gross domestic product

Terra Luna Crashes The recent crash of one of the most well known cryptocurrencies has added to the widespread panic that has been surrounding the risky asset class. The fall started while the company's stable coin, UST, was unable to maintain its parity with the USD and quickly tumbled as more investors opted to save whatever they had left and exit their positions. While Terra Luna is not the only crypto to be dropping significantly in the last few days, with the entire top 100 down around 30-50% and market cap falling to $1,19 Trillion, it is certainly one of the most prominent examples seen to date of a complete collapse. This event has deeply shaken investor confidence in the asset class and has even led to the most prominent stable coin , USDT losing its 1:1 ratio with the USD. As the situation continues to evolve it seems like this could be the beginning of a significant realignment in the crypto industry as investors either exit their positions or re-evaluate them in search of some sort of a safe haven amid a widespread crash. It is important to note though that the majority of risk-on assets have been deeply impacted by worsening global economic conditions and central bank policies so while this situation is not exclusive to crypto's it is certainly most prominent with them. Read next: Stablecoins In Times Of Crypto Crash. What is Terra (UST)? A Deep Look Into Terra Altcoin. Terra - Leading Decentralised And Open-Source Public Blockchain Protocol | FXMAG.COM UK GDP report disappoints and pressures GBP and FTSE100 The UK GDP report was released at 7:00 am BST and turned out to be a huge disappointment with the report showing a 0.8% QoQ expansion in Q1 2022 while the market expected an expansion of 1% QoQ. However, March's monthly GDP reading was the biggest disappointment with the monthly reading which was expected to show a 0.1% expansion from February levels and instead showing a 0.1% MoM contraction. March was the first full month since the beginning of the Russia-Ukraine conflict and could be seen as a potential sign of economic difficulties to come. Investors reacted negatively to this news with both the British Pound and FTSE100 taking a hit as the global sentiment continues to shift more towards risk-off   Furthermore, the Bank of England warned that tightening and current geopolitical developments are likely to push the UK economy into recession. Investors reacted negatively to this news with both the British Pound and FTSE100 taking a hit as the global sentiment continues to shift more towards risk-off. Read next: Tech Stocks Plunging!? Trade Desk Earnings Announcement Pushes Tech Giant Stock Down, Russian Ruble Strengthening and Ford Motor Co. 

A rebound in manufacturing and industrial output, coupled with a decent performance from the consumer sector and net trade and inventories being less of a drag support our view of 3%+ GDP growth in 3Q. However, the housing market, a weaker external environment, higher rates and deteriorating business surveys suggest tougher times ahead US industrial production for July exceeded consensus Industrial output bounces back on strong manufacturing The US July industrial production report has posted a very respectable 0.6% month-on-month gain versus the 0.3% consensus. Manufacturing led the way with a 0.7% increase as auto output jumped 6.6%, but even excluding this key component output was up 0.3%. Mining also rose 0.7% with oil and gas output jumping 3.3% MoM as high prices spurred drilling activity. Meanwhile utilities were a surprise drag, falling 0.8% MoM. US industrial output levels Source: Macrobond, ING Strong 3Q, but outlook for 4Q looks tougher This report provides more evidence that 3Q GDP should be good. We strongly suspect that consumer spending will be lifted by the cash flow boost caused by the plunge in gasoline prices and decent employment gains, trade will be supportive too, inventories less of a drag and now we know that manufacturing is rebounding. Putting this altogether we think 3% annualised growth is firmly on the cards. The worry is what happens in 4Q. Yesterday’s NY Empire manufacturing survey was awful and points to much weaker orders and activity later in the year.  We will be closely looking to see if this is replicated in the Philly Fed (Thursday), Richmond Fed (August 23rd) and others later in the month. Even if it is seen as an aberration there are plenty of reasons to expect weaker activity towards year end. A China slowdown and recession in Europe will weigh heavily while ongoing increases in interest rates and a deteriorating outlook for the housing market will also act as a major headwind. Residential construction worries mount... In that regard, today’s other main macro report, US housing starts, fell 9.6% MoM in July to 1,446k annualised versus the 1,527k consensus. This is the weakest reading since February 2021 with yesterday's plunge in NAHB home builder confidence suggesting further falls in construction activity is likely. Housing starts and home builder sentiment Source: Macrobond, ING   We will get existing and new home sales numbers over the next seven days with further weakness expected in both due to high prices and a doubling of mortgage rates hurting affordability and crushing demand. We also expect supply to continue increasing, which will put downward pressure on prices at a time when home builders continue to struggle to find workers and the legacy of high material costs. Direct residential construction will provide a major headwind for economic growth over the next 6-12 months, but it will also have knock-on effects for key retail sectors such as furniture, furnishings and building supplies given the strong correlation with housing transactions. Read this article on THINK TagsUS Recession Manufacturing Housing Construction 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

Dutch GDP rose significantly in the second quarter of this year, up by 2.6% from the previous quarter; it's much stronger than expected. The service sector rebounded particularly well but there was growth in all the main expenditure items. However, the outlook for the second half of the year is negative 'Staff wanted' says this sign at a restaurant in Maastricht, but the economic outlook for the Netherlands is negative 2.6% Dutch GDP growth rate 2Q22 (QoQ) Better than expected Growth supported by expansion of all main expenditure items These are good growth figures for the Netherlands; all expenditures, except inventories, rose. Investment provided the largest contribution to growth; gross capital formation expanded by 5.2% compared with the first quarter. Expenditure volumes rose thanks to a massive increase in transport equipment (37.2%), which had a lot of rebound potential due to earlier supply chain issues. Investment in non-residential buildings (3.7%), ICT equipment (3.2%), machinery & other equipment (2.6%), intangible assets (2.1%) and housing (1.5%) increased. Investment in infrastructure fell (-1.3%) and stock-building also contributed negatively (-0.2% GDP contribution). Household consumption rose 0.9%, particularly because of high spending at the beginning of the quarter. While consumption of services and durable were still expanding, food consumption volumes fell due to higher prices and increased visits to restaurants and bars. It was the first quarter without significant lockdown measures, which mostly ended in  January 2022. Government consumption expanded by 0.1%. Despite still elevated worldwide supply chain disruptions, Dutch exports grew by a decent 2.7%. Goods exports expanded by 2.7%, with both domestically produced goods exports and re-exports showing a positive development. Service exports, such as those driven by incoming foreign tourism, expanded by 2.8%, but remember that this is a rebound from the previous low levels we saw due to the pandemic.  The overall net contribution of international trade to GDP growth was positive (1.2%-point) in the second quarter, because of a long-standing trade surplus and the fact that imports (1.6%) showed weaker growth than exports. The import of services fell by -2.5%. Strong sectorial performance From a sectoral perspective, the value-added growth figure was strongest in the small energy supply sector (8.8% quarter-on-quarter growth). ICT (6.2%), specialised business services (4.5%), semi-public services (3.6%), trade, transport & hospitality (3.6%), water utilities (2.0%), manufacturing (1,2%) also expanded, while output was rather stable in financial services (-0.1%) and agriculture (-0.2%) and value-added contracted in mining & quarrying (i.e. oil & gas, -3.5%). While detailed seasonally adjusted data for subsectors is not available, it seems reasonable to assume that bars & restaurants, travel and recreation, and culture had even more substantial growth than the energy supply sector, given the rebound potential these sectors still had. Outlook less positive The fact that the second-quarter GDP figures were very strong does not mean that the outlook is bright. We maintain that growth will be negative in the coming quarters. Consumers will increasingly be affected by higher prices for energy and food, resulting in cuts to the consumption of other items. Last month we observed the first signs of weakening demand in the value of transactions by ING consumers and the latest figures only seem to confirm that. On top of that, gas prices have risen even further in the past few weeks. Consumer confidence figures have been at record lows for some time, while business sentiment indicators only started to drop recently. While composite indicators are still holding up reasonably well, the balance of business expectations of the economic climate in the next three months has reached its lowest level since the third quarter of 2013, bar the Covid period, according to a survey for the third quarter (mostly executed in July). On a positive note, investment expectations for the current year only fell a little and remained net positive in the third quarter. So we are currently forecasting a mild technical recession for the Dutch economy as our base case. A still very tight labour market, high amounts of Covid-related savings and expansionary fiscal policy in the medium term may somewhat limit the dip in the real economy caused by higher prices. That said, further cuts in energy supplies from Russia are a downward risk scenario that could push energy prices higher still further and put even more pressure on spending and GDP. We’re seeing the first signs of weaker demand Read this article on THINK TagsInflation GDP Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

July data for industrial production was significantly worse than expected with industry-wide declines and weak orders. We don’t expect growth to contract in the current quarter, but the likelihood of a negative quarter is growing.  Source: Pexels -1.3% Industrial production %MoM, sa Worse than expected All-industry industrial production index dropped -0.1% MoM sa in July (vs 0.8% in June) Manufacturing production fell -1.3% MoM in July while June data was revised down to 1.7% (vs preliminary 1.9%). Automotive production rose (1.1%) for the second month but was more than offset by declines in semiconductors (-3.4%) and related equipment (-3.4%). For semiconductors, inventory accumulation was quite large as shipments were worse than production, thus the near-term production cycle looks quite negative. Combined with weak semiconductor equipment orders, the downturn of semiconductors could be longer than expected. On the other hand, the automotive sector is expected to catch up with production gaps for a while as global supply chain problems fade. Services rose 0.3% in July (vs -0.2% in June) and almost all major service sub-sectors gained. Hotels/restaurants, leisure, and transportation were all strong as reopening effects on consumer services remained supportive. But real estate services fell for a second month, reflecting the recent weakness in that market. All industry production fell due to weak manufacturing and construction Source: CEIC Retail sales and investment dropped in July Retail sales fell -0.3% MoM, for the fifth straight month of decline as high inflation strained goods consumption. For investment, domestic machinery orders were down, posing downside risks for the investment outlook for the second half of the year. Construction completions declined in July, but orders data remained positive, suggesting that the underlying recovery story for construction remains valid. The decline of machinery orders paints a cloudy picture for investment Source: CEIC Construction should remain solid until the year-end Source: CEIC Outlook for third-quarter GDP and BoK policy The weak start to the third quarter poses downside risks to GDP. We expect GDP to slow to 0.2% QoQ this quarter (vs 0.7% in 2Q22), but the likelihood of a negative quarter is growing. If GDP does contract this quarter, it will complicate the BoK’s policy actions towards the year-end. After hearing from the Bank of Korea last week, we think that they will raise policy rates three more times, in October, November and next February as CPI inflation will likely remain above 5% until early next year. But with hard activity data giving a gloomy outlook for the rest of the year, the BoK's strong commitment to curb inflation may be toned down in the coming months.   Read this article on THINK TagsRetail sales Investment Industiral production Bank of Korea 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

Today's monthly activity data is positive with both industrial production and retail sales improving, suggesting that the moderate economic recovery will continue this quarter – posing an upside risk to the current quarter's GDP Industrial production rose unexpectedly in July by 1.0% month-on-month 1.0% Industrial Production %MoM, sa Higher than expected Industrial production and retail sales improved in July Industrial production rose unexpectedly by 1.0% month-on-month, seasonally-adjusted (vs -0.5% market consensus), following a 9.2% surge in June.  Output forecasts for August and September also improved suggesting that solid production is likely to continue this quarter. By industry, automobile production and shipments improved. Keeping up with the production setbacks will normalise in a few months, but the solid gain for two consecutive months shows that the global supply bottleneck is fading and pent-up demand remains strong. Meanwhile, weak production of electronic components and devices suggests that global semiconductors are entering a downcycle for the second half of this year. Meanwhile, retail sales edged up 0.8% in July (vs -1.4% in June), which was also better than the market consensus of 0.3%. Household consumption remained strong despite the resurgence of Covid cases and high inflation. General merchandise and apparel fell, but more importantly, motor vehicles continued to rise firmly by 4.4% (vs 5.2% in June) for the second month in a row.  Separately, the consumer confidence index rose to 32.5 in August (vs 30.2 in July). Consumers showed a positive outlook as overall livelihood, income growth, employment, and willingness to buy durable goods advanced for the first time in three months.   Today’s reports signal that the Japanese economy continues to recover, mostly due to catch-up production gaps and the reopening effect. Industrial production rose in July for the second month in a row Source: CEIC Outlook for 3Q GDP and Bank of Japan policy The recent data releases from Japan are positive. Labour market conditions appear to have tightened while the growth outlook for the current quarter is also promising as monthly activity data and survey data have improved more than expected. Currently, we expect third-quarter GDP to grow 0.3% quarter-on-quarter sa (vs 0.5% in 2Q22), but an upside revision is on the way after confirming PMI and core machinery orders in two weeks. As for inflation, if the Japanese yen continues to weaken, hitting the 140 handle, then inflation could climb up to 3.0% year-on-year by year-end. We believe the recent positive outcomes are not good enough for the Bank of Japan to change its policy stance yet as it believes the recovery is still very fragile. On the other hand, Governor Haruhiko Kuroda pledged over the weekend to maintain the easing policy to support growth. Thus, we expect the Bank of Japan to stay pat at its September meeting.  Read this article on THINK TagsRetail sales Industrial Production Consumer confidence Bank of Japan 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

Decent manufacturing activity, improved trade and inventory contributions and the cashflow boost from falling gasoline prices mean the US is set for a strong third-quarter GDP reading of around 3%, but another decline in residential construction reinforces the worries about what might happen later in the year The ISM manufacturing index held up better than expected in August, which should give a boost to strong third quarter GDP ISM holds up as rising orders and falling prices offer hope for the sector The ISM manufacturing index held up better than expected in August, coming in at 52.8, unchanged from July and better than the 51.9 consensus. Mixed regional indicators and a softer China PMI had raised warning flags, but instead new orders moved back into positive territory at 51.3 from 48 while employment rose to a five-month high of 54.2, boosting hopes of a decent manufacturing contribution to Friday's jobs number. Regarding jobs, the ISM reported that “companies continued to hire at strong rates in August, with few indications of layoffs, hiring freezes or head-count reductions through attrition. Panelists reported lower rates of quits, a positive trend”. US and Chinese manufacturing purchasing managers' indices Source: Macrobond, ING   There was also a rise in the backlog of orders which suggests that the dip in the production component to 50.4 from 53.5 is just a temporary blip and that manufacturing output can continue growing at a firm pace over coming months. Indeed, the ISM cite the better lead time for supplier deliveries and the falling prices paid component as factors that “should bring buyers back into the market, improving new order levels” The Fed will also take some comfort from the prices paid component declining to 52.5. This index was above 80 as recently as May and reflects the steep falls in energy and key commodity prices. Putting it together, with the better trade and inventory numbers and the massive support to consumer spending power and confidence from the falls in gasoline prices we look for 3% annualised GDP growth in the third quarter after the technical recession in the first half of the year. This should be supportive of our Fed funds call of 3.75-4% rates for year end. Construction highlights the weakening medium-term outlook There was less positive news in the construction data, which fell 0.4% month-on-month  in July after a 0.5% fall in June. Residential construction was the main reason with the slowdown in housing activity set to translate into falling home building over at least the next six months. Annualised US residential and non-residential construction spending ($bn) Source: Macrobond, ING   Declining housing transactions implies big declines in residential construction and weakness in some retail sales components such as building supplies, furniture and home furnishings. Falling house prices would compound the downside risk for confidence and spending so while 3Q activity overall looks pretty good, 4Q will be much more challenging, especially with China under pressure and Europe facing an energy catastrophe. Read this article on THINK TagsUS Orders Manufacturing Construction 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

Behind the solid headline retail sales figure, we see some worrying developments. In our assessment, the economy is getting closer to a technical recession Shoppers in Budapest 4.3% Retail sales (year-on-year, wda) ING forecast 5.1% / Previous 4.5% Worse than expected July Retail sales looks not that bad, but... If we look at things superficially, the July retail sales performance in Hungary looks quite good. It shows a 4.3% year-on-year growth rate (adjusted for working days), which is only a tad slower than the headline figure from the previous month. However, as soon as we dig a bit deeper into the data, we see some red flags and signs of weakness. First and foremost, the month-on-month growth in retail sales was only 0.5%. The only good thing we have to say about this is that it is at least positive after three months of continuous decline. But is also says a lot about the yearly index, which was able to remain strong because of the base effect and not due to the strong monthly performance. Breakdown of retail sales (% YoY, wda) Source: HCSO, ING   After checking the detailed data, today’s release on retail sales paints a rather gloomy picture. Retail sales turnover in the food sector decreased by roughly 0.1% on a monthly basis and also showed an annual drop. This is quite a bad reading in light of the fact that consumers with the highest marginal propensity to consume (i.e. pensioners), received their pension supplement in July. But even this was not enough to boost the volume of food shop turnover, so it can still be said that ever-rising prices are increasingly restraining the consumption of households. A similar phenomenon can also be observed in the sales volume of non-food stores. Turnover in this segment fell by 0.25% compared to the previous month, even though the news was full of stories about households rushing to the shops to replace non-energy-efficient appliances as the government announced changes to the utility bill support scheme. Moreover, sales people have echoed that demand has increased sharply for alternative heating devices in order to reduce gas consumption. It seems that either these effects have not yet been reflected in the July statistics or, despite the boost in demand, households have already closed their purses and cancelled shopping for non-essential major goods and cut fast-moving consumer good spending. Retail sales volume in detail (2015 = 100%) Source: HCSO, ING   Only the turnover of fuel retailers was able to increase on a monthly basis in July. In essence, this one item ensured that retail turnover did not shrink continuously for four months. This, therefore, paints a rather gloomy picture, especially as we know that the increase in fuel sales may be a one-time effect as the government announced a reduced range of beneficiaries of the fuel price cap from 1 August. Many people who use a company car for private purposes will have to buy fuel at a much higher market price from August, so the last chance to buy fuel at administered prices came in July, giving an extra boost to fuel demand. In addition to all of this, it is also quite telling that in all the sub-sectors, the turnover of second-hand shops increased the most, which once again highlights the increase in the price sensitivity of consumers and the transformation of shopping habits. Retail sales and consumer confidence Source: Eurostat, HCSO, ING Q3 begins with reduced consumption? Based on today's retail statistics, we can say that although the main indicator does not reflect this, the underlying processes and detailed data already show a strong slowdown in consumption at the beginning of the third quarter. Households continue to adapt to higher inflation, and in the coming months the effect of budget tightening (e.g. the changes in the utility bill support scheme) may further strengthen this. Although it is still too early to make a judgment, the probability that the volume of GDP will show a quarter-on-quarter decrease in the July-September period has clearly increased. Our silver lining here would be that during the summer, services can help the expansion of consumption to a greater extent. Instead of buying things, consumers are focusing their spending on experiences, which is not measured by retail sales data. Read this article on THINK TagsRetail sales Hungary Households Consumption Consumer confidence Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

At an annualised pace of more than 3.5%, the 2Q22 GDP data indicates the scale of the task facing the Reserve Bank in taming demand sufficiently to dampen inflation Source: istock 0.9% 2Q22 GDP quarter-on-quarter 3.6% year-on-year As expected Growth as expected - still strong though 2Q22 GDP growth in Australia was 0.9% quarter-on-quarter, in line with the market consensus, though the year-on-year rate came in a bit higher at 3.6% YoY from an expected 3.4%, due to downward revisions to previous GDP numbers, lifting the annual comparison.  2Q22 contributions to QoQ GDP growth by expenditure type Source: CEIC, ING Consumer spending remains strong The chart above illustrates the contribution to the GDP total growth figure from selected expenditure categories, and it sheds light on the problem facing the Reserve Bank of Australia (RBA). Firstly, household consumer spending is still growing rapidly, adding 1.1ppt to the headline figure. This will need to come down if overall demand is to soften sufficiently to dampen inflation. Private gross fixed capital formation (private capex) is looking much more subdued, which reflects weakness not just in residential construction, but across the whole investment spectrum. This segment of the economy has been soft for some time and it is unlikely to dramatically improve given the rates and tough external background...it could even get worse. Net exports (exports minus imports) are still doing a lot of the heavy lifting. Imports didn't deliver any drag this quarter and exports were a positive boost. But unless domestic demand softens, we should expect the contribution from this sector overall to diminish in the quarters ahead. There is also likely to be a boost next quarter from inventory accumulation, given the drawdown apparent this quarter, so we may be in for another similar headline figure of around 1.0% QoQ in 3Q22. If so, that would put full-year 2022 GDP growth on track to exceed 4% - not really conducive to getting inflation down rapidly and might indicate that rates will have to go higher and stay higher for longer to achieve the RBA's aim.  Read this article on THINK

Industrial production fell sharply in July and remains 6% below its pre-pandemic level. Industry will probably contribute negatively to French economic growth in the third quarter   French industrial production fell by 1.6% over one month in July, and the decline was widespread across all branches of the industrial sector. Only construction increased its output by 0.5% over the month. Over a year, industrial production is down by 1%. It is therefore a difficult start to the third quarter for the French industrial sector, which is clearly suffering from the disruption of supply chains due to the war in Ukraine, lockdowns in China, and rising energy prices. Looking ahead, the contraction in order books since February, the high level of stocks of finished goods, high uncertainty, high energy and raw material prices, and potential disruptions to energy supplies do not point to an improved outlook for the French industrial sector. Indeed, the business climate indicator for the sector fell further in August. It is therefore likely that industry will make a negative contribution to French economic growth in the third quarter. The industrial sector only represents 15% of total French value added (20% if we include construction), so the weakness of industry is not enough in itself to conclude that the macroeconomic outlook for the next few quarters has worsened. However, the outlook is not much more favourable in the services sector. The deterioration in purchasing power caused by inflation, the decline in consumer confidence, and the fading of the positive effects of the post-pandemic reopenings will weigh on the dynamism of services in the coming months. As a result, the question is no longer really whether France and other European countries are heading for recession, but rather how fast the recession is coming. Given the developments of the last few weeks, there is a risk that French GDP growth will turn negative in the third quarter. We expect growth of 2.2% for the whole of 2022 and -0.2% for the whole of 2023.  Read this article on THINK TagsIndustrial Production GDP France Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Senior Economist at UOB Group Alvin Liew assesses the latest Industrial Production figures in Singapore. Key Takeaways “Singapore’s industrial production (IP) came in above expectations as it rose by 2.0% m/m SA, which translated to a growth of 0.5% y/y in Aug, (from the upwardly revised Jul readings of -2.1% m/m, 0.8% y/y). Excluding the volatile biomedical manufacturing, IP actually contracted by -2.9% m/m, 1.2% y/y% y/y in Aug (from an upwardly revised -0.9% m/m, 3.1% y/y in Jul).” “While the Aug IP beat expectations, it was due to a rebound in pharmaceutical production (6.4% y/y). Other main sources of IP growth were from the continued expansions in transport engineering (32.8% y/y), general manufacturing (18.8% y/y), and precision engineering (2.9% y/y), offsetting the declines in electronics output (-7.8% y/y) and chemicals (-11.2% y/y).” “Accounting for the Aug’s increase, Singapore’s IP expanded 4.4% in the first eight months of 2022. The latest dip in Aug electronics PMI (to 49.6, first contraction after two years of continuous expansion, and the lowest reading since Jul 2020) painted a consistent picture from what we saw in the latest NODX and manufacturing data, a start of the electronics downcycle. We continue to be cautiously positive on the outlook for transport engineering, general manufacturing, and precision engineering, to support overall IP growth but we see a weaker electronics performance and slowing demand from North Asian and key developed economies that could increasingly weigh on NODX momentum and manufacturing demand. We keep our Singapore manufacturing growth forecast at 4.5% in 2022 (from 13.2% in 2021) but we expect the sector to contract by 3.7% in 2023 due to the faltering outlook for electronics and weaker external demand. In the same vein, our 2022 GDP growth forecasts are also unchanged at 3.5% but the faltering 2023 manufacturing outlook indicates the downside risk to our GDP growth projection next year.’

