapinski, the economy is beginning to improve. Global inflation is subsiding but still remains elevated. Major central banks, including the Fed and ECB, are keeping interest rates unchanged.   The NBP expects continued CPI decline, but at a slower pace President Glapinski reiterated that inflation in Poland is falling and is on a path to the NBP target, which it should reach within two years. Glapinski reiterated how much inflation has fallen (it is almost three times lower than at the February peak), adding that the core is falling as well and is around 5pp down from the peak. He noted that the decline in inflation has slowed and will also be slower in the coming quarters. In the Council's view, inflation will continue to fall due to reduced economic activity (negative output gap) and earlier monetary tightening, which cooled activity in the credit market. Also favourable for the inflation outlook is the strengthening of the PLN by about 20% against the US$ and about 10% vs. the €. Professor Glapinski was very neutral on the PLN exchange rate.   Uncertainty prompts MPC to adopt wait-and-see stance The Governor’s statements indicate that the MPC is adopting a wait-and-see stance, but definitely not a hawkish one. The MPC is waiting for decisions on electricity and gas prices, as well as VAT on food, the reinstatement of which could bump up inflation by about 0.9ppt. Therefore, the Council should take a closer look at inflation prospects on the occasion of the NBP's March projection, when the aforementioned uncertainty factors should be resolved. The Council's subsequent decisions will depend on incoming data.   Bottom line A communications revolution at the NBP took place. Yesterday's decision was made earlier than usual, i.e. at 2:29 CET  and the Governor’s conference lasted only 27 minutes. Could it be that the NBP is heading in the direction of the (conservative) Czech National Bank? During his speech, Glapiński declared willingness to cooperate with the new government and flagged cautious rate decisions in the future. In our view, a more disinflationary external environment, a stronger PLN and a more cautious NBP suggest that the risk that inflation will remain above target for a long time has moderated somewhat. Rates should remain unchanged until the end of 2024 as there is still no shortage of inflationary factors. For instance, we expect further fiscal expansion, increased wage dynamics (i.e. due to a 20% increase in the minimum wage in 2024), large inflows of EU funds and foreign direct investment. But rate cuts cannot be completely ruled out either. The space for interest rate changes could emerge in March, should global disinflation prove rapid and sustained and the zloty continue to gain. Our baseline scenario assumes that interest rates will remain unchanged, but the distribution of risks is skewed toward potentially lower inflation and the chances of earlier interest rate cuts than in 2025.

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