The recovery in Spanish tourism seems to be slowing down. While the number of international visitors in July was still at 92% of its pre-pandemic levels, this dropped to 87% in August Tourists in Benidorm, Spain International tourism at 87% of pre-pandemic levels in August The gloomy economic outlook and the uncertain geopolitical situation now seem to be slowing down the recovery of the Spanish tourism sector. In August, Spain welcomed 8.8 million international tourists, equivalent to 87% of its pre-pandemic level. In July, 9.1 million international tourists visited Spain, which then corresponded to 92% of its pre-pandemic level. Also, total expenditures by international tourists, corrected for inflation, dropped to 85% of pre-pandemic levels in August, from 88% in July. These figures show that it will probably take another year for international tourism to return to pre-pandemic levels. The slowdown in domestic tourism was even greater than that of foreign tourism. The number of hotel stays booked by residents fell to 101% of pre-pandemic levels in August, from 107% in July. International tourists entering Spain, in % of pre-Covid levels Tourism will still support economic activity in 3Q but outlook is weaker As tourism is an important economic sector in Spain, contributing 14% to total GDP in 2019, according to the World Travel and Tourism Council, a sustained recovery is an important factor for economic growth. The tourism sector has held up much better than the rest of the economy so far. Although the recovery appears to be slowing, tourism will still continue to support Spanish economic activity in the third quarter of 2022. However, the new figures also show that the contribution of tourism to Spain's economic growth is likely to fall in the coming months as the eurozone heads towards recession. In the second quarter, Spain's economy still grew by 1.5% on a quarterly basis, thanks to strong growth in domestic demand and the revival of tourism. However, the third quarter looks set to be weaker than the second. The latest manufacturing PMI released last Friday showed that factory activity contracted in September due to high inflation and a falling number of new orders. The PMI index fell to 49.0 last month from 49.9 in August, staying below the 50.0 mark that separates growth from contraction. Also, consumer confidence fell again in September which does not bode well for consumption in the third quarter. For the third quarter, we expect a slowdown in the economy followed by a slight contraction in the fourth quarter. Year-on-year growth would then reach 4.3% over the full year. For 2023, we expect growth between 0 and 1% as the energy crisis will continue to weigh on the outlook. Read this article on THINK TagsTourism Spain GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Volatile August production data should be taken with a pinch of salt as underlying developments continue to point to more accentuated weakness over 4Q22, when industry will very likely be confirmed as a drag on growth Car production line in Turin, Italy   According to Istat data, Italy's seasonally-adjusted industrial production increased a surprisingly strong 2.3% month-on-month in August (from an upwardly revised 0.5% in July). The working day adjusted measure posted a 2.9% year-on-year change (from -1.3% YoY in July). "August effect" possibly at play, in 3Q22 industry should remain a drag on GDP growth The broad aggregate breakdown shows that consumer and investment goods were the main drivers of the acceleration while the production of energy contracted. To be sure, this is a positive reading, but it should be taken with a pinch of salt, as the August release is often affected by marked volatility due to firm closures and their impact on seasonal adjustments. In order to get a sense of the underlying developments, we look at the moving quarter and note that over the June-August period, production contracted by 1.2% from the previous three months. Confidence and PMI data point to a deterioration in September While the August reading can still be partially interpreted as evidence that Italian industry continues to be relatively more resilient to international supply chain disruptions and to ballooning energy prices, we expect the picture to get gloomier over the coming months. The manufacturing PMI has been in contraction territory since July and business confidence plunged in September, with the expected production subcomponent down to levels not seen since November 2020. The set of measures recently put in place by the outgoing government to weather the energy inflation shock will help limit the damage for businesses but is unlikely to stop industry from becoming a drag on growth in both 3Q22 and 4Q22. The European Central Bank's tightening mode will not make things any easier over the next few months, possibly weighing on the investment component. A GDP contraction could still be avoided in 3Q22, not in 4Q22 After today’s reading we are mildly comforted in our view that the Italian economy might manage to avoid a contraction in 3Q22 (we expect a minor 0.1% GDP expansion) but remain convinced that this will not be possible in 4Q22, when we project a 0.5% quarter-on-quarter contraction, which should mark the start of a recession. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The American economy, like many others in the world, is struggling with serious economic problems. The threat of recession also appears from the perspective of the world's largest economy. To find out the scope and scale of the problem, you should take a look at the gross domestic product (GDP). On Thursday, will be review of the results for the value added created through the production of goods and services in a country during the last quarter (Q3). Real GDP The U.S. economy is expected to grow  from the first half of the year, but most Americans are unlikely to notice anything. This time it is expected to break above zero and hit 2.1%.The latest US GDP figures are likely to be supported by a narrowing trade gap as the US imports fewer goods as demand slows down. Although the newest numbers are likely to look like improvements on paper, economists say they don’t reflect major changes in the economy. America’s return to growth stands in sharp contrast to other major economies, including Europe and the United Kingdom, which are either already in recession or almost. We can expect that along with strong GDP results, the strength of the dollar (USD) will also increase. This is because high GDP reflects a higher pace of production, indicating a greater demand for the country's products. Increased demand for a country's goods and services often translates into increased demand for the domestic currency. The appreciating dollar will affect the rates of the main currency pairs, and thus the next hawkish actions of central banks. Previous data Real gross domestic product (GDP) fell by 0.6%. annually in the second quarter of 2022, after a decrease of 1.6%. in the first quarter. The decline in the second quarter was the same as previously estimated in the "second" estimate published in August. The decline in real GDP reflected declines in private inventory investment, fixed housing investment, federal government spending, and state and local government spending, which were partially offset by increases in exports and consumer spending. Import increased, which is a subtraction in the GDP calculation (Table 2). The decline in private stock investment was due to a decline in retail trade (mainly "other" grocery stores). The decline in fixed residential investment was due to a decline in 'other' structures (in particular real estate brokers' commissions). Economists and data Many economists say a recession in 2023 is almost inevitable as the Federal Reserve continues to aggressively raise interest rates in hopes of slowing the economy enough to control inflation. But for now, the economy remains strong in many ways. Unemployment, at 3.5 percent, many Americans are receiving increases, and corporate investment and consumer spending remain high. On the one hand, good data, on the other hand, of the Fed's actions and the opinions of economists do not give any credible outlook for the future. Therefore, it is necessary to observe changes in the monetary policy and their impact on the key indicators of the country. GDP Price Index On the same day, the GDP Price Index will be published along with the real gross domestic product (GDP). Although the US economy recorded strong growth in GDP Price Index in the first half, it is expected that in the third quarter the reading will be much lower than recently. The expected level is 5.3% against the previous 9.1%. Persistent inflation continues to weigh heavily on both economic growth and household budgets. Source: investing.com The GDP Price Index measures changes in the prices of goods and services produced in the United States, including those exported to other countries. Source: bea.gov, Investing.com

After a delay related to the Communist Party congress, China published a batch of monthly and quarterly statistics, which caused mainly disappointing reactions from analysts. GDP added 3.9% in the third quarter compared to a year earlier against expectations of 3.5%. In the three quarters, the economy added 3.0% over the same period a year ago against 2.5%, the first-rate increase in more than a year. Also among the positive signals was a jump in industrial production by 6.3% y/y in September compared to 4.2% the month before and the expected 4.9%. A trade surplus is also higher than expected, but an essential reason for its growth was a fall in imports rather than increased exports, which is not good macroeconomic news. Chinese retail sales went down significantly A very alarming signal was the cooling of retail sales from 5.4% to 2.5% (3.1% expected). Chinese government officials declare a further commitment to a zero covid expansion policy, potentially preventing economic activity from getting firmly back on the growth track. An additional worrying factor for Asian markets is the reappointment of Xi Jinping for a third term. Investors are selling off Chinese assets on this news, suggesting a further course of austerity in the country, escalating tensions around Taiwan and anti-market reforms. Contrary to the famous adage, markets have not been "selling the fact" of Xi's unprecedented third term, for which they have been preparing in recent months. The Chinese yuan has rewritten lows against the dollar since 2008, and the offshore USDCNH exchange rate has surpassed 7.30. Key Chinese stock indexes are losing about 7% on Monday, pushing the Hang Seng index to lows since 2009 and the China H-share to 2005.

Summary:  In today's edition, we focus on the pace of U.S. credit growth and whether or not it indicates an imminent risk of a U.S. recession. To put it simply, credit growth is stabilizing at a very right level which is not normally consistent with a recession. Other credit aggregates we monitor, such as the credit impulse, are oriented north too. It is currently running at 4.5 % of GDP - this is the highest level since 2011. Click to download this week's full edition of Macro Chartmania composed of more than 100 charts to track the latest macroeconomic and market developments. All the data are collected from Macrobond and updated each week. A majority of market participants believe a soft landing in the United States is an unlikely scenario. Based on the latest credit data, this is still possible though. In the below chart, we show the evolution of commercial and industrial loans and leases. This is an important category of assets that commercial banks report on their balance sheets. This has been published on a quarterly basis by the U.S. Federal Reserve (Fed) since 1947. The latest data for the third quarter was out a few days ago. Commercial and industrial loans and leases are still growing at a strong pace, running at 17.3 % year-over-year in Q3. The last peak was in Q2 2020 – immediately in the aftermath of the outbreak. Growth was without any historical precedent at 88.3 % year-over-year. But the circumstances were out of the ordinary. At Saxo Bank, we also measure the growth of credit using credit impulse. This is a larger aggregate which measures the flow of new credit issued by the private sector as a percentage of GDP (see the chart in today’s Macro Chartmania). It is heading north at 4.5 % of GDP. Both indicators (commercial and industrial loans and leases and credit impulse) are used to predict a recession. When both are in a contraction, this usually ends up in a recession. As you can see, the current credit growth is not consistent with an imminent recession. We believe that the release of the first estimate of the Q3 U.S. GDP on 27 October will confirm the U.S. economy is rather resilient, despite growing concerns about inflationary pressures (the economist consensus expects GDP growth to reach 2.4 %). In our view, the resilient U.S. economic outlook (especially if we compare with the eurozone) and the continued strong inflow of credit in the economy should give the U.S. Federal Reserve enough room for maneuver to hike interest rates in November and beyond. We believe that the central bank will hike rates by 0.75-point next month. Fed officials could also start debating whether and how to slow the pace of increases after that, but more to take into consideration hidden financial risks (notably on the U.S. bond market) rather due to concerns about an imminent recession.  Source: https://www.home.saxo/content/articles/macro/chart-of-the-week-strong-us-credit-growth-25102022

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

We suspect that a combination of post-Covid re-opening and tourism effects was at play, possibly with the support of investments. We still expect a short recession to start in 4Q22 A good recovery in domestic and international tourism helped boost Italy's second-quarter GDP Italian economy decelerating, but well clear of contraction in 3Q22 The flash estimate just released by Istat shows that Italy managed to avoid contraction in 3Q22. We had expected a positive reading, but the 0.5% QoQ gain (was 1.1% QoQ in 2Q) is clearly a positive surprise. The 2.6% YoY gain (was 4.7% in 2Q22) marks a clear deceleration, which looks set to continue ever the next few quarters. As usual at the preliminary estimate stage, no detailed demand breakdown was released but the indication is that domestic demand (gross of inventories) provided a positive contribution to quarterly growth, while net exports acted as a drag. On the supply side, value added contracted over the quarter in agriculture and industry and increased in services. The tail effects of re-opening and positive tourism numbers likely the main drivers Today’s release confirms our belief that the re-opening effect and a very positive tourism season were still powerful growth drivers in the third quarter of 2022. We suspect that detailed demand data will eventually show positive contributions from both consumption and, possibly, investments, the latter helped by the support of European recovery funds and generous domestic tax investments in the construction domain. A contraction in 4Q22 still looks hard to avoid Looking forward, we remain convinced that a GDP contraction is hard to avoid in 4Q22, opening a short-lived recession which looks set to end by 2Q23 . Confidence data headed further south in October, including in the tourism sector. Households are gloomier as disposable incomes are increasingly eroded by accelerating inflation and with a backdrop of slowly growing wages. The new government will likely prioritize a new wave of compensatory measures, but these will mostly refinance expiring ones and so limit damage rather than inducing a turnaround. Statistical carryover for 2022 GDP growth is now at 3.6%. Taking into account the 0.5% contraction that we are currently penciling in for 4Q22, we would end up with average GDP growth of 3.5% in 2022. Keeping our previous profile for 2023 unaltered, we now look for average GDP growth of 0.2% in 2023. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

In the world of economics, we use many indicators to describe the situation of a farm. A lot of these are important, but GBP is really essential. Recently, the situation of the economies and markets has been influenced by interest rates. But what exactly can we learn from these data, decisions?   What is Gross Domestic Product (GDP)? We often Hear that some economy is expecting growth, but what does that mean? Read more: The US Economy Expects Growth (GDP) In The Last Quarter (Q3) | FXMAG.COM By definition, gross domestic product is the monetary value of all finished goods and services produced in a country during a specified period. GDP is an economic snapshot of a country that is used to estimate the size of an economy and its rate of growth. GDP can be calculated in three ways using expenditure, production or income. It can be adjusted for inflation and population to provide deeper insight.     What do we learn from GDP? It gives us some idea of where the national economy is going we can determine whether the economy is developing and how fast. It is thanks to this that we can learn about a recession or the growth or stagnation of farmhouses. Governments and other entities such as central banks can adjust their actions by knowing the results. If growth slows, they can introduce expansionary monetary policy to try to stimulate the economy. If the pace of growth is solid, they can use monetary policy to slow things down and try to fight off inflation. Moreover, it enables analysts to compare countries economically. However, it should not be treated as a hard economic indicator, because there are many gaps in this method of "measuring the economy". Since GDP is a direct indicator of the health and growth of an economy, companies can use GDP as a guide in their business strategy.   There are also types of GDP. The main ones are: Nominal GDP is an assessment of economic production in an economy that includes current prices in its calculation. All goods and services counted in nominal GDP are valued at the prices that those goods and services are actually sold for in that year. Real GDP is an inflation-adjusted measure that reflects the number of goods and services produced by an economy in a given year, with prices held constant from year to year to separate out the impact of inflation or deflation from the trend in output over time. GDP per capita is a measurement of the GDP per person in a country’s population. Per-capita GDP shows how much economic production value can be attributed to each individual citizen.   When a central bank lends money - what is interest rate? Interest rate is the amount a lender charges a borrower and is a percentage of the principal—the amount loaned. The interest rate also applies to the amount earned in the bank or the cashier from the deposit account. The interest rates charged by banks depend on many factors, such as the state of the economy. A country's central bank sets the interest rate each bank uses to determine the APR range it offers. When the central bank sets interest rates high, the cost of debt goes up. The high cost of debt discourages people from taking loans and slows down consumer demand. So it helps against inflation, but it is negative for borrowers because the cost of debt rises and sometimes it can be difficult to pay off. In the situation of some households, this state of affairs can cause financial problems, such as indebtedness to friends or elsewhere, and directly affects the standard of living.     Stimulating economies On the other hand, economies are often stimulated during periods of low interest rates because borrowers have access to cheap loans. Because the savings rate is low, companies and individuals are more likely to spend and buy more risky investment instruments such as stocks. This spending fuels the economy and injects capital markets. Simply put, for economies interest rates are crucial because they help stimulate their growth and also help in times of high inflation. Sources: Dictionary Of Economics And Commerce

The bullish and bearish case for energy prices and what those scenarios would mean for the major economies Three scenarios for the global economy and energy prices Last month we set out a series of scenarios for the energy market and the major economies we cover. Since then the renewed collapse in gas prices for immediate delivery, as well as the rapid turnaround in political and market sentiment towards the UK, shows why it makes sense to stress test assumptions and central forecasts. What follows is an overview of what underpins our base case, alongside both an upside and downside scenario for growth, inflation and central bank policy. Three scenarios for energy prices Source: Macrobond, ING Three scenarios for the US economy   Source: Macrobond, ING Three scenarios for the eurozone economy Source: Macrobond, ING Three scenarios for the UK economy Source: Macrobond, ING Three scenarios for China's economy   Source: Macrobond, ING TagsEnergy crisis 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

Prospects of fiscal tightening, limited energy support, and sky-high mortgage rates look set to reduce the size of the UK economy by roughly 2% over several quarters In this article The new prime minister has succeeded in calming markets Energy support to become less generous A recession looks inevitable Source: Shutterstock The new prime minister has succeeded in calming markets The appointment of Rishi Sunak as the new UK prime minister heralds a very different fiscal approach to his predecessor. Promises of debt sustainability have succeeded in stabilising financial markets, and both the pound and gilt yields have gone full circle since the mid-September ‘mini budget’. The political risk premium, as measured by the spread between German and UK 10-year yields, has narrowed back, although it is still wider than it was before the Conservative leadership contest started in July. Unfortunately, that’s where the good news stops. Sunak may have tentatively won back investor confidence, but he’ll need to find savings worth roughly £30-40bn/year to convince the independent Office for Budget Responsibility that debt won’t rise across the medium-term as a percentage of GDP. With very limited scope to cut day-to-day spending, we suspect he’ll have to chop back public investment plans and potentially also look at increases to personal taxes. Energy support to become less generous None of this will be good for growth, though the impact will be dominated by a decision to make the government’s flagship energy support programme less generous from April 2023. Under existing plans, the average household energy bill is capped at £2,500 for two years, but the government has signalled this will become more targeted. Aside from adjusting income tax rates, the only obvious way of doing this would be to make a distinction between those on welfare support and those that aren’t. One scenario could see most consumers move back to paying the Ofgem-regulated price from April. The cost of fixing household energy bills has collapsed Source: Refinitiv, Ofgem, ING calculations   Under that sort of policy, we'd expect most households to pay on average £3,300 in FY2023 for energy, without any government support. As the chart shows, the sharp fall in gas prices means that estimate has halved since August. But that would still leave the average household paying close to 10% of their disposable income on energy. Alongside that, mortgage rates look set to fall fairly gradually, against a backdrop of stubbornly high Bank of England expectations and a greater premium from lenders for high loan-to-value products. With roughly a third of mortgages fixed for two years, millions of homeowners look set to lock-in these higher rates. The two-year fixed rate recently peaked at 6.5%. A recession looks inevitable All of this suggests a recession is now inevitable, and we’ve once again downgraded our GDP forecasts. We now expect the size of the economy to shrink by roughly 2% over four quarters, concentrated in the first half of 2023. Admittedly these forecasts are still heavily contingent on how the government adjusts its energy support. If gas prices begin to rise, particularly for winter 2023/24 contracts, then the government will be under heavy pressure to once again extend its energy support to all households beyond April next year. TagsUK fiscal policy Energy crisis

Everyone has heard of public debt. However, few associate it with a personal economic situation. Debts, which represent over a trillion, seem abstract and far removed from real life. Public Debt By definition of economic dictionaries, public debt covers nominal debt of public finance sector entities, determined after eliminating financial flows between entities belonging to this sector (consolidated gross debt), incurred for the following reasons: securities for cash benefits only (except for equity securities), loans (including securities whose marketability is limited), loans, deposits accepted, maturing liabilities (ie liabilities with expired maturities that have not been past due or redeemed). From a practical point of view, public debt is the total liabilities of the public finance sector - the government, local governments and extra-budgetary funds. The fastest growth in public debt is caused by wars and deep economic crises. In both cases, there is a sharp decline in economic activity (and with it a drop in income) and a simultaneous increase in expenditure. The effect may be a collapse of public finances. Indebtedness of the state and local governments allows to avoid cuts in expenses and raising taxes. However, you cannot cover the budget deficit indefinitely with credits or loans. The lack of real control of expenditure inevitably leads to a situation in which servicing the public debt becomes so expensive that it is necessary to take out new credits and loans for the settlement of liabilities from previous years. A negative consequence may be insolvency at the level of a local government unit or even the entire state. When an individual goes bankrupt, its debts are taken over by the state treasury. However, if a state goes bankrupt, there is no one to take over its obligations. In such situations, the government tries to find money to service the public debt. For this purpose, it may, inter alia, raise taxes, freeze wages in the public sector, lower social spending. Such actions influence the situation of the economy and thus the citizens. When the Public Finance Crisis occurs, this is the moment when every citizen realizes that public debt is directly related to his private finances. The quality of life and the level of social security are falling sharply. Most countries are in debt. Some of them could pay off public debts. To this end, they should cut expenses for many years, resign from issuing debt securities (e.g. treasury bonds) and allocate all surpluses to debt repayment. However, a consistently pursued policy of tightening the belt would in a short time lead to a slowdown in the pace of economic development and, as a result, to a reduction in the standard of living. Properly serviced public debt does not have to negatively affect the state of the economy. Its relation to GDP is of key importance. Budget deficit One of the factors of public debt is the budget deficit. By definition, it is current expenditure that exceeds the amount of income earned on standard operations. In order to correct its country's budget deficit, the government may reduce some spending or increase income-generating activities. Both the level of taxation and expenditure affect the government's budget deficit. The deficit can be the result of: low GDP, an increase in government subsidies, an increase in social spending or tax cuts. The government can work to reduce the budget deficit by using a fiscal policy toolkit to promote economic growth, for example by cutting government spending and raising taxes. Budget deficits affect individuals, businesses and the economy as a whole. As the government takes steps to reduce the deficit, spending on social programs may be cut. It may also affect infrastructure improvements. Source: Textbook On Macroeconomics, Dictionary Of Economic

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

Retail sales slowed visibly at the beginning of 4Q fitting into the broad picture of a slowing economy. High inflation is undermining real disposable income despite one off pension payments and tax cuts as wage growth fails to keep pace with price growth. In the face of deteriorating GDP growth, the MPC is unlikely to resume its hiking cycle anytime soon   Retail sales of goods rose by just 0.7% year-on-year in October (ING: 3.8%; consensus: 3.2%), following a 4.1% YoY increase the month before. The weakness in sales was broad-based last month. The steepest declines were reported in fuel (-20.5% YoY), while the largest increase was in clothing and footwear (14.3% YoY). Growth in food sales (2.4% YoY) was also lower than in previous months.   Since May this year, wage growth in the corporate sector has been failing to keep pace with retail price growth (the exception being July, when high one off payouts in mining and energy temporarily boosted earnings). With relatively stable employment growth, this is translating into declines in the real wage fund. This is generating pressure on consumer spending as the resulting gap in real incomes cannot be offset by one off pension benefits and tax cuts. At the same time, households have largely consumed the savings accumulated during the pandemic. Falling real wages translate into weaker demand Retail sales of goods (real) and real wage bill in enterprise sector, % YoY Source: GUS, ING.   The beginning of 4Q22 signalled a further downturn in the Polish economy. We have seen slower industrial production growth and weak retail trade data. The fact that construction continued to expand and was hardly hit by higher costs and a collapse in mortgage loans, is of little consolation given the fact that it was boosted by favourable weather conditions in October this year. In annual terms, GDP growth in 4Q22 will be lower than in 3Q22, and we expect a decline in 1Q23.   Given that a significant part of current inflation was driven by rising costs, the emergence of a negative output gap will have a limited impact on the pace of price growth. In 2023, we expect still high core inflation and double-digit growth in consumer prices (CPI). Given the MPC's sensitivity to developments in the real economy, the likelihood that it will resume its tightening cycle (which has been 'paused') is negligible in the coming months. 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  

Internationally, governments face a difficult challenge: supporting their citizens at a time when prices are rising dramatically, especially for necessities such as food and fuel, which have been deeply affected by the war in Ukraine. The Outlook The outlook for the global economy heading into 2023 has worsened, according to multiple recent analyses, as the ongoing war in Ukraine continues to hamper trade, especially in Europe, and as markets await a more complete reopening of the Chinese economy after months of destructive COVID-19 lockdowns. In the United States, signs of a tightening labor market and a slowdown in economic activity fueled fears of a recession. Globally, inflation picked up and business activity, particularly in the euro area and the UK, continued to decline. In June, inflation rose to a 40-year high of 9.1% and remained at 7.7% in October, well above the Fed's target of 2% a year. Fed Chairman Jerome Powell and his associates responded by raising interest rates from near zero in March to a range of 3.75% to 4%, with signaling indicators likely to exceed 5% for the first time since 2007. 2.6% in Q3 Gross domestic product in the US in the third quarter of 2022 increased by 2.6 percent. quarter-on-quarter (annualized), according to preliminary data from the Department of Commerce. This reading is higher than market expectations, as an increase of 2.4% was expected. This result was presented at the end of October (27.10.22) and this gave the Federal Reserve room to raise interest rates further. Forecast Expectations for the next reading are even more positive. GDP is expected to reach 2.7%. Source: investing.com How it is calcuated? The US uses a different way than European countries to compare GDP. They annualize their data, i.e. they convert short-term data as if they were to apply to the whole year, e.g. the monthly value is multiplied 12 times, and the quarterly value 4 times. For example, if GDP growth in a given quarter was 1%. compared to the previous quarter, the annualized growth rate was - to put it simply - slightly more than 4%. This means that we cannot directly compare data on GDP dynamics in the US to that recorded in European countries that publish data on economic growth dynamics without annualization. Recession? There is currently no recession in the US as it was not declared by the NBER, although the country entered a technical recession in the second quarter of 2022 with a second consistent quarter of negative GDP growth. However, there are several factors pointing to a growing likelihood of a recession in the coming months. Painful inflation can often persist without pushing the economy into recession. On the other hand, the actions of the US Federal Reserve (Fed), which sticks to a 2% price increase target, are increasingly likely to push the US into recession. Fed economists said it was a virtual coin toss as to whether the economy would grow or plunge into recession in 2023. Central bank staff cited rising pressure on consumer spending, trouble abroad and higher borrowing costs as short-term headwinds. Among the forecasts of a recession in the United States, there seems to be a growing consensus on its occurrence. However, there are some discrepancies as to how deep and how long it will be. Source: investing.com

Markets await the release of the EU CPI, but before that event we are looking at the CPI reports in Germany and Spain. From North America there are also reports from both the USA and Canada. Switzerland Gross Domestic Product Switzerland Gross Domestic Product fell again. This time it was a drastic drop from 2.2% to 0.5%. On the other hand, the quarterly change in this indicator was higher than the previous reading. GDP Q/Q increased from 0.1% to 0.2%, but was lower than expected (0.3%). Spanish CPI At the beginning of the day, the inflation report from Spain appeared. The readings turned out to be lower than expected and also down compared to previous readings. CPI Y/Y dropped from 7.3% to 6.8%. Natmosiat CPI from month to month fell by as much as 0.6% and reached the level of 6.6%. Growth was expected in both cases. A decrease in this indicator may suggest an improvement in the situation, i.e. prices are not rising but have started to fall. Another reading may confirm this direction. Harmonised Index of Consumer Prices, is the same as CPI, but with a joint basket of products for all Eurozone member countries. The HICP also fell to 6.6%. German CPI The German CPI report is yet to come. CPI Y/Y is expected to maintain its previous level of 10.4%. On the other hand, CPI M/M will fall from 0.9% to -0.2%. As for the German HICP, it is expected to fall in both cases, ie year-on-year and month-on-month. The HICP M/M is expected to reach a horizontal 0.1% and if confirmed, it will be lower than the previous one by 1%. HICP Y/Y is expected to decline slightly by 0.3%. The previous reading was 11.6%. Canada GDP Canada's Gross Domestic Product report comes out today. The monthly change in GDP is expected to be at the same level as last time, ie 0.1%. This may mean that the Canadian economy is stagnating. Source: investing.com On the other hand, the quarterly change shows that the goposadraka is shrinking as it is expected to fall from 0.8% to 0.4%. Speeches Today, markets and traders are also waiting for speeches from the ECB and from the UK. Luis de Guindos, Vice-President of the European Central Bank has already given speeches. This speech took place at 9:10 am CET. The next speech from the European Central Bank is scheduled for 14:30 CET. Isabel Schnabel, member of the Executive Board of the European Central Bank, is set to speak. Two speeches are also scheduled from the Bank of England. The first will take place at 13:25 CET. Dr Catherine L Mann, a member of the Monetary Policy Committee (MPC) of the Bank of England, will speak. The next speech is scheduled for 16:00 CET. This time will be Bank of England (BOE) Governor Andrew Bailey. Bailey has more influence over sterling's value than any other person. Traders scrutinize his public engagements for clues regarding future monetary policy. CB Consumer Confidence The level of consumer confidence in economic activity expects a drop from 102.5 to 100.0 It is a leading indicator as it can predict consumer spending, which plays a major role in overall economic activity. Higher readings point to higher consumer optimism. But this time pessimistic sentiment is expected, once again. The last worsening took place in October and it may happen again this time. Summary: 9:00 CET                Spanish CPI (YoY) 9:00 CET                Switzerland Gross Domestic Product 9:10 CET                ECB's De Guindos Speaks 13:35 CET                BoE MPC Member Mann 14:00 CET                German CPI (Nov) 14:30 CET                Canada GDP 14:30 CET                ECB's Schnabel Speaks  16:00 CET                BoE Gov Bailey Speaks 16:00 CET                CB Consumer Confidence   Source: https://www.investing.com/economic-calendar/

The economic sentiment indicator increased slightly in November from 92.7 to 93.7, mainly due to a consumer rebound. The overall picture continues to show a mild recession, but also more signs of slowly fading inflation pressures The service sector saw the indicator for recent demand deteriorate further in November     The eurozone economy continues to show clear signs of recession. While consumers became slightly more upbeat – but still at depressed levels – in November, industry and services still showed signs of contracting activity. Industry sentiment decreased from -1.2 to -2 in November, the lowest reading since January last year. Businesses reported a sharp decline in recent production trends as new orders continue to drop. Production expectations slightly improved, perhaps as supply chain problems are easing. Nevertheless, with orders still in decline, it is hard to predict a swift turnaround in production. The service sector also saw the indicator for recent demand deteriorate further in November, although modestly. The retail sector noticed a slight improvement in recent demand and overall we see that the service sector has become slightly more upbeat about the months ahead. Overall, it looks like the current environment is one that is in line with a mild recession occurring. We often hear from the European Central Bank (ECB) that a mild recession is not enough to bring inflation down sustainably, but it is important to take this together with the easing supply side problems that the economy has faced recently. Signs of a changing inflation picture are slowly becoming more apparent. Energy prices have moderated somewhat, which is helping headline inflation readings for November stay on the low side. But easing supply-side pressures, lower wholesale energy prices, weakening demand and higher volumes of stock are also causing businesses to become somewhat less keen to increase prices, according to this survey. In industry and retail, in particular, we clearly see a lower number of businesses that are keen to increase selling prices in November. While these are only the first signs that inflation is set to moderate, they are very important to the ECB. We think the ECB will opt for a 50bp rate hike in December as the recession is becoming more apparent and inflationary pressures are cautiously easing. TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

China stocks bouyed by more thoughtful approach to zero Covid; production data from Korea and Japan disappoint; Australian inflation data surprises on the downside; Powell tonight!  In this article Macro Outlook What to look out for: Fed Speakers and US jobs report   shutterstock Macro Outlook Global markets: Chinese stocks made strong gains yesterday as a scheduled announcement on the recent Zero-Covid measures promised a less draconian approach in the future. Among the various measures noted, one was more pressure on the elderly to get vaccinated, which could be one route out of Zero-Covid, though there is a long way to go yet before this happens. The Hang Seng Index gained 5.24%, and the CSI 300 rose 3.09%. Daily symptomatic case numbers are currently hovering at a little under 4,000, where they have been since recording 4,010 on 23 November. US stocks were less upbeat. Both the NASDAQ and S&P500 made small losses on the day, perhaps taking defensive positions ahead of today’s speech by Fed chair, Jerome Powell, which we expect will be one of the more hawkish speeches to date. US equity futures also look slightly jittery.  US Treasury yields are edging higher too. The 2Y Treasury yield is up 3.5bp over the last 24 hours and there was a bigger 6.3bp rise from the 10Y bond which now yields 3.744%. European bond yields fell yesterday by about 6bp on average, probably helped by some lower inflation numbers. The EURUSD exchange rate pulled back a little further to 1.0323 on the combination of slightly higher risk aversion and yield differential swings. The AUD is actually slightly stronger than this time yesterday at 0.6674, but recent direction has been weaker after a big upswing. Cable performed much the same bi-directional move and is little changed in net terms at 1.1944 from a day ago, and the same goes for USDJPY which is currently trading at 138.75.  Asian currencies had a mixed performance in the last 24 hours. The CNH and CNY have both strengthened following the reassurances given on Zero-Covid policies, and that probably helped drag along the THB and TWD for smaller gains. The MYR held up the bottom of the table, variously blamed by newswires on profit taking and lower crude oil prices.   G-7 Macro: Germany’s inflation rate for November, fell to 10.0% from 10.4% in October (11.3% from 11.6% on a harmonised basis). Though as the linked note here suggests, inflation may not yet have peaked in Germany, so the drop in yields may prove short-lived.  Eurozone November inflation data is released later today and the harmonised inflation rate is due to decline to 11.3% YoY from 11.8%. In the US, the ADP survey provides the first and least unreliable indicator for Friday’s payrolls release. JOLTS job openings and layoffs data adds some nuance to last month’s employment numbers, but don’t actually tell us much new, and are unlikely to be market moving. The same goes for the second release of US 3Q22 GDP data. Industrial Production in October from South Korea and Japan were weaker than expected, reflecting signs of a global demand slowdown. Korea: Industrial production (IP) plunged -3.5% MoM sa in October, lower than the market expectation of -1.0% (vs a revised -1.9% in September).  All industry IP dropped -1.5% MoM sa in October, falling for the fourth consecutive month, and the contraction even intensified in October.  Meanwhile, retail sales (-0.2%) and facility investment (0.0%) outcomes were also sluggish as interest rate hikes and the gloomy outlook for the overall economy weighed on activity. Today’s weak outcomes support our view that GDP in the current quarter will contract, and that the ongoing trucker strike will put more strain on economic activity, at least in the current quarter. In addition, as the effect of the rate hikes to date have begun to have a more full-fledged impact on economic activity along with weak external demand conditions, the Bank of Korea probably only has limited room for further rate hikes. Japan: Industrial production fell -2.6% MoM sa in October (vs -1.7% in September, market consensus: -1.8%), recording a second monthly drop.  After the economy contracted in the third quarter, this weak start to the current quarter signals a cloudy outlook. Australia: Monthly October CPI data for Australia surprised with a much lower rate of inflation than the market had been expecting (Consensus 7.6%, ING f 7.8%). Headline inflation in October dropped back from 7.3% in September to only 6.9%YoY. The core trimmed mean inflation rate also edged slightly lower to 5.3% YoY from 5.4%, and against expectations for further increases. Lower-than-expected food prices were responsible for about 0.1pp of the decline. But the bigger share was attributable to a drop in the prices for holiday travel and accommodation. We don’t believe these lower inflation figures have any substantial ramifications for Reserve Bank (RBA) policy, which we believe will continue to increase at a 25bp per meeting pace into next year. But it does make us more comfortable with our 3.6% cash rate peak call. India: 3Q22 GDP data for India is out later today. We don’t disagree with the consensus 6.2%YoY figure, which is a sharp drop back from the 13.5%YoY base-effect driven 2Q number, with the latest number being a much better reflection of underlying economic growth. We still look for India to grow by about 6.3%YoY for the full calendar year 2022, but may have to adjust this view in the light of any surprises from today’s data.   What to look out for: Fed Speakers and US jobs report US Conference board consumer confidence (29 November) South Korea industrial production (29 November) Japan industrial production (29 November) Fed’s Williams and Bullard speak (29 November) China PMI manufacturing and non-manufacturing (30 November) Bank of Thailand policy meeting and trade (30 November) India GDP (30 November) US ADP employment and pending home sales (30 November) Fed’s Bowman speaks (30 November) South Korea 3Q GDP and trade (1 December) Regional PMI (1 December) China Caixin PMI (1 December) Indonesia CPI inflation (1 December) US personal spending, initial jobless claims and ISM manufacturing (1 December) Fed’s Cook, Bowman, Logan, Barr and Powell speak (1 December) South Korea CPI inflation (2 December) Fed’s Evans speaks (2 December) US non-farm payrolls (2 December) TagsEmerging Markets Asia Pacific Asia Markets Asia 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

Falling inflationary pressures and energy prices that are well below their peak levels led to a cautious rise in consumer confidence in November. However, this is not enough to prevent a contraction in the fourth quarter Inflation and high energy prices are forcing 40% of Spaniards to cut their daily expenses Spanish consumers slightly more upbeat, but still at depressed levels Spanish consumer confidence rose to -28.7 in November, from -31.6 in October, as published by the Ministry of the Economy and Finance this morning. A faster-than-expected fall in inflation and energy prices that are well below their peak levels is providing some relief for consumers. As reported yesterday, the Spanish inflation rate fell in November for the fourth month in a row and is now already four percentage points below its July peak level. The fall is likely to continue as price pressures higher up the production chain are starting to ease. Both commodity prices, freight costs for transport, and factory prices have already decreased considerably. Energy prices have also moderated somewhat since the end of the summer. Despite this, the index remains at recessionary levels. Inflation and energy prices force four in ten Spaniards to cut daily expenses Despite the improvement, the negative economic impact of high inflation and energy prices remains in place. A new ING survey on a representative panel conducted by IPSOS in early November shows that almost four in ten Spaniards are saving on daily expenses, like fresh food and groceries. More than half of Spaniards are also cutting back on restaurant visits, travel, and leisure activities to cope with the rising cost of living. With high energy prices, Spaniards are also looking to save on energy consumption. Almost half of the respondents say they are more economical with the use of electrical appliances, such as dishwashers, while a third say they are cutting back on heating. Many Spaniards are cutting back on their spending Due to rising prices, I try to save on... (% of respondents) ING consumer survey November 2022 Not out of the danger zone yet The Spanish economy has already slowed significantly in the third quarter and is likely to contract in the fourth quarter. The cost-of-living crisis leads households to consume less, which slows down economic activity. The less tight energy markets and a faster-than-expected drop in inflationary pressures are likely to ease the winter contraction, allowing Spain to narrowly avoid a recession. However, the overall outlook for next year remains subdued. Some favourable factors, such as mild weather and lower liquefied natural gas (LNG) demand from China, have brought some relief this year, but the situation remains very precarious. Next year will be a lot harder to replenish gas supplies, given the reduction in Russian supply. A strong recovery in China is also likely to put strong pressure on the oil and gas market, which could cause another jump in energy prices. The resulting loss of competitiveness of European businesses, together with ECB interest rate hikes that will not take full effect until 2023, will limit Spain’s growth potential next year. Therefore, we expect the Spanish economy to grow by less than 1% next year. TagsSpain GDP Eurozone Consumption Consumer confidence 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

3Q22 GDP rose at a 6.3%YoY pace, slightly exceeding market expectations and keeping growth for the full year on track to exceed 6%, which would make India one of the fastest-growing economies in Asia  Shutterstock 6.3%YoY 3Q22 GDP 6.2% expected  Higher 2022 growth on track to exceed 6% Although down from the 13.5%YoY growth rate achieved in 2Q22, that growth rate had been achieved almost entirely through base effects. The 6.3%YoY growth achieved in 3Q22 had a much stronger provenance, deriving from a solid 3.5%QoQ gain from the previous quarter. This means that with only very conservative growth assumptions for the final quarter of this calendar year, India should be on track to exceed 6% growth for the year as a whole and possibly for the fiscal year too.  India GDP by expenditure (YoY%) CEIC, ING Outperforming its peers India is well placed to outperform many of its Asian peers in the short term, given its very low trade dependency on China compared to the rest of the region. It may also be capitalising on some of China's current problems, offering an alternative destination for foreign investment as multinational firms look to spread their supply chain risks while remaining in the region.  Would do even better with broader based industrial growth The breakdown of GDP by expenditure components shows strength across the board in the main domestic demand components. Consumer spending and capital investment both grew at more than a 10%YoY pace, with only government spending spoiling the picture. Though that in itself may be no bad thing considering the October fiscal deficit figures, which were considerably higher than the same period last year. This suggests that a little government restraint over the end of the year might well be warranted. Export growth was also strong, though overall GDP was pulled down by a large drag from imports, and the net trade contribution dragged the overall GDP growth total down by a massive 4.3 percentage points.  Still, there is little in this GDP breakdown that suggests trouble has been stored up for the final quarter of the year, so we remain optimistic about the eventual tally. About the only cause for complaint with the 3Q22 GDP print was that on a gross value-added basis, the contribution remains heavily concentrated on the service sector, with a small contribution from agriculture, but a drag from industry. India could do with broadening its economic base, as this will also likely lessen the drag from net exports and allow for an even faster rate of growth in the future.        Policy and market implications There are two main policy implications from this: The first is that with growth holding up well, this provides the Reserve Bank of India more room to manoeuvre to raise policy rates and control inflation. That said, rates have already risen a long way, and inflation shows signs of turning lower, so this is probably a benefit that isn't actually needed.  On the fiscal front, today's October fiscal deficit figures do suggest that fiscal policy might be an area to finesse a little over the turn of the year, and in doing so, might help lessen the inflow of imports too, which could help prop up the INR  - though the rupee has had quite a decent day today, declining to 81.43 against the USD.  In short, there is nothing much wrong with Indian GDP growth, and still scope for further improvement with well-targeted policy measures.  TagsRBI policy rates India GDP India economy 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

Due to a weaker-than-expected export outcome in November, the downside risks to GDP this quarter have increased. The Bank of Korea (BoK) is likely to slow down its hiking pace next year due to the sharp deterioration of real activity data   -14.0 Exports % YoY  Lower Trade deficit widened again due to soft exports in November Exports fell for a second consecutive month (-14.0% YoY in November vs -5.7% in October), and were weaker than the market consensus of -11.2%. By export items, automobiles (31.0%), petroleum (26.0%), and batteries (0.5%) grew, while semiconductors (-29.8%), and petrochemicals (-26.5%) dropped sharply. By destination, exports to the US (8.0%), the Middle East (4.5%), and the EU (0.1%) continued to increase. Yet, inter-regional exports continued to decline, with exports to China (-25.5%) and ASEAN (-13.9%) down. We believe that catch-up demand in the auto sector will persist for a while with lifting supply constraints. However, the outlook for IT investment and consumption is cloudy. We interpret the sluggish exports to China and ASEAN as being more strongly related to global IT demand rather than necessarily to regional demand. China's lockdown itself should work against Korea's exports, but what's more worrisome is that the final demand for IT seems to be falling very quickly.  Meanwhile, imports rose 2.7% YoY in November (vs 9.9% in October) with continued increases in commodities (27.1%). As a result, the trade deficit widened to -USD7.0bn in November (vs -USD6.7bn in October).  Exports contracted for a second straight month in November CEIC November manufacturing PMI rebounded but remains below the neutral level November's manufacturing PMI improved to 49.0 (vs 48.2 in October), but stayed in the contraction zone for a fifth consecutive month. Sluggish semiconductor performance appears to be driving weak output and orders, which means that semiconductor activity is likely to remain sluggish in the near future.   Manufacturing PMI suggests soft manufacturing activity ahead CEIC GDP outlook The Bank of Korea released its revised report on 3QGDP this morning as well. Headline growth of 0.3%QoQ was unchanged from the advance estimate, but the details have changed slightly. By expenditure, private consumption (1.7% vs 1.9% advance) and construction (-0.2% vs 0.4% advance) were lowered, while facility investment was revised up to 7.9% (vs 5.0% advance) as machinery and transportation investment increased. 3QGDP growth was mainly led by domestic demand components, but consumption and facility investment are likely to weaken due to interest rate hikes. Construction, which already contracted last quarter, is struggling with the ongoing tight financial conditions and sluggish real estate market. Meanwhile, China's weak PMI (48.0 official manufacturing) and strict corona policy mean that Korea's exports will face strong headwinds in the coming months. Making things worse, the nationwide truckers' strike is adding an additional burden on the economy. Considering the sluggish October IP outcomes yesterday and dismal exports this morning, the downside risk for the current quarter’s GDP forecast (-0.1% QoQ) has substantially increased. GDP outlook is likely to be revised down Bank of Korea, INGBank of Korea releases bi-annual %YoY growth forecasts. ING estimated the quarterly growth figures based on the bi-annual forecasts. The Bank of Korea will slow down its hiking pace next year Consumer price index (CPI) inflation data for November will be released tomorrow. We expect inflation to decelerate to 5.1% YoY (vs 5.7% in October) mainly due to falling gasoline and fresh food prices. Although base effects will also work to calm inflation in the coming months, we see additional signs of inflation slowing further. The recently released data signals a sharp deterioration in the economy in the current and subsequent quarters. We, therefore, expect the BoK to deliver its last hike this cycle in February. Beyond the first quarter, the BoK will likely adopt a wait-and-see stance, together with hawkish comments. But if we are right about contracting growth and inflation falling to around 3% in 1H23, then the BoK will likely consider easing policies in 2H23. Financial market updates Korea's equity market and the Korean won are rallying on the back of relatively dovish remarks from Jerome Powell last night. The KRW recorded its best performance in the region for a month. We think that the KRW will likely strengthen further by the year-end, but we still have to be cautious in the next quarter. We expect further widening of the yield gap between the US and Korea and uncertainties in China to extend into the next quarter, which together with a weak trade performance, could adversely affect the won.  TagsKorean trade GDP Exports Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

At the beginning of the last month of the year, and thus the last month of the quarter, a lot of reports appear. The focus today is on the Manufacturing PMI reports. Japan Capital Spending The change in the overall value of capital investment made by companies in Japan has increased significantly. The current reading is at 9.8%, an increase of 5.2%. Australia Private New Capital Expenditure The change in the total inflation-adjusted value of new capital expenditures made by private businesses dropped significantly from 0.0% to -0.6%. So new capital expenditures made by private businesses have decreased and this may affect the economic situation of the country. UK Nationwide HPI The National House Price Index shows that the average change in house prices across the country has slowed year-on-year and month-on-month. Nationwide HPI (YoY) dropped from 7.2% to 4.4% while MoM fell below zero at -1.4%. This monthly decline was significant as it was expected to rise from -0.9% to -0.3%. To put it simply, the average houses dropped significantly in the analyzed periods. This study is carried out by the National Housing Association. Retail Sales Reports published by two countries of the old continent show a significant decrease. In Germany, M/M retail sales fell from 1.2% to -2.8%. Which shows that the German economy is not in good shape and retailers are exposed to financial difficulties because fixed costs such as rent and energy bills will not change, and if they sell less they may not earn. In Switzerland, the situation is similar to Germany, but the decline was larger. Sales fell from 2.6% to -2.5%. Growth was expected, and a significant fall may affect the condition of the country's currency (CHF). Switzerland Consumer Price Index In Switzerland, inflation remained at the previous level of 3.0%. However, there was a change in CPI M/M. CPI M/M fell from 0.1% to 0.0% In the monthly change, we can expect a return to the level below zero, ie deflation. Source: investing.com Speeches There won't be many speeches today. The first one took place at 7:00 CET and was addressed by a member of the Bank of Japan, Governor Haruhiko Kuroda. Traders watch his speeches closely as they are often used to drop subtle hints regarding future monetary policy and interest rate shifts. Speeches by members of the European Central Bank attract further attention. At 9:00 CET, Andrea Enria, Chair of Supervisory Board of the European Central Bank, spoke. Further speeches will take place in the second part of the day. At 17:45 CET, Philip R. Lane, member of the Executive Board of the European Central Bank will speak, followed by a speech at 18:30 CET Frank Elderson, member of the Executive Board and Vice-Chair of the Supervisory Board of the European Central Bank. These speeches may give clues to the future of the eurozone's monetary policy. Manufacturing PMI The main report from the European, American and Chinese economies today is the Manufacturing PMI. In China, the report appeared first. The current reading is positive, the current level is 49.4 and is higher than the previous one (49.2) and also higher than expected (48.9). In Europe, the first report came from Spain and was positive. In Spain, it rose from 44.7 to 45.7. In Italy it also rose to 48.4. France and Germany also saw growth, but it was lower than those economies expected. In France, the current readings showed a level of 48.3, and an increase to 49.1 was expected. In Germany, a larger increase to 46.7 was also expected, but the readings showed a level of 46.2. In all countries of the European Union and the euro area, there was an increase in the PMI index, and thus also for the EU Manufacturing PMI. For the Eurozone, it increased from 46.4 to 47.1. And similarly to the main economies (Germany and France) of this region, a larger increase was expected to the level of 47.3 Also in the UK there was an increase in the Manufacturing PMI. The current level of 46.5 is higher than the expected (46.2) and the previous reading (46.2). We have to wait until 16:00 CET for the reading from the United States, but it is expected that the U.S. The ISM Manufacturing Purchasing Managers Index will drop to 49.8 from the previous reading of 50.2. EU Unemployment Rate The unemployment rate fell slightly in the EU from 6.6% to 6.5%. Brazil GDP (YoY) (Q3) Brazil's economy expects GDP growth from 3.2% to 3.7%. US Core PCE Price Index Report about the changes in the price of goods and services purchased by consumers for the purpose of consumption, excluding food and energy will also appear today. It is expected to fall from 0.5% to 0.3%. The Core Personal Consumption Expenditure (PCE) Price Index measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation. Initial Jobless Claims The weekly report on the number of individuals who filed for unemployment insurance for the first time during the past week will also appear today. The last reading was very negative and showed a significant increase in the number of people applying for this insurance (240K). This reading is expected to be better and drop to 235K. Summary: 0:50 CET Japan Capital Spending (YoY) (Q3) 1:30 CET Australia Private New Capital Expenditure (QoQ) (Q3) 2:45 CET Caixin Manufacturing PMI 7:00 CET BoJ Governor Kuroda Speaks 8:00 CET UK Nationwide HPI 8:00 CET German Retail Sales 8:30 CET Switzerland Retail Sales 8:30 CET Switzerland Consumer Price Index 9:00 CET ECB's Enria Speaks 9:15 CET Spanish Manufacturing PMI 9:45 CET Italian Manufacturing PMI 9:50 CET French Manufacturing PMI 9:55 CET German Manufacturing PMI 10:00 CET EU Manufacturing PMI 10:30 CET UK Manufacturing PMI 11:00 CET EU Unemployment Rate 13:00 CET Brazil GDP (YoY) (Q3) 14:30 CET US Core PCE Price Index 14:30 CET Initial Jobless Claims 16:00 CET ISM Manufacturing PMI 17:45 CET ECB's Lane Speaks 18:30 CET ECB's Elderson Speaks Source: Economic Calendar - Investing.com

The media are scaring about economic recession, which should inevitably appear as a consequence of persistently high inflation and a radical increase in the main interest rates. Even in private conversations, you can often hear that many other countries in the world are threatened with recession. What is this? Definition In the economic literature, there is also a definition of recession as a decrease in GDP in two consecutive quarters, where annual dynamics in individual quarters are used to qualify the state of recession without removing the impact of price changes and the impact of seasonal factors. According to John R. Meyer and D. H. Weinberg, a recession is "a period of decline in the general activity of the economy, having a wide impact on various areas of economic life, which lasts at least a year". The terms recession, crisis and depression are synonymous and often used interchangeably. Economists who study business cycles consider the first two terms to be synonymous. After World War II, the term "recession" was often used instead of the term "crisis" (which was initiated by the NBER). However, it is believed that this is mainly due to psychological reasons (less negative reception of "recession"). On the other hand, "depression" is in practice a deeper phenomenon, defined as long-term and very severe recessions. Types Recession is often compared by researchers to the letters of the alphabet, which corresponds to the appearance of this stage on the business cycle chart, and at the same time helps to visually determine its duration and course. Recession types: "V" - the most common type: quick exit from the collapse, return to the growth rate before the recession in no longer than the period of falling into it, "W" - after reaching the bottom of the cycle, the economy quickly recovers, only to collapse again (often deeper) and only after the "second bottom" go into recovery mode, "U" - rapid entry of the economy into a recession, followed by a slowdown in further decline and remaining at a low level of development, it usually takes several years to return to the rate of economic growth before the recession "L" - after reaching the lowest level, the economy is unable to return to a higher growth rate, inverted letter "L" - a relatively quick, but short-lived recovery of the economy is interrupted by a long-term phase of stagnation. In practice From the point of view of economics, recession is a macroeconomic phenomenon that involves a significant slowdown in economic growth. In general, a recession leads to a decline in domestic production, employment, investment and real wages. Instead of growing, the country's GDP is decreasing. Mainly, the recession is visible from the side of entrepreneurs, where it manifests itself as disturbances in financial liquidity, downtime in production due to the lack of orders or materials needed for its implementation. At the level of individuals, i.e. natural persons who do not run a business, recession means higher unemployment and lower wages as well as impoverishment of the society. During a recession, the average citizen begins to spend less, which results in a decline in consumption across the country. Causes The causes of a recession can be very different. The most common causes of recessions include bad monetary policy and excessive state interference in the economy, and in particular in the financial system. War and natural disasters also have an impact on the occurrence of recessions. Consequences The most serious effect of the recession is the decline in gross domestic product (GDP). There is also a decrease in the value of goods and services. GDP decreases, which leads to negative economic growth. Among other, equally serious consequences related to the occurrence of recession, the following can also be distinguished: lowering real wages and incomes in society; decrease in capital expenditures; increase of unemployment; reduction in the level of labor productivity and growth rate; lowering consumer demand. At the same time, along with the decreasing demand for consumer goods, a recession most often leads to a slowdown in price growth, and thus to a reduction in inflation. What comes after a recession? Many experts consider the recession to be the first phase of the economic cycle. According to this theory, a recession is followed by a depression, i.e. low levels of output, prices, interest rates, and employment. How to prevent? When anticipating a recession, stabilization (anti-recession) policy tools can be used, e.g. lowering taxes on enterprises (thus increasing the amount of investment in durable goods), reducing social spending (to stop the budget deficit from growing) or lowering interest rates (assuming that appropriate mix). During the beginning of the recession phase, it is possible to temporarily increase budgetary accidents, influence the weakening of the national currency exchange rate (which allows for a temporary increase in the competitiveness of export goods) or increase the protection of the internal market against the influx of imported goods, in a situation where it does not violate international agreements. Thanks to stabilization policy tools and properly conducted fiscal and monetary policy, recession can be prevented or mitigated. Source: Begg D., Fischer S., Dornbusch R. (1997) Ekonomia. Makroekonomia

Over the years, we have been able to observe how the phases of the business cycle, their length, nomenclature, as well as their classification have changed. The division into smaller and larger cycles (crisis, depression, recovery, boom) has gone down in history, and the classic business cycle consists of two phases: decline (recession) and growth (expansion). Growth is positive, while recession is the opposite. Economic growth Economic growth is nothing more than the process of increasing the production of goods and services in a given country and over a certain period of time (e.g. per year). Economic growth includes those elements of the economy that we can measure (e.g. production, income, employment). The measures of economic growth are gross domestic product (GDP) and gross national product (GNP). Economic growth does not guarantee that all citizens will benefit from it. It happens that some social groups fare better, while others are poorer. For this reason, GDP per capita (GDP per capita) is considered an important measure of economic growth. This indicator is calculated by dividing a country's GDP by its population. Economists distinguish four driving forces of economic growth: labor supply, capital (physical, financial and human), natural resources and technology. Stagnation Simply put, stagnation is a state of the economy in which, in the long term, the volume of production, income of business entities, investment outlays and trade remain at a relatively constant, usually relatively low level, which is usually accompanied by a high level of unemployment. Stagnation may concern the entire economy as well as one indicator (e.g. investments, exports, demand, consumption). This term characterizes an economy in which, first of all, the rate of growth slowed down, and only as a consequence an increase in unemployment. It is characterized by a low level of prices and general economic activity. Economic stagnation - what does it mean? The concept of economic stagnation is understood as a weakening of the pace of development or even a lack of economic growth. It is a situation in which in a given economy an increase in the number of unemployed people can be observed, a decrease in the level of consumption and a decrease in the capital that companies invest in the development of their activities. This state of affairs is also a serious burden for the public sector. The decline in business activity translates into layoffs. This means that the state must allocate more resources to unemployment benefits and other forms of assistance during the economic downturn. Stagflation Stagflation is a macroeconomic phenomenon that describes the occurrence of inflation and economic stagnation at the same time. Then we are dealing with high inflation and low growth and/or economic slowdown. In addition, stagflation occurs when the economy is in recession and the cost of living continues to rise. All this, however, has a negative impact on the life of society. Causes One of the main causes of stagflation is a negative supply shock. It causes an increase in prices on the market and a reduction in raw materials, which in turn causes an economic crisis. Stagflation may also be caused by a break in supply chains, lack of energy resources, and thus a sharp increase in their prices. What are the effects of stagflation? Stagflation is considered by economists to be a highly negative economic phenomenon. Its effect is primarily an increase in unemployment in the country, a reduction in the production of raw materials, a general increase in prices, and as a result, a decrease in the value of the national currency. Source: Begg D., Fischer S., Dornbusch R. (1997) Ekonomia. Makroekonomia

EU There are a number of economic releases on the calendar next week but it’s almost entirely made up of tier two and three data. That includes final PMIs, revised GDP and retail sales.  The most notable events for the EU over the next week are speeches by ECB policymakers ahead of the last meeting of the year a week later – including President Lagarde on Monday and Thursday – and the final negotiations on the Russian oil price cap as part of a package of sanctions due to come into force on Monday. UK  Compared with the soap opera of the last few months, next week is looking pretty bland from a UK perspective. A couple of tier two and three releases are notable including the final services PMI, BRC retail sales monitor and consumer inflation expectations. I’m not convinced any will be particularly impactful, barring a truly shocking number. Russia The most notable economic release next week is the CPI on Friday which is seen moderating further to 12% from 12.6% in October, potentially allowing for further easing from the CBR a week later. South Africa Politics appears to be dominating the South African markets at the moment as efforts to impeach President Cyril Ramaphosa go into the weekend. The rand has seemingly been very sensitive to developments this week, with the prospect of a resignation appearing to trigger sharp sell-off’s in the currency and the country’s bonds. Under the circumstances, that could bring weekend risk for South African assets depending on how events progress over the coming days.  On the data front, next week brings GDP on Tuesday and manufacturing production on Thursday.  Turkey Ordinarily, especially these days, inflation releases are widely followed but that is less the case for a country and central bank that has such little interest in it. Official inflation is expected to ease slightly, but only to 84.65% from 85.51% in October, hardly something to celebrate. The central bank has indicated that its easing cycle will now pause at 9% so perhaps another reason to disregard the inflation data. Switzerland A quieter week after one of repeated disappointment on the economic data front. Whether that will be enough to push the SNB into a slower pace of tightening isn’t clear, although it has repeatedly stressed the threat of inflation and need to control it. The meeting on 15 December remains this months highlight while next week has only unemployment on Wednesday to offer. China The PBOC announced on 25 November its decision to cut the reserve requirement ratio for banks by 25 basis points, lowering the weighted average ratio for financial institutions to 7.8% and releasing about 500 billion yuan in long-term liquidity to prop up the faltering economy.   In response to the various property crises that have emerged in the real estate sector over the past year or so, i.e. debt defaults by real estate companies, mortgage suspensions leading to unfinished buildings, and real estate-related non-performing loan crises, the Chinese government has issued a new 16-point plan. Focus next week will be on the Caixin services PMI, trade data, CPI release and the protests. China’s strict zero-Covid measures are hammering growth and the public is clearly becoming increasingly frustrated. It will be a fine balance between managing protests and easing Covid-zero measures to support growth in a country not used to the former. India The RBI could potentially bring its tightening cycle to a close next Wednesday with a final 35 basis point hike, taking the repo rate to 6.25%. While the outlook remains cloudy given the global economic outlook, there is some reason to be optimistic. The tightening cycle may soon be at an end, the economy exited recession in the last quarter and Indian stock hit a record high this week, something of an outlier compared with its global peers. Australia & New Zealand Recent figures show that inflation (YoY) in Australia rose to 7.3% in the third quarter, compared to the target range of 2%-3%. The RBA began to weaken their hawkish stance in the past two months, raising rates by just 25 basis points each time to bring the official rate to 2.85%. The market is currently expecting a 25 basis point rate hike next week as well. Also worth noting is Australia’s third quarter GDP trade balance figures. New Zealand inflation (YoY) surged 7.2% in the third quarter, compared to the RBNZ’s inflation target range of 1%-3%. Previously, the RBNZ had been raising rates by 50 basis points but that changed last month as they ramped it up with a 75 basis point hike. The current official rate is now 4.25%. Japan The Japan Tokyo CPI rose by 3.8% year-on-year in November, up from 3.5% in October and the 3.6% expected. Ex-fresh food and energy it increased by 2.5%, up from 2.2% and above the 2.3% expected. Japan’s manufacturing PMI fell to 49.4 in November, the worst in two years, with both new export orders and overall new orders declining and falling below 50 for the fifth consecutive month, which alines with the unexpected 0.3% fall in Japanese GDP in the third quarter. Japan department store sales rose 11.4% year-on-year in October, down from 20.2% in September.    The poor PMI and retail sales data may have reinforced the BOJ’s view that domestic demand is weak and CPI inflation is largely input and cost driven and, therefore, unsustainable. The central bank will likely continue to pursue an accommodative monetary policy, especially in light of the current poor global economic outlook. Final GDP for the third quarter is in focus next week, with the quarterly figure expected to be negative meaning the economy may be in recession. Lots of other releases throughout the week but the majority, if not all, are tier two and three. Singapore Singapore’s CPI for October was 6.7% (YoY), below expectations of 7.1% and the 7.50% reading. GDP for the third quarter (YoY) was 4.1%, below expectations of 4.2% and 4.40% previously. On the quarter, it was 1.1% down from 1.50%. Next week the only release of note is retail sales on Monday. Economic Calendar Saturday, Dec. 3 Economic Events ECB President Lagarde chairs a roundtable on “The Global Dimensions of Policy Normalization” at a Bank of Thailand conference Sunday, Dec. 4 Economic Data/Events Thailand consumer confidence OPEC+ output virtual meeting ECB’s Nagel and Villeroy appear on German television Monday, Dec. 5 Economic Data/Events US factory orders, durable goods orders, ISM services index Eurozone Services PMI Singapore Services PMI Australia Services PMI, inflation gauge, job advertisements, inventories China Caixin services PMI India services PMI Eurozone retail sales Japan PMI New Zealand commodity prices Singapore retail sales Taiwan foreign reserves Turkey CPI European Union sanctions on Russian oil are expected to begin ECB President Lagarde gives a keynote speech on “Transition Towards a Greener Economy: Challenges and Solutions” ECB’s Villeroy speaks at a conference of French banking and finance supervisor ACPR in Paris ECB’s Makhlouf speaks in Dublin EU finance ministers meet in Brussels The US Business Roundtable publishes its CEO Economic Outlook survey Tuesday, Dec. 6 Economic Data/Events US Trade Thailand CPI RBA rate decision: Expected to raise Cash Rate Target by 25bps to 3.10% Australia BoP, net exports of GDP Germany factory orders, Services PMI Japan household spending Mexico international reserves South Africa GDP Georgia’s US Senate runoff The first-ever EU-Western Balkans summit is held in Albania Goldman Sachs Financial Services conference Wednesday, Dec. 7 Economic Data/Events US Trade MBA mortgage applications China reserves, Trade Australia GDP, reserves Eurozone GDP Canada central bank (BOC) rate decision: Expected to raise rates by 25bps to 4.00% India central bank (RBI) rate decision: Expected to raise rates by 25bps to 6.15% Poland central bank rate decision:  Expected to keep rates steady at 6.75% Singapore reserves Germany industrial production Japan leading index BOJ’s Toyoaki Nakamura speaks in Nagano EIA crude oil inventory report Foreign policy forum is held in Moscow with Russian Foreign Minister Lavrov speaks at a foreign policy forum in Moscow. Thursday, Dec. 8 Economic Data/Events US initial jobless claims Australia trade Indonesia consumer confidence Japan GDP, BoP Mexico CPI New Zealand heavy traffic index South Africa current account, manufacturing production ECB President Lagarde speaks at the European Systemic Risk Board’s sixth annual conference SNB’s Maechler participates in a panel discussion ECB’s Villeroy speaks at the Toulouse School of Economics European Defence Agency holds its annual conference in Brussels Friday, Dec. 9 Economic Data/Events US PPI, wholesale inventories, University of Michigan consumer sentiment China CPI Russia CPI  China PPI, aggregate financing, money supply, new yuan loans Japan M2 New Zealand card spending, manufacturing activity Spain industrial production Thailand foreign reserves, forward contracts Portuguese PM Costa, Spain PM Sanchez, and French President Macron attend a meeting in Spain Sovereign Rating Updates United Kingdom (Fitch) EFSF (Moody’s) ESM (Moody’s) Netherlands (Moody’s) Saudi Arabia (Moody’s) This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  

Investments in the vast majority of cases are implemented through the purchase of services and goods by enterprises. Of course, they will be implemented much less often by state institutions or households. Gross investment Gross investment - includes the production of new capital goods and the improvement of existing capital goods, e.g. construction of roads, bridges, buildings and structures, purchase of machinery, technical equipment and tools, means of transport, purchase of product manufacturing licenses. Investments are most often implemented through the purchase of goods and services by enterprises. Less often, however, they are implemented by households and state institutions. The ratio of depreciation to gross investment shows whether a given country has carried out investments at a level allowing for the replacement of the used part of the assets. Gross investments vs. net investments Gross Investments = Net Investments + Depreciation The term of gross investments is closely related to net investments, which are gross investments less the depreciation value of the existing capital stock. Depreciation is an economic reflection of the process of using up the existing stock of fixed capital, more precisely - it reflects the equivalent of using up the capital stock in a given period. The consumption of the stock of physical capital means that some of the goods produced in the economy (i.e. capital goods) should be used to replace the used capital. To sum up - a part of the total investments (ie gross investments) must be allocated to the replacement of the used capital stock in sizes corresponding to depreciation. The remainder of the investment (i.e. net investment) can be used to augment the existing capital stock. Gross investment and measures of production Gross Domestic Product and Gross National Product are measures of production that include gross investment. Due to the difficulties in estimating depreciation on a macroeconomic scale, GNP and GDP are more often used in economic analyses, despite the fact that Net National Product (national income) better reflects the income generated in the economy. Depreciation The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset's value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time. Assets such as machinery and equipment are expensive. Instead of realizing the entire cost of an asset in year one, companies can use depreciation to spread out the cost and match depreciation expenses to related revenues in the same reporting period. This allows a company to write off an asset's value over a period of time, notably its useful life. Companies take depreciation regularly so they can move their assets' costs from their balance sheets to their income statements. There are many types of depreciation, including straight-line and various forms of accelerated depreciation. Using the straight-line method is the most basic way to record depreciation. It reports an equal depreciation expense each year throughout the entire useful life of the asset until the entire asset is depreciated to its salvage value. The declining balance method is an accelerated depreciation method. This method depreciates the machine at its straight-line depreciation percentage times its remaining depreciable amount each year. Because an asset's carrying value is higher in earlier years, the same percentage causes a larger depreciation expense amount in earlier years, declining each year. The double-declining balance (DDB) method is another accelerated depreciation method. After taking the reciprocal of the useful life of the asset and doubling it, this rate is applied to the depreciable base—its book value—for the remainder of the asset’s expected life. Thus, it is essentially twice as fast as the declining balance method. Source: Begg B., (2007) Macroeconomy

On Wednesday, two goposaraku may catch the attention of investors. The Bank of Canada will announce its monetary policy decisions and Japan will announce its GDP data. Bank Of Canada’s decision The Bank of Canada is expected to conclude a historic year marked by high inflation and aggressive monetary policy tightening with one more interest rate hike on Wednesday. In the wake of inflation soaring this year, the Bank of Canada has raised its key rate six times in a row since March in a race to curb inflation expectations before they are no longer anchored. After raising the main interest rate by a historical full percentage point in July, the Bank of Canada limited the scale of interest rate hikes. Forecasts call for the central bank to raise its key interest rate, which is currently 3.75 percent, by a quarter or a half of a percentage point. After raising its key rate by a historic full percentage point in July, the Bank of Canada has tapered the size of its rate hikes. In September, it announced a three-quarter percentage point rate hike, followed by half a percentage point in October. Now, the end of the rate hike cycle appears to be near. Canada’s economy grew more quickly than expected in the third quarter. Statistics Canada announced that Canada’s gross domestic product grew at an annualized rate of 2.9 per cent in the quarter. But preliminary October data released by Statistics Canada at the same time showed that the economy didn’t grow at all that month. That could give the Bank of Canada a reason to dial back its rate-raising campaign. That shows the Bank of Canada’s rate hikes are already having a significant impact on Canadian households ability to spend money. Japan GDP The world’s third biggest economy has struggled to motor on despite the recent lifting of Covid curbs, and has faced intensifying pressure from red-hot global inflation, sweeping interest rate increases worldwide and the Ukraine war. The unexpected decline reflects the impact of the Japanese currency on the economy and shows that the road to a sustainable post-pandemic recovery is long, with further risks clouding the outlook. Politicians will be hoping the government's latest economic stimulus package will help boost growth in the coming months. The reopening of Japan's borders also creates the prospect of a renewed increase in the spending of foreign tourists attracted by a country that has become much cheaper to travel around. The Bank of Japan maintains the view that the economy needs further support and that inflationary pressures require robust wage growth for price increases to be sustainable and beneficial to the economy. To ease the impact on households and businesses, Prime Minister Fumio Kishida last month proposed an economic stimulus package that includes help to cut energy costs and cash benefits for childcare. Japan's gross domestic product quarter-on-quarter in Q3 is expected to be the same as November's reading, i.e. it will stay at -0.3% Source: investing.com The economy fell in the third quarter for the first time in a year. GDP fell by 1.2% y/y. Typical suspects were the factors driving the decline in GDP - weak global growth and rising inflation, plus a weak yen. The GDP Y/Y result is now expected to reach a horizontal -1.1%. Source: investing.com, boc.com

A weak start to the fourth quarter as the retail correction continues. Expect the trend to continue with real wage growth still negative   The declining trend in retail sales continued at the start of the fourth quarter after a brief uptick in September. The drop of 1.8% month-on-month was broad-based. We saw declines for both food and non-food retail trade with only fuel sales ticking up. We saw a broad-based decline by country, too. Germany and France both experienced drops of almost 3% while the Netherlands saw a small dip. Spain was the exception among bigger countries with an increase of 0.4%. The peak in sales was in the fourth quarter last year but we’ve seen a correction since. This is because of slowing demand related to the large purchasing power squeeze Europeans are experiencing, as well as the shift in the consumer's preference from goods to services since the economy reopened post-Covid lockdowns. The retail environment remains very tricky for the months ahead. We don’t expect an immediate recovery as real wages remain deep in negative territory. Inventories in retail were depleted in 2021 as shortages and high demand resulted in a struggle to keep the shelves filled for retailers. Now this situation is quickly reversing. Retailers have been stocking up as supply-side problems have been fading, but demand has also quickly started to fade. That has resulted in quickly filled storage sites and uncertainty about whether sales will live up to expectations in the holiday period. The number of retailers that expects to raise prices fell in November. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Bank of Australia seems to be a fairly conservative central bank, which does not surprise with big interest rate hikes, but raises them systematically. This time was no different at the last meeting of the year. The Reserve Bank of Australia raised the interest rate by 25 basis points to 3.1% at its last meeting in 2022, matching market forecasts. The move marked the eighth consecutive rate hike, raising borrowing costs to levels not seen since November 2012, with the central bank announcing further increases as inflation in Australia is too high, tradingeconomics reports. The widely expected decision means the central bank has raised interest rates since May to 3 percentage points, the sharpest annual tightening of monetary policy since 1989. The committee reiterated that the interest rate is not a predetermined rate, as the size and timing of future increases will continue to be determined by incoming data. The council added that inflation in Australia will peak at around 8% this year, before weakening in 2023 and reaching just above 3% in 2024. Policymakers have reaffirmed their commitment to bringing inflation to target and will do whatever is necessary to achieve this. Source: Conotoxia MT5, AUDUSD, Daily Australian dollar exchange rate after the decision From mid-October to today, the AUD has strengthened against the USD by almost 9%. Today, after the decision, the AUDUSD exchange rate rose to 0.6723, which may represent an increase of 0.4% since the beginning of the day. Thus, higher and higher peaks and higher and higher lows could be observed on the chart of the described currency pair, which may be characteristic of a potential uptrend. From the point of view of technical analysis, only overcoming the vicinity of 0.6640 could lead to the formation of a new low within the recent upward structure. Interest rate hikes the cause of recession? Fitch thinks so As reported by BBN, Fitch Ratings once again lowered its global economic growth forecast for next year, citing the intensification of interest rate hikes by central banks, as well as the worsening trend in China's real estate market. Fitch lowered its growth forecast by 0.3 percentage points to 1.4% for 2023, while seeing the U.S. economy with slight GDP growth. Chinese growth, on the other hand, is expected to rise 2.8% this year and 4.1% in 2023. The eurozone economy is also expected to grow slightly, thanks to the easing of the energy crisis. The rating agency also said that central banks in the US and Europe will continue to raise interest rates above initial estimates. At the same time, a recession could be expected in the Eurozone and the UK this year, and in the US in the second half of 2023, the agency added. Source: Conotoxia MT5, US500, Weekly Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75,21% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

China has eased its Covid-19 measures further, while a Politburo meeting yesterday pinpointed growth as the policy direction going forward. But we are not overly optimistic about either of these announcements leading to a significant uptick in economic growth People line up to show their health QR codes to get their routine Covid-19 throat swabs at a testing site. Authorities are beginning to ease some restrictions in Beijing Relaxed Covid measures China announced today that it is further relaxing its Covid-19 measures. Two policies have caught our attention. The first is that many people will not need to test anymore. Only those working in high-risk positions and located in elderly homes, hospitals, child care and primary schools will need proof of a negative test before going to their workplace. Other institutions can determine if they need specific Covid measures in place. Otherwise, residents do not need to provide Covid test results and a green code. The second policy of note is that Covid positive patients with less severe symptoms can quarantine at home instead of staying in isolation facilities. Politburo meeting focuses on growth Besides easing Covid measures, the government also highlighted how growth was the focus of yesterday's Politburo meeting. Most of the contents of the meeting notes focused on growth, including advocating active fiscal stimulus, and pointing out that the economy should leverage consumption and infrastructure to expand domestic demand. It also mentioned policies for self-reliance technology. When it comes to monetary policy, the wording is prudence and focus. This matches our forecasts of no more cuts in policy rates but increasing quotas for re-lending programmes for small and medium-sized enterprises and construction of uncompleted homes. Our views Taking both announcements into consideration, our views are that: Moving from isolation facility quarantine to home quarantine will not increase retail sales significantly. Fewer Covid tests will reduce the fiscal deficit, and should enhance resident mobility by no longer requiring the green code, particularly for cross-location residents. The use of public transportation and services, in general, should increase. Cross-location mobility should also increase given travellers no longer need to show a green code on transportation. This gives a higher chance that resident mobility for the Chinese New Year will increase, which is positive for retail sales, catering and leisure travel. But the expected lower categorisation of Covid from Category A (which also includes the bubonic plague and cholera) to Category B (which includes SARS, AIDS and so on) or even C (influenza, leprosy, mumps etc) was not mentioned at all. This means Covid measures will still be in place until the government is comfortable that Covid cases won't drag on the healthcare system, especially ICU. Fiscal spending will be the sole government-supportive tool. This includes finishing uncompleted homes (to be accompanied by a re-lending programme from the People's Bank of China) and increasing spending on both physical infrastructure and software-type infrastructure. The latter should focus on the aim of self-reliance advance technology in the long term. Consumption should recover in 2023 but there might not be any big jump as wage growth in the manufacturing sector could be sluggish given the risk of recession in the US and Europe in the first half of next year. In short, economic growth in December and January will not be overly impressive, though we expect a quarter-on-quarter improvement in GDP from -0.4% year-on-year in the fourth quarter of this year to 3.4% YoY in the first quarter of 2023. Read this article on THINK TagsPolitburo meeting GDP Covid China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Protests in the streets, but also the worsening economic situation, may be causing Chinese authorities to decide to make concessions on restrictions related to Covid-19. China was the last country with a firm regime against those infected. Now comes the easing of restrictions. The Hong Kong Stock Exchange's Hang Seng 50 index has risen more than 30 percent since its low, with the iShares MSCI China A ETF up 17 percent since the end of October. This may have to do with an attempt to discount a move away from lockdowns in China and an improved outlook for the local economy along with seemingly attractive company valuations. Chinese authorities have already signaled to ease restrictions in the form of allowing people without a negative test result to use public infrastructure like transportation or supermarkets. Moving with a valid negative result was previously mandatory. As Bloomberg reported, China is expected to announce a further relaxation of Covid control measures today - including allowing some infected people to quarantine their homes as a nationwide policy, according to people familiar with the matter. In addition, Chinese economic data may indicate that a change in direction is needed. Source: Conotoxia MT5, CNYA, Weekly China's trade surplus fell to $69.84 billion in November 2022 from $71.7 billion in the same month the previous year, well below market forecasts for a surplus of $78.1 billion, according to tradingeconomics. It was the smallest trade surplus since April, due to weakening global and domestic demand. Exports fell 8.7% year-on-year for the second consecutive month, due to weakening foreign demand caused by high inflation and supply disruptions. Imports, on the other hand, fell at a faster pace of 10.6%, for the second month in a row, due to weakening domestic demand as a result of widespread restrictions related to the epidemic. Hence, easing restrictions could be key to China's economic recovery, and senior Chinese officials are debating an economic growth target, Bloomberg reported. For next year, it is expected to be around 5%, according to people familiar with the discussion, as Beijing shifts gears to support economic recovery. Given recession forecasts for the eurozone, the UK or a slight recession in the US in 2023, China appears to be coming out on top in expectations of a GDP rebound next year. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75,21% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

All is fairly quiet on the data front...but bond markets are still rallying...some suggest that this has gone too far... Source: shutterstock Macro and markets outlook - bonds the star of the show Global Markets: US equities registered further small declines yesterday and equity futures are setting us up for further declines today. Chinese stocks have also steadied after their recent return of optimism. Bond markets were far less humdrum. 2Y US treasury yields fell 11bp while 10Y yields fell 11.5bp to 3.417%. There was no substantial market-moving data out yesterday, nor Fed comments to explain this. One possibility is that bonds are simply making room to rise at next week’s FOMC meeting. Peak Fed funds implied rates are only pricing in 4.195% in June. And that seems almost 10bp too low, as we still look for a further 50bp of tightening after next week’s 50bp hike. Some newswire stories today suggest that the recent bond rally has become overbought. Charts lend some support to this suggestion. The EURUSD exchange rate pushed back up above 1.05 yesterday, mainly on the back of the further declines in US bond yields. Other G-10 currencies have also gained against the USD. Otherwise, it was a mixed day for Asian FX. The PHP was the best-performing currency on the day. Seasonal remittances, stock inflows and a reaction to the drop in the October unemployment rate to 4.5% are all vying as the catalyst to explain these outsize moves, which have left the USDPHP rate at 55.47. Manila is off today for a public holiday. The CNY also made further gains yesterday and is now 6.97. But it wasn’t such good news across the board in Asia. The KRW, THB and IDR all lost ground on the day. G-7 Macro: With the exception of the final revision of 3Q22 Japanese GDP, it is a very quiet day for G-7 Macro. Some articles today are highlighting the University of Michigan inflation expectations figure due out tomorrow as being the next big challenge for markets, suggesting that it may stall. I’d be surprised if it had much effect either way. It usually doesn’t.   China: The government has eased Covid measures further, while a Politburo meeting on 6th December pinpointed growth as the main policy initiative going forward. But we are not overly optimistic about either of these announcements leading to a significant uptick in economic growth. Even if there was a decrease in mobility restrictions before the Chinese New Year, many consumers may avoid crowded places. As such, we do not expect a sizeable jump in consumption in 1Q23. Australia: October trade data due at 0830 SGT is forecast to show a slowdown in export and import growth, but deliver a small contraction of the trade surplus to about AUD12bn. This is unlikely to have much impact on the AUD. Japan: The final 3Q22 GDP revision showed a slightly smaller revision than initially. GDP contracted by 0.2%QoQ (-0.3% previously). A slightly smaller drag from net trade (-0.6pp vs -0.7pp) and a small boost from inventories (0.1pp from -0.1pp) seem to have been enough to overcome a weaker consumer spending figure (0.1%YoY down from 0.3%).  What to look out for: Not a lot! Japan: Final revision of 3Q22 GDP data - already released Australia: October Trade data Read this article on THINK TagsEmerging markets Asia Pacific Asia Markets Asia 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

Summary:  U.S. bond yields plunged on a softer revision of the Unit Labor Cost, WSJ Nick Timiraos’ article on decelerating in housing cost inflation, and Putin’s nuclear threat. U.S. equities were modestly lower on their fifth day of decline. Profit-taking selling in Hong Kong and China stocks after the release of the Politburo meeting readout and 10 additional measures to ease pandemic control policy saw the Hang Seng Index down 3.2% What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) skid again. Campbell Soup boils up S&P 500 fell for the fifth session and briefly breached its 100-day moving average again before bouncing off the low to close slightly above it. S&P 500 was 0.2% lower and Nasdaq 100 was down 0.5% on Wednesday. Eight of the 11 sectors within the S&P 500 declined, with healthcare, consumer staples, and real estate the only sectors advancing. Market sentiment was depressed by the recessionary signals sent out from the bond markets and Putin’s warning of the rising threat of nuclear war. Tesla (TSLA:xnas) dropped 3.2% on reports of cutting prices in China and the U.S. markets. Campbell Soup (CPB:xnys) surged 6% after reporting earnings beating analyst estimates due to strong gross margins. State Street (STT:xnys) jumped 8.2% after announcing a share buyback. US treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) fell on a softer unit labor cost print, Putin’s nuclear threat and WSJ Nick Timiraos article U.S. treasuries were well bid throughout the session, with yields falling by around 11bps across most parts of the curve. The 2-year was 11bps richer to settle at 4.26% and the 10-year yield fell 11bps to 3.42%. The Q3 unit labor cost was revised down to 2.4% from the previously reported 3.5%. The softer data provided somewhat of a relief to investors who had been concerned about wage inflation might slow the Fed from downshifting rate hikes in 2023. In addition, in his latest article, the Wall Street Journal’s Nick Timiraos, citing street economists, said the deceleration in rental increases in new apartment leases may mean “the end is in sight for one of the biggest sources of inflation” that Fed Chair Powell specifically pointed out as being important to watch in his recent Brookings Institution speech. Adding fuel to the rally in treasuries was the flight to safety bids following Putin’s threat of nuclear war. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) sold the new Covid-19 containment measures news Buy the rumor and sell the news in play yesterday in the Hong Kong and mainland China equity markets. After a lackluster morning session, Hong Kong and mainland China stocks rallied in the early afternoon after investors took note of the no mention of dynamic zero-Covid and a more balanced tone towards economic growth in the readout of the politburo meeting and the release by the Chinese health authorities of additional 10-measures to further fine-tune and ease China’s Covid-19 containment strategy. The markets nonetheless reversed soon afterward and tanked 3.2% as “sell the news” profit-taking came in. Southbound monies had a net outflow from Hong Kong back to the mainland of over HKD5 billion, of which HKD1.9 billion was selling the Tracker Fund of Hong Kong (02800:xhkg). Chinese developers were among the biggest losers following the second share placement in a month from Country Garden (02007:xhkg), with China Resources Land (01109:xhkg) down 5.3%, COLI (00688:xhkg) down 6.2%, Longfor (00960:xhkg) down 12.1%, and Country Garden down 15.5%. Selling was also aggressive in mega-tech names and saw Alibaba (09988:xhkg) down 5.3%, Tencent (00700:xhkg) down 3.7%, and Meituan (03690:xhkg) down 3.6%. The three leading Chinese airlines listed in Hong Kong, however, outperformed and gained by 2% to 6%. In economic data, China’s exports in November declined 8.7% (in USD terms) in November from a year ago, weaker than expectations. CSI 300 was down 0.3%. Australia’s share market holds six month highs, gold stocks charge, Australia's trade surplus beats expectations The Australian benchmark index, the ASX200 (ASXSP200.1) opened 0.3% on Thursday, but holds six month high territory. As for the best performers in the ASX200, clean metal small cap miner Chalice (CHN) rose 12% after drilling confirmed it found new sulphide minerals in Western Australia. CHN would typically be classed as higher risk company as its doesn’t earn income, which is why its share are suffering while interest rates are rising. CHN shares are down 35% YTD. Gold stocks are looking interesting as recessionary calls get louder- gold generally outperforms in a recession. Evolution Mining (EVN) shares are up 5%, continuing to rally it in uptrend and have gained 61%, moving EVN shares up off their 5-year low. In the larger end of town, BHP shares broke higher but profit taking turned its break higher into loss. BHP shares are up 26% this year, with the major miner, along with RIO and Fortescue doing well of late after the iron ore (SCOA) price picked up 7% this month, with China easing restrictions. On the downside, engineering company Downer (DOW) plunged 31% to $3.31, which is its lowest level since April 2020 after Downer downgrading its outlook and flagging irregularities in utilities business. The AUDUSD slides on AU exports falling more in October, and imports sinking; supporting RBA remaining dovish On the economic news front, Australia’s trade surplus fell in October, but less than expected. This reflects that Australia is earning less income as demand for commodities has fallen from its peak, ahead peak energy season and China easing restrictions. The Australian surplus fell from $12.4 billion to $12.2 billion (when the market expected the surplus to fall to $12 billion flat). In October, exports surprisingly fell 1%, vs market expectations they'd rise 1%, while imports fell 1%. This supports the RBA keeping rates low, as such after the data was released, the AUDUSD immediately fell. FX: USD weakens on lower yields The US dollar weakness extended further on Wednesday as US 10-year yields plunged to fresh lows since mid-September breaking below the 3.50% support. There were some concerns on wage pressures as US Q3 Unit Labor Costs were revised lower to 2.4% (prev. 3.5%, exp. 3.1%), which pushed back on some of the wage-price spiral fears while still remaining elevated. GBPUSD pushed above 1.22 and EURGBP is testing the 0.86 handle. NZDUSD came back in sight of 0.64 even as AUDNZD recovered from 1.0532 lows printed after Australian Q3 GDP data came in beneath expectations. The Japanese yen gained on lower US yields, but gains were restrained by commentary from BoJ's Nakamura who reiterated Governor Kuroda, noting it is premature to tweak policy now as service prices remain low and he is not sure now is the right timing to conduct a review of the policy framework. Crude oil (CLZ2 & LCOF3) prices pressured by demand concerns Oil posted its fourth straight day of losses, erasing all of the gains of this year. While demand concerns are rising with the aggressive global tightening seen this year, supply side has remained volatile. US crude inventories fell by a less-than-expected 5.19 million barrels last week, as exports didn't repeat their prior performance. Distillate stocks rose by more than 6 million barrels and gasoline supplies climbed by 5.3 million barrels amid weak demand. Still, the bigger factor is that the short-term technical traders appear to be in control of the oil market currently. WTI plunged to lows of $72/barrel while Brent went to sub-$78 levels. Gold (XAUUSD) higher on China’s central bank purchases Gold’s safe-haven appeal has come back in focus with China joining the long list of other countries who have been strong buyers of bullion. The PBoC added 32 tons to its holdings in November, the first increase in more than three years. This brings it total gold reserves to 1980 tons. This is also potentially a step towards our outrageous prediction on a new reserve asset, as speculations mount that China, Russia and several other countries could be looking to move away from USD reserves. Gold prices gained over 1%, and helped drag the rest of the sector higher as well. Industrial metals like Copper and Nickel also pushed higher due to the weaker US dollar.   What to consider? Putin’s nuclear threat sours risk sentiment Following drone attacks on three Russian air bases that Moscow blamed on Kyiv, Putin has now warned that the Ukraine conflict could go on for a long time and nuclear tensions have also risen because of it. He also did not clearly stay away from pledging that Russia will not be the first to use nuclear weapons, and rather said that Russia will defend itself and its allies “with all the means we have if necessary. The irresponsible talks on nuclear weapons is a sign that Putin is getting desperate with Ukraine gaining military grounds, and his actions will be key to watch. Risk sentiment likely to be on the back foot today, and food prices as well Uranium will be in focus. Japan Q3 GDP continues to show contraction The final print of Japan’s Q3 GDP was released this morning and it was slightly better than the flash estimate of -1.2%, but still showed a contraction of -0.8% annualized sa q/q. Stronger than expected growth in exports and a build of inventories led to the upward revision, private consumption was slower than previously expected at just 0.1% q/q. Lower oil prices and the return of inbound tourists may further aid the Japanese economy, but slowdown in global demand will continue to underpin a weakness in exports. Eurozone Q3 GDP grew more than initially forecasted The final estimate of the Eurozone Q3 GDP shows an increase to 0.3% versus prior 0.2%. Growth fixed capital formation was the biggest contributor to growth (0.8 percentage point) behind household spending (0.4 percentage point). The contribution from government expenditure was negligible on the period. This shows that households and companies are rather resilient despite the negative economic environment and inflation across the board. Based on the latest PMI for November (the last estimate was published on Monday), we expect a small GDP contraction in the eurozone in Q4. This would be marginal (probably minus 0.1%). Bank of Canada hiked 50bps and signalled the next move will be data dependent Bank of Canada hiked policy rate by 50bps to 4.25%, in line with market expectations but higher than the market pricing of 25bps. The central bank signalled the next move will be data dependent by saying that the “Governing Council will be considering whether the policy needs to rise further to bring supply and demand back into balance and return inflation to target.” Still, there was a slight hawkish tilt as the Bank said that the BoC will consider if future rate hikes are necessary to bring supply and demand back into balance and return inflation to target, which means there is potential for more rate hikes after a temporary pause. The Politburo says China will continue to “optimize” its pandemic control measures The Chinese Communist Party ended a politburo meeting that focused on economic policies for 2023 and anti-corruption works in the party on Tuesday. The readout of the meeting released on Wednesday makes no mention of the “dynamic zero-Covid” policy. Instead, it says that China will strive to better coordinate pandemic prevention and control with socioeconomic development and continue to optimize the country’s pandemic control measures. The readout does not reiterate the warning on the property sector and the rhetoric of “housing is for living in, not for speculation” but instead pledges to “be vigilant of large economic and financial risks and strive to prevent systemic risks.” Overall, the readout from the Politburo meeting seems to confirm the policy shift to gradually easing pandemic control measures and supporting the property to the extent of preventing it from causing systemic risks to the financial system and the economy. The readout emphasises stability by the utmost important priority for 2023 and the leadership of the Chinese Communist Party over economic policies as well as economic activities of the country. The readout also pledges to continue the anti-corruption campaign and enhance the governance of  the Chinese Communist Party. China issued 10 additional measures to ease Covid-19 containment practices China’s National Health Commission issued 10 additional measures to further fine-tune and relax the country’s pandemic prevention and control practices. The crux of these new measures are to further reduce the scope and length of lockdowns and quarantines and restrict the use of PCR tests. While these are important relaxation to the current practices, especially in reducing the unit of movement restriction to as narrow as floor or even apartment as opposing to the whole block or community and making quarantine-at-home the default option instead of centralised quarantine. Nonetheless, in comparison with the high expectations in recent days, these measures may be considered a bit underwhelming and do not provide a more definite roadmap of exiting the use of lockdown.  China’s exports shrank 8.7% Y/Y in November In USD terms, China’s exports declined 8.7% Y/Y in November, much weaker than the -3.9% consensus estimate and -0.3% in October. The fall in exports was broad-based across destinations, U.S.  down 3.8% Y/Y, European Union down 9.3% Y/Y, and Japan down 4.6%. Exports to ASEAN slowed to a 7.7% growth in November from 19.7% in October. Imports, falling by 10.6% Y/Y, also below expectations. Some outperforming stocks to watch Generally, there are always outperformers in markets, even when times are tough. A hot scoop for you is that that Campbell Soup shares popped 6% higher on Wednesday, gapping up to $56.18. Its shares are now 15% off their record high that it hit in 2016. That year, the Syrian war escalated, Trump was elected, and there was a string of terror attacks around the world. And amid war talks now escalating this year Campbell Soup shares entered an uptrend, gaining 45% from last November. If recessionary talks and Russia war concerns linger, you might expect this company to continue to benefit. It has free cash flow, and consistent rising profit growth. Another stock that did well overnight was General Mills, rising 2% to an all time high, $87.50 after the wheat price jumped 3% overnight on supply concerns returning. We mentioned General Mills as a company to watch in our Five Stocks to Watch video. Despite the wheat price falling 19% from September after supply returned to the market, General Mills has been able to grow its quarterly profit and free cash flows.      For our look ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: Market Insights Today: Putin’s nuclear warning; China reopening trade is fading – 8 December 2022 | Saxo Group (home.saxo)

Summary:  Risk sentiment steadied in the US yesterday as US treasury yields fell further, with the market seemingly increasingly convinced that inflation is set to roll over quickly next year, allowing the Fed to begin cutting rates in the second half of the year and beyond. The 10-year treasury yield fell below the important 3.50% level while gold rose. Sentiment in Europe is a bit more downbeat as frigid weather spikes energy prices.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures closed right on the 100-day moving average yesterday to the lowest close since 10 November washing away most of the gains delivered post the surprise inflation report back in November. The equity market is finding itself in limbo for the rest of the year with no clear narrative to build a direction on. Downside risks are related to the war in Ukraine and higher interest rates if the market begins to doubt itself on the Fed pivot. Upside risks are mostly related to momentum building in Chinese equities and the government seems to strengthen the policy trajectory of reopening society. The 3,900 level in S&P 500 futures is still the key level to watch on the downside. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) Hang Seng Index rallied strongly, up 2.8% and recovering most of the loss from yesterday. The 10 additional fine-tuning measures to ease pandemic containment may be underwhelming relative to the high expectations. However, when reading together with the readout of the Politburo, an overall direction of a gradual and now seemingly determined loosening of restrictions seems to have taken hold. Omitting the language of “housing is for living in, not for speculation” and pledging to “be vigilant of large economic and financial risks and strive to prevent systemic risks” point to conditional support to the property sector when socioeconomic and financial stability are at stake. Technology names led the advance. Hang Seng TECH Index surged 5.6% with Bilibili being the top gainer within the index. Alibaba, Meituan, and Tencent climbed 5%-6%. Shares of China online healthcare platforms, China education services providers, China consumption, and Macao casino operators were other top performers. USD slightly lower again on steady risk sentiment and decline in treasury yields The USD softened yesterday as risk sentiment trade sideways and, more importantly, as US treasury yields fell all along the curve, taking the 10-year Treasury benchmark yield below the important 3.50% chart point. The USD will likely struggle unless the market begins to reprice its rising conviction that inflation will allow a significantly lower Fed Funds rate in 2024 and beyond and/or risk sentiment rolls over badly as the market prices an incoming recession and not a soft landing. The key event risks for the balance of this calendar year are next Tuesday’s US November CPI print and the FOMC meeting the following day. Somewhat surprisingly, the new lows in US yields have yet to drive USDJPY to new lows: that pair recently traded below 134.00 but trades this morning well clear of 136.00. Gold (XAUUSD) bounces with focus on recession and PBoC buying Gold traded higher on Wednesday as the dollar weakened and US Treasury yields slumped (see below) and the yield curve inversion reached a new extreme on rising recession fears, and after China joined the lengthy list of other countries who have been strong buyers of bullion. The PBoC added 32 tons to its holdings in November, the first increase in more than three years. This brings its total gold reserves to 1980 tons. This is also potentially a step towards our outrageous prediction on a new reserve asset, as speculations mount that China, Russia and several other countries could be looking to move away from USD reserves. Friday’s US producer price report may provide the next round of price volatility. Key resistance at $1808 with support below $1765 and $1735. Crude oil (CLF3 & LCOG3) pressured by demand concerns Oil posted its fourth straight day of losses on Wednesday, erasing all the gains of this year, before bouncing overnight as China edges toward reopening. While demand concerns are rising with the aggressive global tightening seen this year, the supply side has remained equally volatile. US crude inventories fell by a less-than-expected last week as exports slowed and production reached 12.2m b/d. In addition, distillate stocks rose by more than 6 million barrels as demand on a four-week rolling basis slumped to the lowest level since 2015. Short-term technical traders are in control as the overall level of participation continues to fall ahead of yearend. US 10-year treasury benchmark plunges through 3.50% (TLT:xnas, IEF:xnas, SHY:xnas) US treasury yields dropped at the long end of the yield curve, with the 10-year benchmark dipping well below 3.50%, a key chart- and psychological point. The yield curve inverted to a new extreme for the cycle as the market is pricing that inflationary risks are easing and for the Fed to begin cutting interest rates by late next year. What is going on? New deep coal mine in UK the first to be approved in 30-years The new coking coal mine in Cumbria was approved by levelling-up secretary Michael Gove and will employ approximately 500 people and will cost £165 million to develop. Coking coal is used in steel-making, unlike thermal coal used for power stations. Musk may pledge more Tesla shares to avoid debt spiral Elon Musk and his advisors are considering another margin loan with Tesla shares as collateral to swap with more expensive debt carrying high interest rates ($3bn at 11.75% interest rate) issued during the Twitter takeover. These considerations underscore the increased risk in Elon Musk’s investments, including Tesla. EZ Q3 GDP grew more than initially forecasted The final estimate of the EZ Q3 GDP shows an increase to 0.3 % versus prior 0.2 %. Growth fixed capital formation was the biggest contributor to growth (0.8 percentage point) behind household spending (0.4 percentage point). The contribution from government expenditure was negligible during the period. This shows that households and companies are rather resilient despite the negative economic environment and inflation across the board. Based on the latest PMI for November (the last estimate was published on Monday), we expect a small GDP contraction in the eurozone in Q4. This would be marginal (probably minus 0.1 %). Putin’s nuclear threat sours risk sentiment Following drone attacks on three Russian air bases that Moscow blamed on Kyiv, Putin has now warned that the Ukraine conflict could go on for a long time and nuclear tensions have also risen because of it. He also did not clearly stay away from pledging that Russia will not be the first to use nuclear weapons, and rather said that Russia will defend itself and its allies “with all the means we have if necessary. The irresponsible talk on nuclear weapons is a sign that Putin is getting desperate with Ukraine gaining military grounds, and his actions will be key to watch. Risk sentiment likely to be on the back foot today, and food prices as well Uranium will be in focus. MondoDB shares rally 23% on earnings The database provider delivered Q3 earnings that surprised the market with revenue at $334mn vs est. $303mn and adjusted EPS of $0.23 vs est. $0.17, but more importantly MongoDB raised its fiscal guidance on revenue to $1.26bn vs est. $1.20bn. Japan Q3 GDP continues to show contraction The final print of Japan’s Q3 GDP was released this morning and it was slightly better than the flash estimate of -1.2%, but still showed a contraction of -0.8% annualized seasonally adjusted q/q. Stronger than expected growth in exports and a build of inventories led to the upward revision, private consumption was slower than previously expected at just 0.1% q/q. Lower oil prices and the return of inbound tourists may further aid the Japanese economy, but slowdown in global demand will continue to underpin a weakness in exports. Bank of Canada hiked 50bps and signaled the next move will be data dependent Bank of Canada hiked policy rate by 50bps to 4.25%, in line with market expectations but higher than the market pricing of 25bps. The central bank signaled the next move will be data dependent by saying that the “Governing Council will be considering whether the policy needs to rise further to bring supply and demand back into balance and return inflation to target.” Still, there was some “hawkish optionality” as the Bank said that the BoC will consider if future rate hikes are necessary to bring supply and demand back into balance and return inflation to target, which means there is potential for more rate hikes after a temporary pause. Canadian two-year rates were a basis point or two lower after considerable intraday volatility and near the lows for the cycle. US consumer food giants’ Campbell Soup and General Mills shares surge Campbell Soup shares popped 6% higher on Wednesday, gapping up to $56.18 after the company reported stronger quarterly earnings than expected. Its shares are now 15% off their record high that it hit in 2016. Campbell Soup shares are up 45% from last November. Another stock that did well overnight was General Mills, rising 2% to an all-time high of 87.50 after the wheat price jumped 3% on supply concerns returning. Despite the wheat price falling 19% from September, General Mills has been able to grow its quarterly profit and free cash flows. What are we watching next? What is the playbook for the pricing of the coming “landing”? There are several different paths from here, the one the market is least prepared for is one that shows resilient US economic growth and higher than expected inflation in coming months. But even if data does continue to prove the market’s strong conviction that inflation is headed lower and that growth will soften, will markets price some version of a soft landing or will fears of a “standard” recession cycle begin to weigh on risk sentiment as credit spreads widen and asset prices drop on fears of rising unemployment and falling profits? Until this week, financial conditions have been easing sharply and credit markets look complacent, so there is little fear priced in. After a wild year of volatility, large macro players may be unwilling to place large bets on the direction for markets until we have rolled into the New Year. Earnings to watch Today’s US earnings focus is Broadcom, Costco, and Lululemon. With a market value of $200bn, Broadcom is the most important earnings release for market sentiment and analysts remain bullish with a revenue growth expected at 20% y/y for the quarter that ended in October. Today:  Broadcom, Costco, Lululemon, Chewy Friday: Oracle Corp, Li Auto Economic calendar highlights for today (times GMT) 0800 – Hungary Nov. CPI 1200 – ECB President Lagarde to speak 1200 – Mexico Nov. CPI 1330 – US Weekly Initial Jobless Claims 1400 – Poland National Bank Governor Glapinski press conference 1430 – EIA's Weekly Natural Gas Storage Change Report 0130 – China Nov. PPI/CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – December 8, 2022 | Saxo Group (home.saxo)

The euro stabilized against the US dollar on Thursday and the U.S. dollar clawed back some of the previous day's declines, as the market weighs in on the Fed's rate hike path. The euro benefited from the weakening of the US dollar The Australian dollar against the US currency fell sharply the 10-year Treasury note has fallen almost continuously EUR/USD was unable to overcome its late-June high EUR/USD hit a five-month high earlier this week but was unable to overcome its late-June high of 1.0615. The pair's mood remains bearish today. Compared to the previous day, the EUR/USD pair has fallen and is trading around 1.0469. The euro gained overnight after better-than-expected euro-wide GDP data showed an increase of 0.3% q/q in the third quarter instead of the expected 0.2%. This may indicate that the economic slowdown in Europe may not be as serious as previously feared. The European Central Bank will review its policy on 15 December. The broader weakness of the US dollar also helped strengthen the euro. GBP/USD The pound fell 0.3% against the dollar to $1.2175 and fell 0.35% against the euro. Sterling falls as falling UK house prices add to recession fears. The UK is facing a winter of strikes as rail workers, teachers and nurses demand better wages as the cost of living soared, exacerbated by rising energy costs after the Russian invasion of Ukraine. What's more, the prospects for next year are equally bleak. The UK economy could contract in the coming months. AUD/USD- commodity prices have a negative impact The Australian dollar against the US currency fell sharply this week. Currently, the pair is trading at mid-September levels. From The Australian Dollar (AUD) perspective, commodity prices have a negative impact on the currency coupled with yesterday's weaker GDP data. This morning started positively for the Australian dollar with a better-than-expected trade balance for October, but today the main focus will be on the US labor market data. If the reports turn out to be positive for the dollar, they will bring bears for the AUD/USD pair. Most recently, the Australian dollar got support from the easing of COVID restrictions in China, but that has since dissipated due to the rising number of COVID cases causing concern. The RBA's decision on interest rates also failed to support the Aussie. Overall, the current fundamental headwinds facing the AUD outweigh the US Dollar, which could suggest a potential downside risk for the Australian Dollar over the next few weeks. JPY is weaker The Japanese Yen is slightly weaker so far today despite GDP there narrowly beating forecasts. Annualised GDP was -.08% for the third quarter instead of -1.1% anticipated. The Japanese yen (JPY) which is highly sensitive to shifts in U.S. Treasury yields, fell 0.2% to 136.82. Instead the dollar-yen pair jumped. Currently, the pair is trading around 136.8130. The yield on the 10-year Treasury note has fallen almost continuously since hitting a 15-year high in late October. The Bank of Japan's ultra-loose monetary policy at a time when other central banks around the world are aggressively raising interest rates has made the yen the weakest major currency in the world in recent months. As a result, the USD/JPY exchange rate increased. However, according to some experts, the yen may rise against the US dollar next year. Source: finance.yahoo.com, dailyfx.com, investing.com

The European Central Bank meets next Thursday and looks set to slow the pace of aggressive interest rate hikes as inflationary pressures finally show signs of abating. Read naxt: FX: Movement Of Major Currency Pairs This Week| FXMAG.COM Forecast The ECB has already raised its main lending rate by 2% since July in three separate increases. The ECB is due to meet again on December 15 amid expectations that rate will be increased again. Comments from ECB officials this week saying inflation was probably close to its peak have bolstered expectations that the central bank is likely to slow its pace of interest-rate increases to half a point from 75 basis points previously, on December 15. Markets anticipate a 50 basis point, or half point, rate hike after two straight increases of 75 basis points each, slowing the pace of tightening. Recent comments from ECB officials wouldn’t lead one to believe that a pace decrease is in sight but market participants are still leaning towards a smaller rise, with 55bps priced in, after 75bps hikes in September and October. The dovish emphasis came from the October meeting minutes which highlighted the progress that had been made from removing the accommodative policies. In its October decision, the ECB said "substantial progress" had been made in withdrawing policy accommodation and the lags involved in the transmission of the earlier tightening measures. But the ECB is likely to stay hawkish and investors will also look for clues on where the deposit rate is going. Deutsche Bank economists see the terminal rate at 3%, with risks skewed to the upside. The ECB meeting coming after the Fed, so some may question whether the Fed’s decision will have an impact at all. Data A sharp slowdown in inflation in the US in October and the eurozone in November has encouraged investors to believe the worst may be over in terms of price pressures, causing global yields to drop sharply in recent weeks. Germany's 10-year bond yield, seen as the benchmark for the eurozone, rose one basis point to 1.8%, while the Irish and French 10-year yields traded at around 2.3%. Many investors say the sharp drop in eurozone yields has gone too far, given that annual inflation is still running at 10% and that the ECB is set to raise rates to at least 2% next week. Eurostat said area inflation rose 10% in the year to November, which is a decline on October's 10.6% and lower than the consensus expectation amongst economists for a reading of 10.4%. Excluding food, fuel, alcohol and tobacco, inflation is at 5% and pipeline pressures remain abundant. Closely-watched business activity data points to a mild recession and latest forecasts should show how the ECB views the coming slowdown. In September, it forecast 0.9% eurozone growth in 2023, a significant downgrade from its June prediction. Recent reports have shown that employment rose slightly and the GDP Y/Y and GDP Q/Q readings turned out to be higher than expected. GDP Y/Y increased to 2.3% against the expected 2.1%, while GDP Q/Q increased by 0.1% to 0.3%. A positive GDP reading may influence the ECB's decision. Retail sales in Europe continue to fall. It came down to -2.7% in October, which is far worse than the expected. EUR/USD Euro exchange rates would be set to benefit if the European Central Bank (ECB) defies expectations next week by hiking 75 basis points, an outcome some economists say is likely. A 50bp move would therefore be a neutral outcome for the Euro to Dollar exchange rate. Source: investing.com, ecb.europe.eu

Summary:  Big week ahead keeping investors on edge as US CPI is likely to soften but the PPI release from Friday has awakened the case for an upside surprise. Focus quickly turns to the last FOMC meeting of the year with 50bps rate hike widely priced in but significant wage pressures laying the case for higher-for-longer. We discuss what to watch in the updated dot plot and Chair Powell’s press conference, and how it can move the markets. Even the middle of December doesn’t seem to be getting any quieter yet, and this week brings a host of Tier 1 economic data and a flurry of central bank meetings that can cause considerable volatility. In addition, we have the China reopening momentum extending further, and hopes of more stimulus measures especially for the property sector. Geopolitics is also taking another turn as Putin continues to threaten the use of nuclear and also risk of a production cut in crude oil is seen as a response from Russia to the G7 price cap that was set last week. It is unlikely that we will get a quiet end to the year. The bigger focus for this week will still be the US CPI (scheduled for release on Tuesday 13 Dec at 9:30pm SGT), where investors are starting to get nervous about an upside surprise especially after Friday’s November PPI report that was above expectations broadly. The market reaction to that PPI report was erased quickly, but that may not be the case for CPI. We can expect a moderation this week on the back of easing supply chain pressures, stable gasoline prices and holiday discounts from retailers to clear inventories. However, the Cleveland Fed CPI model suggests upside risks vs. consensus expectations with a 7.5% Y/Y print for headline and 6.3% Y/Y for the core (vs. consensus of 7.3% Y/Y and 6.1% Y/Y respectively). We believe the narrative really needs to shift from peak inflation to how low inflation can go and how fast it will reach there? Consensus expects 0.3% M/M for both the headline and the core – anything lower than that can cause the markets to rally but will also provoke the Fed to send in a stronger message the following day to convey its message of avoiding premature easing. The Fed meeting next day (Thursday 15 Dec 3am SGT) is broadly expected to deliver a 50bps rate hike, which will mean cumulative hikes of 425bps this year. It is unlikely that the CPI print from a day before could change that. While this is a step down from the four consecutive 75bps rate hikes seen in the last few month, more important for the markets will be to watch for: How high do the terminal rate expectations go? Anything above 5% is still a bearish surprise for the markets, but the dot plot will have to show terminal rates to be in the 5.25-5.50% area to sound a hawkish alarm. If the dot plot signals a peak rate of 4.9%, it could signal to the markets that the Fed is starting to get worried about recession and may soon pause or pivot. Is the decision unanimous? Most of the Fed members recently have conveyed a very similar message. But any split votes, with the more hawkish members Bullard and Powell still preferring a 75bps rate hike, could be a hawkish surprise. Inflation and GDP growth outlook Any signs of upside risks to inflation from China’s reopening or easing financial conditions could be interpreted as hawkish. On the other hand, if the Fed talks about the lag effect of policy rate hikes, that will likely sound dovish. It will also be key to watch how Fed views the incoming data and its thoughts on recession concerns. Powell’s press conference How strong a pushback we get on 2023 rate cuts priced in by the markets. Could Powell open the door to a further step down to 25bps from February? Does he still see the risk of over-tightening to be less severe than the risks of under-tightening?   What to watch? US Dollar USD reversed sharply lower after the softer October CPI print, after a strong 5-month run from the greenback. The positioning is far more balanced now, with the biggest pullback risk seen in sterling which has been one of the biggest gainers (after the NZD) in the G-10 basket since the November 10 release. A more dovish turn by the markets could make EURUSD breach 1.06 resistance and bring 1.08 in focus, while USDJPY could break below the 200-dma at 135.16. S&P500 and NASDAQ100 S&P500 failed to break above the trendline resistance around 4,100 earlier this month but broke below trendline support at 3,992 last week. Next key support level for S&P500 is at 3,906 before 3,900 comes into view. A dovish surprise could bring a break above 4,000 again. Meanwhile, bear trend for NASDAQ100 could resume if it closes below 11,450. Source: Macro Insights: Pivotal week ahead with US CPI and Fed meeting on the radar | Saxo Group (home.saxo)

Summary:  U.S. equities had a broad-based rally ahead of the CPI data with energy leading the gains. USDJPY bounced, approaching 138, as US yields moved higher. Crude oil prices rose snapping a 5-day losing streak amid supply worries from Keystone pipeline. Traders took profits in Hong Kong and Chinese stocks, selling Chinese property, technology and EV names. All eyes on November US CPI now where a softer print is generally expected but room for an upside surprise remains. What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) advanced ahead of the CPI report Softer prints in the one, three, and five years ahead inflation expectation numbers in the New York Fed’s Consumer Expectations Survey on Monday boosted risk-on sentiments ahead of the release of the most watched CPI report on Tuesday. The S&P500 bounced from its 100-day moving average, gaining 1.4%. All 11 sectors of the benchmark advanced, with energy, utilities, and information technology leading the gains. Valero Energy, surging 5.2%, was the best performer in the S&P500. The tech-heavy Nasdaq 100 rose 1.2%. Tesla (TSLA:xnas) shed 6.3%, falling to the stock’s lowest level in two years on concerns about suspending output in stages at his Shanghai factory ahead of the Lunar New Year and Musk pledged more Tesla shares for margin loans. US Treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) rose after a weak 10-year notes auction In a thin-volume session ahead of the CPI report on Tuesday and the FOMC on Wednesday, yields on Treasuries were 1bp to 3bps higher. The auction of USD32 billion of 10-year notes, awarded at 3.625%, 3.7bps cheaper than at the time of the auction, was the worst since 2009.  The one, three, and five years ahead consumers’ inflation expectations in the New York Fed’s Consumer Expectations Survey fell to 5.2%, 3%, and 2.3% in November from 5.7%, 3.1%, and 2.4% respectively in October. The yields on the 2-year notes and 10-year notes added 3bps each to 4.38% and 3.61% respectively. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) consolidated ahead of key events Ahead of two key events, the FOMC meeting in the U.S. and the Central Economic Work Conference (CEWC) in China, investors in Hong Kong and mainland Chinese stocks took profits and saw the Hang Seng Index 2.2% lower and the CSI300 sliding 1.1%. Chinese property developers and management services, technology, and EV stocks led the charge lower. Country Garden Services (06098:xhk) tumbled 17% after the property services company’s Chairman agreed to sell more than HKD5 billion worth of shares at a 10.9% discount. Longfor (00960:xhkg), The Hang Seng Tech Index dropped by 4%, with Meituan (03690:xhkg) declining by 7%. Li Auto (02015:xhkg) tumbled 12% after reporting larger losses and a large gross margin miss. In A shares, property and financials stocks were top losers while pharmaceuticals gained. FX: USDJPY heading to 138 ahead of US CPI release The US dollar remained supported ahead of the big flow of key data and central bank meetings later in the week. The modest run up higher in US Treasury yields, along with higher oil prices, brought back some weakness in the Japanese yen. USDJPY reached in sight of 138 and the US CPI release today will be key for further direction. EURUSD remained capped below the key 1.06 handle, but a break of that if it was to happen will open the doors to 1.08. NZDUSD eying a firmer break above 0.64 but would possibly need help from CPI for that. Crude oil (CLF3 & LCOF3) prices gain further on China’s easing while Keystone pipeline remains shut Crude oil prices rose on Monday after a week of heavy losses on demand concerns and fading China reopening. Prices were underpinned by further easing of China’s restrictions despite concerns earlier in the week from a rapid surge in cases. Despite reports that the Keystone pipeline was being partially reopened, it remains completely shut on Monday which suggests a potential drop in storage levels at Cushing, Oklahoma, the WTI delivery hub. WTI futures rose to $74/barrel, while Brent touched $78.50. The market awaits news from Russia on whether it will make good on its threat to cut supply to price cap supporters, while the focus will also turn to US CPI today and the FOMC decision tomorrow, as well as the oil market reports from OPEC and IEA.   What to consider? Stronger UK GDP growth but clouded energy outlook, expect more volatility Some respite was seen in UK’s growth trajectory as October GDP rose 0.5% M/M after being down 0.6% M/M last month’s due to the holiday for Queen’s funeral and a period of national mourning. However, the UK may already be in a recession and the outlook remains clouded which suggests there isn’t enough reason for Bank of England to consider anything more than a 50bps rate hike this week. Energy debate continues to run hot and create volatility in gas prices, after weaker wind generation led to talks of refiring the reserve coal plants, but the request was cancelled later on Monday as wind generation rose. The situation continues to highlight the vulnerability of the energy infrastructure due to lack of baseload, and a bigger test probably lies ahead in 2023. Focus will be on energy companies amid the cold snap in the northern hemisphere with coal plants on standby. Agriculture commodities also a focus Australia’s ASX200 (ASXSP200.1) is expected to have a positive day of trade on Tuesday, as well as Japan’s market, while other Asia futures are lower. In Australia, consumer and business confidence are due to be released. In equites, focus will be on energy commodities and equities, given weather forecasts show a deep chill is descending on the northern hemisphere, and threatening to erode heating fuel stockpiles. Natural gas futures surged, while Oil rose 3% $73.17 a barrel. Energy stocks to watch include Australia’s Woodside, Beach Energy and Santos, Japan’s Japan Petroleum Exploration, Eneos, JGC, Chiyoda and Hong Kong-listed PetroChina, CNOOC and China Oilfield Services. Separately, coal futures are also higher, with Asia set to face a coal winter, and coal plants were previously asked to be on high alert in the UK, with snow blanketing parts of the UK. For coal stock to watch, click here. Separately, wheat prices rose 2.8% on expectations supply could wane; so keep an eye on Australia’s wheat producers GrainCorp, and Elders. Elsewhere, Australian beef output is poised to ramp up in the first half of next year, as the herd continues to rebuild. Australia’s Rural Bank agriculture outlook expects increased slaughter rates, and beef production to rise 5% in the first half, (mind you that’s well below average). So keep an eye on Elders, which helps sell and buy livestock, and Australian Agricultural Co – Australia’s largest integrated cattle and beef producer. EV car makers dominate headlines; revving up competition, despite concerns demand could soften Tesla shares fell 6.3% Monday, to its lowest level since November 2020, making it the worst performer by market cap. TSLA shares have fallen about 54% this year. TSLA is reportedly suspending output at its Shanghai electric car factory in stages, from the end of the month, until as long as early January, amid production line upgrades, slowing consumer demand and Lunar New Year holidays. Most workers on both the Model Y and Model 3 assembly lines won’t be required in the last week of December. Rivian shares also fell 6.2% on reports its scrapping plans to make electric vans in Europe with Mercedes. Instead, Rivian will focus on its own products. While Mercedes-Benz says it will continue to pursue the electrification of its vans and its shares closed almost flat in Europe. VW shares were also lower in Europe, despite it announcing plans to increase market share in North America to 10% by 2030 from 4%. VW wants to produce more electric SUV models in the US; and produce ~90,000 VW’s ID.4 model in 2023 in America. NY Fed consumer expectations survey shows slowing inflation, but.. NY Fed’s Survey of Consumer Expectations indicated that respondents see one-year inflation running at a 5.2% pace, down 0.7 percentage point from the October reading. Expectations 3yrs ahead fell to 3.0% from 3.1% and expectations 5yrs ahead fell to 2.3% from 2.4%. However, it is worth noting that inflation expectations remain above fed’s 2% target and unemployment and wage data was reportedly steady. Softer US CPI to offer mixed signals and considerable volatility Last month’s softer US CPI report was a turning point in the markets and inflation expectations have turned markedly lower since then. Consensus is looking for another softer report in November, with headline rate expected at 7.3% YoY, 0.3% MoM (from 7.7% YoY, 0.4% MoM) while the core is expected to be steadier at 6.1% YoY, 0.3% MoM (from 6.3% YoY, 0.3% MoM). While the case for further disinflationary pressures can be built given lower energy prices, easing supply constraints and holiday discounts to clear excess inventory levels, but PPI report on Friday indicated that goods inflation could return in the months to come and wage inflation also continues to remain strong. Easing financial conditions and China’s reopening can be the other key factors to watch, which could potentially bring another leg higher in inflation especially if there is premature easing from the Fed. Shelter inflation will once again be key to watch, which means clear signs of inflation peaking out will continue to remain elusive. China’s aggregate financing and RMB loans weaker than expectations In November, China’s new aggregate financing increased less than expected to RMB1,990 billion (Bloomberg consensus: RMB2,100bn) from RMB908 billion in October. The growth of total outstanding aggregate financing slowed to 10.0% Y/Y in November from 10.3% in October. New RMB loans also came in weaker than expected at RMB1,210 billion (Bloomberg consensus: RMB1,400bn; Oct: RMB615.2bn). Despite the push from the authorities to expand credits, loan growth remained muted as demand for loans were sluggish. Japan and the Netherland joining the U.S. in restricting semiconductor equipment exports to China According to Bloomberg, Japan and the Netherland have agreed in principle with the U.S. to join the latter in restricting the exports of advanced chipmaking machinery and equipment to China. The decisions have yet to be confirmed but it is expected that announcements will be made in the coming weeks.     Detailed US CPI and FOMC Preview – read here. Sign up for our Outrageous Predictions 2023 webinar - APAC edition: Wed, 14 Dec, 11.30am SGT For our look ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: Market Insights Today: US CPI day, expect considerable volatility – 13 December 2022 | Saxo Group (home.saxo)

Summary:  Risk sentiment rebounded yesterday, even as US treasury yields rose further and closed at their highest level in more than a week. Markets are on tenterhooks ahead of the US November CPI print later today as traders recall the explosion higher in risk sentiment in the wake of the October CPI release last month, where the reaction function may have been about extreme short-term option exposure as anything else. The same volatility risk is present over today’s release. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equity markets rebounded yesterday even as US treasury yields edged higher on the day, as traders nervously recall the heavy volatility around the US CPI releases of recent months, particularly the October CPI release on November 10, which saw an explosion higher in US equities of over 5% on the day after softer-than-expected numbers. Today’s release is complicated by the upcoming FOMC meeting tomorrow. The key downside area for the S&P 500 Index remains 3900-10 the cash index, with the equivalent area around 11,430 in the Nasdaq 100 Index. A sharp rise in the VIX yesterday despite the positive session suggests traders are scrambling to protect themselves with short-term options over the key event risks of the coming couple of days, which aggravates the volatility risk further. Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) Hang Seng Index advanced 0.4% after Hong Kong lifted all travel restrictions for visitors arriving the city and relaxed the QR code scanning requirements for residents.  Local Hong Kong catering and retailer stocks surged 5% to 12%. In A-shares, the CSI300 index was little changed. Lodging, tourism and catering stocks outperformed. FX: USDJPY teased 138 ahead of US CPI release The US dollar was mostly sideways ahead of the big flow of key data and central bank meetings later in the week, but a run-up in US treasury yields and higher oil prices yesterday drove a weaker JPY across the board again, with USDJPY nearly reaching 138.00 before pulling back slightly. The US dollar is set to key off the US CPI release today. EURUSD remained capped below the key 1.06 handle, where a break above, for example, on soft data and an indifferent FOMC meeting on Wednesday, possibly opening the doors to 1.08. Crude oil (CLF3 & LCOG3) Crude oil trades higher for a second day after last week's heavy losses on demand concerns. Prices were underpinned by further easing of China’s restrictions despite concerns earlier in the week from a rapid surge in cases. Despite reports that the Keystone pipeline was being partially reopened, it remains completely shut on Monday which suggests a potential drop in storage levels at Cushing, Oklahoma, the WTI delivery hub. The market awaits news from Russia on whether it will make good on its threat to cut supply to price cap supporters, while the focus will also turn to US CPI today and the FOMC decision tomorrow, as well as monthly oil market reports from OPEC today and IEA Wednesday. First level of resistance in Brent at $80.50 and $75 in WTI. Gold (XAUUSD) and silver (XAGUSD) await CPI report Both metals trade steady while awaiting today’s key US CPI print and tomorrow’s FOMC meeting. Having been rejected on a couple of occasions above $1800, the outcome of these will likely determine whether the metal will break higher to signal a strong start to 2023 or whether investors will book some profit ahead of the quiet period before year-end. In such a case, the current strength of the market will be tested with focus on support at $1765 and not least $1735. Silver meanwhile trades near an eight-month high with half an eye on copper as the potential driver for additional strength. US 10-year treasury benchmark rebounds further (TLT:xnas, IEF:xnas, SHY:xnas) In a thin-volume session ahead of the CPI report on Tuesday and the FOMC on Wednesday, yields on Treasuries closed the day higher, with the US 10-year benchmark closing 4 bps up to 3.61% and nearly 10 bps above intraday lows. The auction of USD 32B of 10-year notes, awarded at 3.625%, 3.7bps cheaper than at the time of the auction, was the worst since 2009.  The one, three, and five years ahead consumers’ inflation expectations in the New York Fed’s Consumer Expectations Survey fell to 5.2%, 3%, and 2.3% in November from 5.7%, 3.1%, and 2.4% respectively in October. What is going on? Stronger UK GDP growth but clouded energy outlook, expect more volatility Some respite was seen in UK’s growth trajectory as October GDP rose 0.5% M/M after being down 0.6% M/M last month’s due to the holiday for Queen’s funeral and a period of national mourning. However, the UK may already be in a recession and the outlook remains clouded which suggests there isn’t enough reason for the Bank of England to consider anything more than a 50bps rate hike this week. Energy debate continues to run hot and create volatility in gas prices, after weaker wind generation led to talks of refiring the reserve coal plants, but the request was cancelled later Monday as wind generation rose. The situation continues to highlight the vulnerability of the energy infrastructure due to lack of baseload, and a bigger test probably lies ahead in 2023. NY Fed consumer expectations survey shows slowing inflation, but... NY Fed’s Survey of Consumer Expectations indicated that respondents see one-year inflation running at a 5.2% pace, down 0.7 percentage point from the October reading. Expectations 3yrs ahead fell to 3.0% from 3.1% and expectations 5yrs ahead fell to 2.3% from 2.4%. However, it is worth noting that inflation expectations remain above the Fed’s 2% target and unemployment and wage data was reportedly steady. Corn (ZCH3) advances following biggest clear-out of longs since 2019  Corn futures in Chicago trade higher for a third day, as dry and hot weather conditions in Argentina, an important Southern Hemisphere producer, stresses the crop. In addition, the USDA on Friday cut the global supply outlook for corn due to a smaller crop in Ukraine, and from where supply could slow after Russian attacks on energy infrastructure have affected cargo loading at the Black Sea ports. Renewed support for corn emerged just after money managers in the week to December 6 sliced their corn net long by 37% to 120k lots, lowest since Sept 2020 and biggest one-week reduction since March 2019. Novozymes shares in focus following acquisition news Yesterday should have been a celebration day for Novozymes shareholders according to management as the enzymes manufacturer announced a $12.3bn acquisition of food flavouring manufacturer Chr. Hansen. However, Novozymes shares traded down 15% so the shares will be in focus this morning. The main question is whether regulators will allow the two companies to merge given their respective size and possible market power in the food ingredients business. What are we watching next? US November CPI to likely to trigger considerable volatility Last month’s softer US CPI report was a turning point in the markets and inflation expectations have turned markedly lower since then. Consensus is looking for another softer report in November, with the headline rate expected at 7.3% YoY, 0.3% MoM (from 7.7% YoY, 0.4% MoM in October) while the core, ex-Food & Energy reading is expected to show a steady rise of 6.1% YoY and 0.3% MoM (from 6.3% YoY, 0.3% MoM in October). While a case can be made for further disinflationary pressures, given lower energy prices, easing supply constraints and holiday discounts to clear excess inventory levels, the PPI report on Friday indicated that goods inflation could return in the months to come and wage inflation also remains strong. Easing financial conditions and China’s reopening can be the other key factors to watch, which could potentially bring another leg higher in inflation especially if there is premature easing from the Fed. Shelter inflation will once again be key to watch, which means clear signs of inflation peeking out will continue to remain elusive. Several central bank meetings this week The U.S. Federal Reserve (Wednesday), the Bank of England (Thursday) and the European Central Bank (Thursday) are expected to hike interest rates by 50 basis points each this week. Less than two weeks ago, Fed Chairman Jerome Powell said a December rate-hike slowdown is likely. But the hawkish tone should remain based on the latest Non Farm Payroll and Producer Prices reports which indicated that inflation remains high and broad-based. In the eurozone, this is a done-deal that the central bank will hike rates by 50 basis points. Pay attention to the updated economic forecasts (Is a recession the new baseline for 2023?) and to any indication regarding the expected quantitative tightening process. In the United Kingdom, the money market overwhelmingly believes (78%) that the Bank of England will hike its rate by 50 basis points to 3.5% this week. Only a minority (22%) foresees a larger increase, to 3.75%. Earnings to watch This is a quiet period in the earnings season, though a couple of interesting names are reporting this week, with former high-flyer Adobe up on Thursday. Adobe has something to prove as the US software company has seen a negative share price reaction on its past five earnings releases. Trip.com, China's leading online travel agency, reports on Wednesday and investors will judge the result on the company's outlook for Q4 and ideally 2023 as China's reopening is raising the expected travel demand in China for 2023. Read more here. Tuesday: DiDi Global Wednesday: Lennar, Trip.com, Nordson, Inditex Thursday: Adobe Friday: Accenture, Darden Restaurants Economic calendar highlights for today (times GMT) 1000 – Germany Dec. ZEW Survey 1030 – UK Bank of England Financial Stability Report 1100 – US Nov. NFIB Small Business Optimism 1330 – US Nov. CPI 2230 – Australia RBA Governor Lowe to Speak 2350 – Japan Q4 Tankan Survey 0005 – New Zealand RBNZ Governor Orr before Parliamentary Committee 2130 – API's Weekly Crude and Fuel Stock Report During the day: OPEC’s Monthly Oil Market Report Source: Financial Markets Today: Quick Take – December 13, 2022 | Saxo Group (home.saxo)

In its latest economic forecasts, Switzerland’s State Secretariat for Economic Affairs (SECO) said on Tuesday, the government expects the country's economic growth to slow next year but is unlikely to enter a recession. Key takeaways However, the energy situation in Europe is likely to remain tense with gas and electricity prices running high. Furthermore, high international inflation and the tightening of monetary policy are likely to curb demand. Swiss government forecasts 2022 CPI at +2.9% (vs +3.0% in prior projections). The Swiss government anticipates that the Consumer Price Index will +1.5% in 2024. Swiss government sees 2024 CPI at +1.5%. Sees 2023 CPI at +2.2% (previous forecast was +2.3%). 2022 GDP growth forecast at +2.0% (previously +2.0%). 2023 GDP growth forecast at +1.0% (previously +1.1%). 2024 GDP growth forecast at +1.6%.  

Production fell by 2% in October with declines across the board in the large countries. As the positive effects of easing supply-side issues fade, the outlook remains bleak for the winter months A factory in the Netherlands   Industrial production has started the quarter poorly, although we have to note that this is a volatile data series. As we have noted in recent months, Ireland continues to impact the overall figure with huge swings in production on a monthly basis, but October also saw consistent declines among the largest economies: -0.9, -2.6 and -1% in Germany, France and Italy, respectively. Overall, the trend in production is stagnant at the moment as production has moved more or less sideways since late 2020. Industry is dealing with slowing new orders but at the same time, is seeing some relief from easing supply-side problems. That dampens the negative impact on production to a degree as this results in some catch-up production. This has resulted in a rebound in car manufacturing in recent months, for example. Although October saw a small decline in production, car manufacturing is up 25% since March. From here on, the outlook for the manufacturing industry remains bleak. The slowing trend in new orders is set to continue as goods consumption is experiencing a broad correction at the moment. At the same time, energy prices have increased again, which will continue to dampen the performance in energy-intensive industries. As post-pandemic effects fade, expect weaker production figures over the winter months. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

China's activity data shows that retail sales shrank further last month due to Covid, and production grew at a slower pace amid weak external demand. This is likely to continue in December as Covid cases climb and the issue of labour shortages affects economic activity. But we believe that the Chinese New Year could bring some growth for retail sales Activity data shows slower economic growth Activity data points to worse-than-expected economic growth in November in terms of retail sales, industrial production and property investment. Home prices fell less than expected, which hints at a possible bottom for home prices. But this bottom may last for several months as Covid cases climb. Retail sales led the slump China's retail sales fell 5.9% year-on-year in November from a 0.5% YoY drop in October. It was the worst performing indicator in November; bear in mind that the government only eased Covid measures on 7 December. As such, it was quarantine that limited retail sales activity. All categories experienced yearly contraction except medicines and food. This pattern might improve slightly as residents bought train and air tickets for Chinese New Year travel within the country. But the overall situation could be worse in December as there were fewer Covid tests and therefore the reported number of Covid cases should be less than the number of infections in China. This could mean labour shortages and retail sales could therefore be adversely affected. Read next: From the fundamental point of view, these facts may become a game changer, sending the EUR/USD pair to the parity level | FXMAG.COM   Industrial production mostly affected by external environment Industrial production grew at only 2.2% year-on-year in November after a 5.0% rise in October. Looking at the details of industrial production, we observe that export-related industries, namely integrated circuits (-15.2% YoY), smartphones (19.8%) and microcomputing equipment (-27.9%) experienced a deeper contraction than other industries. Industries for domestic consumption experienced more growth than their export peers. New energy vehicles grew 60.5% YoY in November. Metals also grew between 7% YoY to 10% YoY, indicating that construction activity should have picked up for unfinished home projects. This is also confirmed by the data on residential property completion.   Fixed asset investment focus more on equipment Fixed asset investment grew 5.3% YoY year-to-date in November compared to 5.8% a month ago. Most of the items grew steadily. Equipment investment continued to outpace the rest and grew faster in November (41.4%YoY YTD in November vs 39.7% in October). This highlights that China has invested more on equipment, partly echoing the government's call for investment in technology and partly servicing its own needs for equipment as the US continues to call for stopping advanced equipment exports to China. December could continue to be bad Activity data in December may not be a lot better with Covid cases climbing. Parts of the labour force could be sick, and this could affect labour-intensive industries. However, we do not expect there to be a shut down of ports as these have contingent plans in place after the lockdowns back in March to May. Land logistics could be affected by labour shortages. As the peak export season has passed, the impact on the export-related supply chain should be mild. As it comes nearer to the Chinese New Year, manufacturing activity could be slower in December and January.  Retail sales in December may be higher in December due to travel activity over the Chinese New Year.  Read next: Given the peculiarities of the US labor market and the high labor mobility, the acceptable unemployment rate is considered to be 5.0%| FXMAG.COM In short, the economy is slowly picking up but it is difficult to be optimistic about growth in the fourth quarter of 2022 and first quarter of next year. We maintain our GDP forecasts at -0.4% YoY and 3.4% YoY, respectively. Read this article on THINK TagsRetail sales Industrial production GDP Fixed asset investments China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Business sentiment remained stable in December and is still above its long-term average. If this is confirmed by the other indicators, it could mean that the French economy will escape the contraction of activity in the fourth quarter. The recovery after the winter is likely to be sluggish The business climate in France remained stable in December for the fourth consecutive month   The business climate in France remained stable in December, at 102, for the fourth consecutive month. It remains above its long-term average. Stability can be seen in the service sector, industry, and construction. While the assessment of order books, especially foreign ones, continues to deteriorate, the production outlook seems to have improved slightly, and the assessment of past production rebounds. In addition, sentiment is improving in the retail sector, thanks to an increase in order intentions. Employment sentiment rebounded in December to 111 from 107 in November, as companies still seem ready to hire. Business leaders' opinions on price expectations for the next few months are once again on the rise, signalling that inflationary pressures are far from easing in France. Overall, the picture painted by the business climate indicator is one of stability for the French economy in the fourth quarter of 2022. If this were to be confirmed by the other indicators, it could mean that the French economy escapes the contraction in activity in the fourth quarter, or even grow slightly. However, the sharp deterioration in the PMI indices in November and the significant contractions in industrial production and consumption in October make us cautious about the stabilisation signal sent by the business climate. The probability of a recession this winter remains high. Read next: Given the peculiarities of the US labor market and the high labor mobility, the acceptable unemployment rate is considered to be 5.0%| FXMAG.COM Beyond the recession, the question of recovery after the winter is very important. We believe that the recovery will be sluggish. Indeed, household purchasing power is still deteriorating. Energy prices are likely to remain high throughout 2023 and the winter of 2023/2024 holds a major supply risk. Public finances, which have largely mitigated the impact of the economic shock, are likely to be less generous, which will slow the recovery. Finally, rising interest rates will have an increasing impact on the most interest-sensitive sectors. Ultimately, we expect sluggish economic growth in all four quarters of 2023, leading to stagnant GDP for the year as a whole. Inflation will rise again in early 2023, before falling very gradually. Changes to the tariff shield, which was implemented by the government to freeze gas prices amid rising costs, mean energy bills will rise by 15% in 2023 compared to 4% in 2022, leading to a sharp rise in inflation. As many more general price revisions can only take place once a year, food and service inflation is expected to rise sharply in the first quarter. French inflation should therefore be higher in 2023 than its average level in 2022. We expect 5.8% on average for the year, compared to 5.3% in 2023.   Read next: From the fundamental point of view, these facts may become a game changer, sending the EUR/USD pair to the parity level | FXMAG.COM Read this article on THINK TagsInflation GDP France Eurozone Business climate Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Benefitting from geopolitical turmoil The momentum of post-Covid recovery is gradually fading for Azerbaijan, but the country has two tactical strengths: gas and fiscal reserves. With the EU headed to lose Russia as a supplier of 150bcm of gas annually, the vast Shakh-Deniz is a big asset. Also, the country has some fiscal space for providing more support to the household income. Azerbaijan’s strong external and fiscal position should make it easy to place Eurobonds at the end of 2023, which are needed to refinance existing debt anyway. The risks to the local markets are coming from locally driven stories, such as long-standing tensions with Armenia, high inflationary risks driven by import-dependency, as well as a small and highly dollarized local banking sector. Activity slowing, but gas and budget policy offer support GDP showed 5.6% YoY growth in 9M22 but has moderated since 3Q22 due to maturing oil fields and declining household income. On the bright side, the fuel sector should remain supported by growing gas production, as gas supply to the EU is set to double to 10-12bcm in 2022 vs 2021 and could increase to 20bcm by 2027 if the EU were to guarantee this demand, giving Azerbaijan confidence to commit to vast capex. Meanwhile, the non-fuel sector may get fiscal support as the current c.US$75/bbl breakeven leaves room for generosity. Support on Karabakh may increase from 2.3-2.4% to 2.8-3.0% of GDP in 2023, while direct support to low-income households may rise from the current 11-12% to 14% of GDP, leaving the non-oil deficit at a sizeable 26-28% of non-oil GDP but still well covered by oil revenues. Current account supported by geopolitics The geopolitical turmoil of 2022 has created favorable conditions for Azerbaijan’s external trade through higher oil and gas prices and additional demand for gas volumes from the EU, partially offsetting the supply that used to come from Russia. The current account is set expand from 15% to 21% of GDP in 2022 and may remain close to those levels in 2023 assuming a favorable house view on oil. A sizeable 30-40% of it will be used to gain sovereign FX assets. Meanwhile, a US$1.0-1.2bn Eurobond placement is planned for end2023 to refinance the debt maturing in early 2024. This is likely to be met with demand given the country’s solid financial position. On the other hand, the stable net FDI outflow of 2-4% of GDP remains a sign of the challenging investment climate. Inflation close to peaks, but local risks are still high Azerbaijan is no exception to the post-Covid global inflationary trend, with CPI accelerating from 3-5% in 2020 to 15%+ currently. The pass-through of global trends into local CPI could be amplified due to high import-dependency of local consumption. Around 25-30% of local retail trade is imported, and food self-sufficiency is low. As a result, even though current CPI feels like a peak, average CPI should remain in low double digits in 2023, and upward risks to year-end expectations are high. Downside to the key rate is limited as CPI is well above the target range of 2-6%. Monetary transmission is restrained by the small banking sector, pegged FX, and high dollarization of deposits of around 49-51% in 2021-22. 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

An almost wasted year Far from saying “we told you so”, our previous Directional Economics piece on Bulgaria pointed out that the “zero tolerance” to corruption policy promised by the Continuing the Change party would hit a wall rather quickly. The government coalition lasted for only six months. Another inconclusive snap election took place in October 2022, with the next one due to take place in March 2023. We expect the political uncertainty to persist over the medium term and believe that this will postpone by at least one year the 2024 self-imposed euro adoption target, but this would be the most benign outcome in our view. After four general elections in 18 months, an understandable ‘politics fatigue’ on the part of the electorate might validate more extremist parties. Meanwhile, the interim government(s) are likely to remain fiscally responsible, though the outlook starts to become somewhat foggier Not a bad year but slowdown follows Given the very robust growth in 1H22 when the economy advanced by over 4.0%, and the flash 3Q22 GDP showing a 3.2% expansion, it will be rather difficult for the Bulgarian economy to close 2022 with a real GDP growth below 3.0%. For 2023, however, the outlook turns rather grim as the contraction in disposable income due to high inflation will start to yield more pronounced negative results in consumption. Moreover, the anticipated eurozone contraction will mean more subdued export demand, which will hit the economy in 1H23. Increased absorption of EU funds will be one of the few opportunities to offset these developments, but without a stable government to deliver straight-through implementation, our 1.4% GDP growth estimate for 2023 looks quite reasonable. The peak is behind, but inflation will remain high While it could be subject to a degree of flexibility from the EU when assessing euro adoption, the price stability criteria is obviously not on track for Bulgaria. We believe that inflation has peaked (at 18.6% in September 2022) and a gradual slowdown is to follow. Single-digit inflation could be seen as early as late-2Q23, but the subsequent pace of the slowdown looks a lot less steep which means that inflation could still stabilise well above the three best performing EU member states. This assumes household protection measures remain fully in place in 2023 and partially in 2024. Phasing out the support measures earlier would lift the inflation profile by up to 4ppt, depending on the exact specifications of the support measures. Read the article on ING Economics K 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

Eurozone and Schengen accession For many generations of Croatians, 1 January 2023 will be a day to remember. After years of painstaking efforts to recover from the 2008-09 deep recession and put public finances back on track, the country will join the eurozone in a relatively solid economic shape. Somewhat overshadowed by the eurozone accession, joining the Schengen area will also be a major milestone, with the potential to further boost Croatia’s exports of goods and especially services. Essentially, on 1 January 2023, Croatia’s EU integration story will be complete, with no other major milestones to be achieved in the coming years. In the short term, we believe that despite already being largely reflected in current ratings, the Eurozone and Schengen accession could bring another one notch upgrade from at least one agency. What a comeback this was Unlike the aftermath of the 2008-09 crisis when it took six years for the Croatian economy to resume growth, the post-pandemic recovery has been extremely fast. As usual, a strong tourist season made quite a difference, but tourism revenues in 2022 have dwarfed the record 2019 levels by some 30% to 40% despite a slightly lower number of tourists. This was due partly to inflation but also to the qualitative improvements in the sector which is now able to tap into more premium public. Looking to 2023, the outlook is influenced by an expected slowdown in the eurozone which will affect the demand for goods and services. Nevertheless, public investments should act as a backstop for a flattening private consumption, hence we maintain our 1.6% GDP growth estimate for 2023. Getting back on track The revised official targets for the fiscal balance point to a 1.6% of GDP deficit in 2022 and 2.3% in 2023, which given the current macro assumptions seem to be sensible estimates. An important aspect is how well the support measures for households will work in practice. In theory, their cost (estimated at around 5% of GDP) will be largely offset by revenues from EU funds and energy companies. Combined with the lower GDP growth and some remaining public sector arrears, it could mean that risks for exceeding the deficit next year are skewed to the upside. Nevertheless, primary deficits remain under control and with GDP growth still holding on, the overall debt position should continue to improve. 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

Deepest economic contraction in CEE In our view, the Czech economy entered recession in 3Q, mainly due to a fall in household demand. Within the CEE region, we expect the deepest economic contraction in the Czech Republic. Moreover, the level of leading indicators is the main downside risk to our forecasts. Nevertheless, the labour market remains tight and, were it not for government measures, inflation would rise further. Core inflation accelerated again in October and is proving more persistent. The Czech National Bank last hiked rates in June and we do not expect further monetary tightening despite the board's mention of risks. We see a reversal in monetary policy, an end to FX intervention and rate cuts likely before the end of the first half of next year. Fiscal policy incorporates plans for consolidation for next year, but still far from the levels of the pre-Covid years. Macro digest According to the second release, the Czech economy grew by 1.7% YoY and contracted by 0.2% QoQ in the third quarter and thus, in our view, started a period of recession. The main reason for the contraction was lower household consumption, which has fallen for the fourth quarter in a row. The fall in disposable income is limiting demand, especially for durable goods. On the other hand, the contribution of investment to growth is still positive but the smallest since the beginning of last year. The contribution of the foreign balance also turned positive for the first time since the beginning of last year. Looking ahead, for 1H23 we expect the QoQ pace of economic contraction to deepen, with the economy stagnating in 3Q23 and only returning to visible growth in 4Q23. The labour market remains a strong anchor of the Czech economy. Unemployment has risen only marginally from historic lows in 2019 and we do not expect it to exceed 3% in the coming years. Nominal wage growth will remain near record highs at just below 8% YoY but will not turn positive in real terms until 3Q23 at the earliest. The picture indicated by the leading indicators is the main risk to our forecasts. The PMI is deep in recession territory and only slightly above the record low levels of the Covid years. The PMI points to a sharp decline in output and new orders and rising cost pressures. A CZSO survey shows that shortages of materials and equipment are the main barrier to growth for a third of businesses, while insufficient demand is a major obstacle for a quarter. Consumer confidence bounced back from a low in November, probably due to government measures, but remains near record lows. Inflation fell from 18.0% to 15.1% while the CNB expected 17.4% YoY in October. The surprise can be explained by the government's measures to tackle high energy prices. On the other hand, core inflation accelerated sharply again from 0.3% to 1.2% MoM, almost back to the mid-year peak. In annual terms, it thus remained almost unchanged for the fifth month in a row at 14.6%, above the CNB’s forecast. Moreover, the central bank itself admits that government measures have cut 3.5ppt off inflation, implying actual inflation at 18.6% YoY, which would indicate a new record high. Looking ahead, we expect inflation to remain at similar levels until the end of the year and the change in government measures in January to have a similar effect on CPI as current measures had. Barring a surprise upwards repricing in January, the peak in inflation should be over and we expect the first single-digit numbers in the second half of the year. However, core inflation is still surprising to the upside and proving more persistent, which we think will lead to a slower decline. Only slow consolidation of public finances MinFin approved an increase in the state budget deficit in November to CZK375bn (5.5% of GDP), reflecting new government measures including the saving tariff and revised tax revenues. For next year, the plan expects a deficit of CZK295bn. In both cases, we remain on the optimistic side with a slightly lower deficit in our forecast due to traditionally underestimated tax revenues. However, the pace of fiscal consolidation is still far from the preCovid years. On the other hand, municipalities are running record budget surpluses, which improves the overall public finance picture. We expect a deficit of 4.6% for this year and 3.2% of GDP for next year. Given the strong nominal GDP growth, government debt will remain below 45% of GDP. In our view, the risk of a downgrade remains. Hiking cycle is over, attention turns to the first cut The Czech National Bank halted the hiking cycle in August and although the board still mentions risks that could lead to additional interest rate hikes, we turn our attention to the first interest rate cut next year. We see the current board as more dovish than the previous one and therefore see the possibility of a decision to cut before the end of the second quarter given the downturn in the economy, the risks of a deeper recession and inflation heading into single-digit territory. The CNB still sees the equilibrium interest rate at 3% which, with a record strong koruna, currently indicates very tight monetary conditions in the eyes of central bankers. In the meantime, we expect continued FX interventions to defend the koruna, which we think are likely to continue during 1Q next year. Mortgage market frozen, companies financing in euros The volume of new mortgages has remained stagnant for the past three months after a strong fall in 2Q22. Year-on-year, the volume of new mortgages is down 80%. This is due to the significant rise in interest rate but also the frontloading effect last year before the CNB tightened mortgage lending rules and implemented further key rate hikes. New CZK loans to corporates have fallen by 40% this year, but some of the corporate sector is responding to the current situation of high koruna rates by switching to FX financing. The share of euro-loans in total new loans to businesses has thus reached twothirds in recent months. However, even taking FX loans into account, this year's new lending to corporates has been falling, responding to monetary policy tightening. Deepest current account deficit since 2003 The trade balance has deteriorated significantly in recent months, mainly due to higher energy prices and import growth. We have seen an improvement on the export side in recent months, but we do not expect a quick return to positive levels. Also contributing to the CA deficit is the involvement of Ukrainian immigrants, whose wages are reflected as payments to non-residents. In addition, dividend outflows abroad have increased significantly in recent months, reaching the highest volume on record when looking at a rolling 3M sum. Thus, we expect a current account deficit of 5.1% of GDP for this year, essentially the worst result since 2003. For next year, we expect the trade balance to improve and energy prices to normalise, which should lead to the deficit falling to 3.5% of GDP. FX The CZK market has been under the control of the CNB since midMay with the intention to "prevent excessive fluctuations of the koruna". According to official figures, the central bank spent €25.5bn (16% of FX reserves) to defend the koruna from May to September. According to our estimates, the CNB may not have been active in the market in October and November given the EUR/CZK level has remained well below the intervention level of 24.60-70. The CNB is thus in a very comfortable situation, and we expect this regime to continue at least until the end of 1Q next year. If current market conditions persist and the CNB is not forced to intervene significantly, we believe 2Q23 will be an opportunity to end this regime, which should allow the koruna to weaken slightly towards EUR/CZK 25.0, however, we expect the koruna to strengthen again in the second half of the year due to the economic recovery and the EUR/USD turnaround. Market attention in recent months has been focused on the koruna only during the CNB meetings, building short positioning in view of the end of the central bank intervention regime. However, we expect this decision later than most. Fixed income The CNB is sticking to the rhetoric of "no change or rate hike" and "higher rates for longer" and, in our view, it is too early to reverse this mood on the markets. However, market rates have fallen from levels above the CNB's forecast to well below it in recent weeks. Currently, the market sees the first rate cut in four months and a near return to the equilibrium level of 3.00% in two years, while the CNB forecast expects the key rate to still be above 4.50% at the end of 2024. Overall, we view current market valuations as too aggressive in terms of rate cuts. In addition, despite the recent move, the long end of the IRS curve is still lagging behind core rates, according to our model, which points to higher levels. The June peak of the CNB hiking cycle and the upward revision of the state budget disrupted the traditional seasonality in CZGB issuance and unusually boosted supply in recent months, which we believe led to significant cheapening in ASW. For next year, we expect only slightly lower gross CZGB supply, but on a net basis it is almost half the volume of the Covid years. Thus, in our view, CZGBs have a lot of room to normalise in relative terms against the IRS curve. In addition, CZGBs can benefit relative to their regional peers from stable FX, a relatively low twin deficit and a politically stable situation domestically and with the EU. In nominal terms, we think current yields are in rather expensive territory, but in relative terms we see a lot of room for normalisation. 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

Bullish in every aspect Although Hungary is still facing a trifecta of challenges, the technical recession during late-2022 and early-2023 will provide a tailwind to tackle the issues. We expect inflation to gradually descend from its early-2023 peak, reaching single-digit territory by the end of the year if price caps are extended. At the same time, negative net real wage growth and tighter monetary and fiscal policies will keep domestic demand muted. The latter will be driven by postponed public investment spending and windfall taxes. Retreating consumption and lower investment activity reduces the country’s import need, which is also supported by a spreading awareness of energy usage. Improving external balance and diminishing net external financing need will boost the relative attractiveness of Hungarian assets, especially the forint. We are bullish in every aspect Macro digest After the post-Covid led rebound in 2021, this year started on a strong footing. GDP growth came in at 7.3% YoY during the first half of 2022. Despite all the challenges presented by the war and resultant energy crisis, Hungarian economic activity was boosted by rising domestic demand. A key source of this was the government’s pre-election spending spree during the first quarter. As this positive momentum of re-opening and fiscal easing starts to fade and the challenge of rising energy bills and extreme inflation starts to bite, the economy’s quarterly based performance is beginning to slump. The two biggest difficulties Hungary is facing – higher energy bills and increasing unemployment – didn't fully impact the economy in the third quarter. Nonetheless, the 0.4% quarter-on-quarter drop in real GDP means that we’ve already seen the first leg of the expected technical recession in Hungary. We expect the drop to continue in the fourth quarter mainly due to falling consumption and shrinking investment activity. Real wage growth reached negative territory in September, while lending activity also dropped. In the corporate sector, we see companies going out of business or reducing working hours due to skyrocketing energy costs. Big data also suggests the economy has been on a downtrend. But despite the weak second half, the strong first half will save the year: we see 2022 GDP growth at around 4.8%. When it comes to the 2023 outlook, the negative carry-over effect, the ongoing fiscal and monetary tightening and the shrinking purchasing power of households will take their toll. We expect 0.1% GDP growth on average in 2023, followed by a marked rebound in 2024 as Hungary will have access to EU funds, boosting investment activity. Headline inflation moved to 21.1% YoY in October, the highest reading since 1996. 58% of the price pressure is from the food, alcoholic beverages, and tobacco sectors. This is due to a combination of a weather-related supply-side shock in agriculture, the high costsensitivity to energy in the food industry and the transmitted tax changes affecting food products and retailers. In the short run, we expect further increases in CPI, though the peak might be near. Negative real wage growth, thus decreasing aggregate demand, is reducing the pricing power of corporates. Price expectations of retailers have also started to drift lower, pointing to an impending turnaround in inflation. The peak could be around 23% (if price caps are extended), followed by a gradual slowdown during the first half of 2023 and a more rapid normalisation in the second half of next year. However, the full-year average in 2023 could be higher – around 16.7% - than the average in 2022, which we forecast to come in at 14.4%. Fiscal consolidation is on the way During the first half of 2022, there was a major fiscal spending spree, not necessarily unrelated to the April general election. As the energy crisis deepened, the government introduced significant fiscal tightening during the second half of this year. Against this backdrop, we don’t see an issue with the 6.1% of GDP deficit target. Indeed, it might be even better due to the higher nominal GDP. Fiscal consolidation will continue in 2023 via limited investment spending and temporary windfall tax revenues. Shrinking nominal financing need and strong nominal GDP growth will help reach the Maastricht deficit criteria by 2024. Expected EU funds inflow will significantly help the budget, especially the sum of €5bn related to the 2014-2020 Cohesion Fund, which is due by mid-2024 Central bank keeps its hawkish “whatever it takes” stance The recent monetary policy setup lies on three pillars. The 13% base rate will remain unchanged for a long period, ensuring structural price stability. In the meantime, monetary tightening will continue with liquidity measures. Roughly half (c.HUF5bn) of the excess liquidity is tied up in long-term facilities like the 2-month deposit and the required reserve. The other half sits in the one-day quick deposit facility at 18% and one-day FX swap facility at 17%, as parts of the third pillar. These are to stabilise financial markets. We see the gradual convergence of the effective (18%) rate to the base rate in parallel with a permanent improvement in both external and internal risks. Timing wise, this means a reversal of the “whatever it takes” hawkish stance might start only in the first quarter of 2023. Labour market shows resilience under stress The unemployment rate has started to rise as companies are operating under severe stress. However, the move from a nearrecord low 3.2% to 3.6% in 3Q22 is nowhere near to a collapse. A high level of orders keeps manufacturers optimistic and in need of labour. By contrast, in the services sector, where energy and labour account for a greater part of costs, companies have reduced working hours, laid off employees or gone out of business. Due to this duality, we expect the unemployment rate to peak at only around 4.5% during mid-2023. With an above 20% inflation, we see tough negotiations between employers and employees about next year’s salaries. In our view, real wage growth – reaching practically zero in 3Q – will turn negative and remain so until the end of next year The worst in current account deficit might soon be over Due to the energy crisis, Hungary’s trade balance of goods has been on a downtrend. But we see light at the end of the tunnel. With the changes in the utility bill support scheme, households have started to be more aware of their energy usage. Companies have spent more on energy efficiency lately. Hungary has already secured its gas supply throughout the winter. This means less pressure on the external balance from an energy import view going forwards. With falling consumption and a reduction in investment activity by households and the public sector, import needs will retreat as well in the coming quarters. However, this improvement comes too late, so we see an 8.4% of GDP deficit in 2022 with a slight improvement in the balance to –6.8% of GDP next year. FX (with Frantisek Taborsky, EMEA FX & FI Strategist) When it comes to the Hungarian forint, we believe it is more likely to be moved by non-monetary events and shocks in the short run. The government's conflict with the EU over the rule of law has entirely dominated the market and will remain a major issue at least until the end of this year, in our view. We expect a positive outcome on the rule of law issue and an unlocking of the potential of the forint, which has lost by far the most in the CEE region this year. As some form of positive outcome of this story seems to be priced in already, and also market positioning seems to have flipped to a slightly longer view in recent weeks, in our view, the EU story has become asymmetric for the HUF. So instead of a jump in forint strength, we expect a gradual drift lower below 400 EUR/HUF next year. However, our strong conviction regarding a positive outcome for Hungary makes the forint our currency of choice in the CEE4 space. Moreover, in our view, Poland will take the baton of major market attention from Hungary next year with its ongoing conflict with the EU, looming elections, expansionary fiscal policy and a central bank trying in vain to end the hiking cycle. On the other hand, we believe that the period of emergency NBH meetings is over, that the EU story is coming to an end, fiscal policy is pointing to tangible consolidation and that the current account deficit should come under control. Fixed income (with Frantisek Taborsky, EMEA FX & FI Strategist If the forint remains under control, we see more room for normalisation of the short end of the IRS curve. On the other hand, the long end should decline to a lesser extent also due to the support of core rates, resulting in bull steepening. However, the timing of NBH policy normalisation remains a risk and low liquidity of the market may be painful. On the HGBs side, we see favourable supply conditions and ASW levels have finally returned to normal territories. The AKK's focus on the long end of the curve and basically zero issuance in the shortend maturity bucket supports our steepening bias. However, we see that the EU story is more about FX trades and the FI market is still struggling. Therefore, we see better value in other countries in the region for now but believe HGB's time will come soon, and we remain constructive in our views. On the back of a tough year for Hungary’s external bonds, we see current valuations as attractive given optimism of some improvement in the key areas of EU funds, fiscal policy, energy issues and the external balance. We think spread levels on the nation’s euro-denominated bonds in particular have room to compress versus regional and rating peers. This preference should be supported by expectations that near-term external issuance is likely to be in dollars rather than euros. 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

The economy has contracted in three months as soaring prices hit businesses and households, and the UK is projected to head into recession. The short-term outlook remains grim as consumers continue to grapple with the brunt of high inflation. Final GDP The final UK gross domestic product reading for the third quarter is likely to confirm that the UK economy contracted in the three months leading up to September. GDP is forecast to drop below zero to -0.2 percent. The 0.5% decline in household spending was one of the main obstacles in Q3. Meanwhile, monthly estimates suggest that GDP fell by 0.6% in September, partly due to the public holiday associated with the state funeral of Queen Elizabeth II. From an economic point of view, a level below zero suggests an incipient recession. In his autumn statement last month, Mr Hunt said the UK was already in recession. This is expected to be officially confirmed early next year when the October-December economic figures are released. Read next: Forex Market Week Sum Up:The Overall Picture Of Major Currency Pairs Is Bearish| FXMAG.COM Source: investing.com The overview of UK economy UK consumers are tightening their belts as business activity contracted for a fifth consecutive month, according to new figures that suggest the economy has entered a prolonged recession. UK retail sales fell by 0.4 percent between October and November. Meanwhile, a closely watched private sector health monitor, S&P Global's Preliminary UK Purchasing Managers' Index (PMI), rose to 49 in December from 48.2 in November. Despite the increase, the reading was below 50 for the fifth month in a row, indicating that most companies reported a decline. Purchases of non-food items and fuels also fell, with only food sales recording an increase from October to November. Consumer inflation fell slightly to 10.7 percent last month from a 41-year high of 11.1 percent in October. External demand also remained subdued in December and overall new export orders declined. Over the past three months, economic activity in the UK has slowed across all major sectors, including manufacturing, construction and services. The data fueled fears that the economy had already entered a long recession. Not only the recession is a problem - strikes In 2016, the British economy – like other large economies – was negatively affected by high inflation and falling real wages. In Britain, conflicts between governments and economic failures have exacerbated these problems. The UK faces more strikes over pay and working conditions this month and into the New Year. Some 40,000 train and rail workers will walk out on Tuesday in a series of strikes. Royal Mail workers will also continue industrial action this week with strikes What next? The economy is projected to contract for at least the rest of the winter and possibly longer. On the other hand, there is hope that inflation is close to its peak, which may mean that the Bank will be able to limit the increase in the cost of credit. But the question is not whether the economy will go into a recession, but how deep and how long that recession will be. When a country is in recession, it is a sign that its economy is doing badly. During a downturn, companies typically make less money and the number of people unemployed rises. Graduates and school leavers also find it harder to get their first job. Source: investing.com

Economies today face a litany of challenges they have not faced in the last decade: Putin's war in Ukraine, record-breaking inflationary pressures, looming global recession and the struggle to stay ahead of the ongoing climate crisis. The banks are doing what they can to slow down inflation, but not the Bank of Japan. His decision may remain unchanged. Meanwhile, geopolitical uncertainty, the threat of further disruption to the global supply chain and higher interest rates remain key risks to Canada's economic growth. Bank of Japan Japan's benchmark interest rates have been among the lowest in the world for decades. Part of the yen's recent strength stems in part from talk that the BoJ may change its yield-curve control policy now that consumer price inflation has surged to 3.7% - an eight-year high. However, such a move seems unlikely. Japan's central bank has pledged to pursue an "over-inflation" policy and appears to have no intention of curbing its extremely loose monetary policy. Inflation in Japan is low compared to rates in other developed economies, which allows the country's central bank to keep interest rates very low. Although the Bank of Japan has raised its inflation forecast for 2022 to 2.9%, down from its previous forecast of 2.3%, it is expected to keep its key short-term interest rate at -0.1% and maintain the 0% cap for its 10-year bond yield at this month's meeting. During his decade in office, Kuroda, seeking to push inflation to 2%, introduced massive asset purchase and YCC, an elaborate program that combined a negative short-term target rate and a 0% cap on 10-year bond yields. In addition to the global supply pressure caused by the war in Ukraine and the pandemic, the collapse of the yen triggered a sharp increase in the cost of imported raw materials and ultimately household goods, making Kuroda and its currency-deprecating low interest rates the target of public outcry As Japan's massive pile of debt makes an abrupt interest rate hike too costly, the BoJ will tread carefully and explain the shift as a gradual move towards normalizing emergency stimulus - rather than full monetary tightening, they said. But policymakers also know they are running out of time to deal with the huge costs of the Bank of Japan's relentless defense of its 0% yield cap, such as declining bond market liquidity, crushed bank margins and a devastating yen sell-off. BOJ officials are now preparing the theoretical basis for future policy change, releasing research into whether firms and households will finally shake off their deep-seated reluctance to raise prices. Any apparent shift in BoJ thinking, even if it does not lead to an immediate change in monetary policy, could trigger a massive sell-off in Japanese bonds, with significant implications for global markets. Canada GDP The Canadian economy is moving closer to a recession in 2023. Early signs of easing inflationary pressures raise the odds that the slowdown will be "mild" by historical standards. Unemployment fell to a record low in the summer (at least since 1976) and only slightly increased since then. The US economy is also expected to plunge into recession in 2023, which will take a toll on Canadian exports. Price growth is still well above the central bank's targets, but increases have been smaller and less widespread in recent months. The crisis in the global supply chain, which largely contributed to the initial rise in inflation, is weakening. Commodity prices remain high but have fallen after a sharp rise earlier this year when Russia invaded Ukraine. Withholding interest rate hikes will not prevent a recession in Canada in the coming year. A mild deterioration of the economic situation is probably already certain in the light of the current restrictive level of interest rates. GDP is expected to stay at 0.1%, but neither rising nor falling suggests stagnation, which could lead to a mild recession. Source: investing.com

he two-day Central Economic Work Conference focuses support on consumer spending, and on technology Source: istock Growth is the top priority for 2023 The key takeaway from the Work Conference is that the government wants growth via domestic consumption, and this will be the top priority in 2023. Sectors to benefit from policy support There are quite a few sectors to benefit from next year's policies. New-energy car and elderly services will enjoy preferential policies. At the same time, the government knows that technology is important for growth. As such, policies will be tilted to support research and production of technology services and products. This relates to the work conference's emphasis on protecting private enterprises' legal rights. Combining the two policies implies that platform technology companies may face fewer hurdles in 2023. The two key differences next year will be living with Covid and supporting real estate developers. The first of these is already in progress. The latter is tricky. The government's intention is not to let the real estate sector increase financial risk. But too much policy support for developer's financing could end up with another round of over-leverage. Aggressive fiscal stimulus and moderate monetary easing The main tools for growth will be fiscal stimulus and stable monetary policies. We expect there will be a fiscal deficit of around 8% of GDP next year. But monetary policy will be similar to this year, meaning that there could be a couple of RRR cuts, rolling over a re-lending program to help SMEs and the real estate sector, together with a couple of 10bp cuts in 7D reverse repo as well as the 1Y medium lending facility rate. More solid policies will be announced in March This Central Economic Work Conference usually prepares the groundwork for the March Government Work Report. By then, we should see more concrete policies applying the themes we see in this Work Conference. But in the mean time, the economy is struggling to recover from rising Covid cases. Residents have been cautious about going to crowded places though air and train tickets for the Chinese New Year are in demand. We expect that economic recovery from now until March will be bumpy.  Our GDP forecasts is -0.4%YoY for 4Q22, 2.06% for the whole of 2022 and 4.3% for 2023. Read this article on THINK TagsGovernment policies Consumption China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Summary:  At the annual Central Economic Work Conference held last week, the Chinese leadership emphasized policy priorities as being economic stability and high quality of development. Fiscal and monetary policies will be rolled out to support growth but will be measured. Industrial policies are aimed at promoting development as well as national security and focus on addressing the weak links and bottlenecks of the country’s supply chain. The most notable positive development from the meeting is a shift to a conciliatory stance towards the private sector and a pledge to support internet platform companies. The Central Economic Work Conference sends a conciliatory message to the private sector The Chinese Communist Party held its annual Central Economic Work Conference (CEWC) on Dec 15 and 16 to formulate China’s macroeconomic policy frameworks for 2023. The most important new message sent from the readout of the CEWC is a shift to a more conciliatory stance towards the private sector and in particular the internet platform companies. The CEWC removes last year’s “preventing the disorderly growth and expansion of capital” from its readout this year and instead says the authorities will “support the development of the private sector and private enterprises” and pledges “support to platform enterprises in leading development, creating employment, shining in competing globally”. It goes on to call for thorough implementation of the legal and institutional equal treatment of private enterprises and state-owned enterprises and protection of the rights of private enterprises and entrepreneurs according to the law. The CEWC instructs ranks and files of the Communist Party to provide assistance to private enterprises in resolving issues.On Sunday, two days after the conclusion of the CEWC, the Party Secretary of the Zhejiang province, who came to the office this month, paid a visit to Alibaba’s campus. He was the most senior-ranked official to visit the e-commerce giant since the Chinese authorities started cracking down on the allegedly monopolistic power of Alibaba ad some other Chinese internet giants. Prioritizing domestic consumption The CEWC prioritizes the stimulation of domestic consumption at the top position in its plan to expand aggregate demand. It pledges to roll out more fiscal policies to increase the income of the rural population and support household consumption spending on the improvement in housing conditions, new energy vehicles, and elderly care services. Speeding up technological innovation to boost development as well as national security The crux of industrial policy is to speed up technological innovation to address deficiencies and bottlenecks in key industrial supply chains. It reiterates the importance to develop energy and mineral resources and increase food production. On the new economy front, the CEWC highlights the focus on new energy, artificial intelligence, biomanufacturing, green technology, and quantum computing. Industrial policies are positioned as an instrument to address development as well as national security considerations. Supporting the property sector in the context of financial stability The CEWC places the discussion of supporting the property sector within the section of “effectively resolving significant economic and financial risks” and frames the policy discussion in that context. It puts the rhetoric of “housing is for living in, not for speculation”, which was missing in the statement from the recent Politburo meeting, back to the readout of the CEWC this time. The focus of the supportive measures to the property sector is to pre-emptively prevent systemic risks in the financial sector and local government debt crises. The CEWC insists on cleaning up and prohibiting increases in housing inventories. Macroeconomic adjustment and stability over pursuing high growth While the shift in the stance to be more private sector-friendly is pro-growth in essence, the CEWC emphasizes that growth must be of high quality and the overarching focus for 2023 was on macroeconomic adjustment and stability. Development must be in adherence to the new development paradigm that aims at the transformation to a high-value-added economy. Fiscal policies will be “proactive” and monetary policies will be “steady, forceful, and targeted”. At the same time, policies must be steady and give utmost importance to stability. In other words, while both fiscal and monetary policies will be expansionary, they will likely be measured. Growth is on a best-effort basis The CEWC pledges to “do its best to achieve the economic development goals from 2023”. It refrains from using the more committal words of “must” or “shall” and signals that the achievement of economic development goals will be on a best-effort basis. GDP growth rate is not the most important consideration for 2023. In the taxonomy of dialectic that is at the core of the communist methodology, the primary contradictions highlighted at the CEWC are pandemic control and economic development, quality and quantity in economic development, supply-side reform and aggregate demand management, and domestic circulation and international circulation. It is the aim of the Chinese leadership to navigate and strike a balance among each pair of these contradictions. While there are no massive waves of economic stimuli to come, the conciliatory stance towards the private sector is a positive development Investors may find the lack of commitment to more and larger-scale stimulus policies underwhelming and even disappointing. Nonetheless, the shift to a conciliatory stance towards the private sector and not reiterating the traffic-light approach to regulate the technology sector will contribute to economic growth as well as reduce risk premiums for investing in Chinese stocks. On balance, the outcome from the CEWC tends to be positive for investing in China.  Source: China Update: The Chinese authorities are expressing a more conciliatory stance towards the private sector | Saxo Group (home.saxo)

This report finds that tight labour markets ahead of a recession cause employment to fall less than normal. So, given that we expect a shallow recession in the eurozone, labour shortages are not going to disappear in all countries and sectors, and modest upward pressure on wages is set to stay A Labour Day rally in France earlier this year   The European Commission has joined the long list of organisations now expecting a recession to happen in the eurozone this winter. Only a few optimists seem to be holding out and expect the economy to avoid recession altogether. To us, the evidence is adding up to a modest recession with two quarters of negative growth and a very shallow recovery. From an unemployment perspective, most seem to expect that the impact will be relatively small given that labour markets are currently exceptionally tight. Despite that, we do see hiring intentions falling, and some countries have noticed small increases in unemployment already. So the question to answer is, does a tight labour market at the start of a recession actually matter for the employment outcome during the recession? We think it does; here's why.  Expect unemployment to increase as recession starts As an economy enters recession, we see an increase in unemployment. When looking back at the six previous eurozone recessions since the 1970s, we find that this has been the case. As you can see in the chart below, the increase in unemployment generally starts when the recession begins but drags on much longer. 2020 is the exception as furlough schemes and an exceptionally quick recovery resulted in a break with the trend, three quarters after the start of the recession. Unemployment increases in times of recession Source: Eurostat, The Area Wide Model, ING Research   The furlough scheme safety net seems unlikely to be used to the extent it was during the pandemic as governments reign in support and because the nature of the downturn is different. Also, labour markets are already exceptionally tight at the moment, which means that a certain amount of labour turnover will be welcomed as a relief to some. Without a government response, but with very tight labour markets at the start of this downturn, the question is whether companies will engage in labour hoarding; keeping people on the payroll to make sure that they have good workers available when the downturn ends because it’s so hard to find workers in this economy. In times of labour shortages, recessions have a smaller labour market impact A marginal labour market impact of the upcoming recession seems to be the consensus view, also iterated by the European Commission in its autumn forecast: “The unemployment rate is thus projected to increase only marginally from a historic low”. We take some comfort from past episodes regarding this call. Analysing downturns by country and sector in the eurozone since 2006, we find that high labour shortages at the start of a downturn resulted in a smaller negative impact on employment. This finding is statistically significant, indicating that in general, we can expect a weaker decline in employment because we now see current high labour shortages. As the two charts below indicate, we find a flatter relationship between GDP and employment in downturns that were preceded by high vacancy rates (so high labour shortages). So it looks like businesses indeed engage in labour hoarding in times of very tight labour markets. The employment response to a decline in output is smaller when labour shortages are high Source: Eurostat, ING Research calculations   To arrive at this conclusion, we use quarterly vacancy rates, gross value-added, and employment data by eurozone country and sector, which gives us a large dataset in which ample downturns occur. We identify periods of high labour shortages as vacancy rates that are in the highest 10% of vacancy rates across sectors and countries at that time. For downturns, we use periods of at least two quarters of consecutive declines in gross value added. The employment response is one that we measure both coincidentally and with four quarters of lags. We stopped the sample of data used in the fourth quarter of 2019 because of the impact of furlough schemes, which likely distorted the relationship. We have tried slightly different models, of which most show a statistically significant impact of high vacancy rates on employment. Results from our panel data regression show that employment behaves differently in recessions when vacancy rates are high Labour shortages are therefore unlikely to disappear despite an expected recession Taking the previous exercise into account, this means that a modest increase in unemployment is to be expected given the already mild recession that we forecast for the eurozone over the course of the winter months. While that is set to cool the labour market somewhat, the question is whether this will be enough for shortages to disappear. That seems doubtful at this point. The unemployment rate fell to a new historic low of 6.5% in October despite the economy slowing quite dramatically. It looks like the countries and sectors with particularly hot labour markets could remain tight despite the economy contracting over the winter and experiencing just a mild recovery. Don’t forget that demographics also weigh more and more on potential labour supply, which means that shortages are set to become more structural anyway. The fact that the upcoming recession is unlikely to cool the market much means that structural shortages will likely be quite visible over the coming years. With unemployment at record lows now, shortages are set to become more structural Source: Eurostat, ING Research Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Industrial output rose 4.6% year-on-year in November (consensus: 2.2%; ING: 0.7%), following an increase of 6.6% in October (revised). Power generation turned out stronger than we expected while the decline in manufacturing production is gradual, which is consistent with the recent improvement in economic indicators in Germany and the eurozone   European industry has been supported by the better availability of components amid improvements in supply chains in recent months as well as reduced concern about possible gas shortages due to favourable weather conditions at the beginning of the heating season in Europe. As a result, domestic industries with a large share of production for export - (1) machinery and equipment, (2) electrical equipment, (3) automobile manufacturing - performed solidly. This does not change the fact that the performance of industry is expected to deteriorate in the coming quarters. Industrial output (month-on-month, SA) Solid activity amid improving euro area leading indicators   Further disinflation is evident in producer prices. PPI slowed to 20.8% YoY in November from 23.1% YoY in October. On a monthly basis, the PPI index declined for the first time since August 2020. Prices in the energy supply section increased on a MoM basis after two months of marked declines. Energy prices are now about 60% higher than a year ago. In manufacturing, the deepest year-on-year price decline was in the production of coke and refined petroleum products (-7.6% YoY). Prices also fell in the production of metals and electronics. The end of the year looks relatively favourable for domestic manufacturing, which is entering the slowdown quite gently, accompanied by a decline in inflationary pressures, although PPI inflation remains high. Domestic manufacturing once again confirms solid resilience to external shocks. Tomorrow's retail sales data will provide a better assessment of the health of the service sector in 4Q22. We currently forecast GDP growth in the current quarter of around 2.5% YoY. Read this article on THINK TagsPoland industrial production 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

Retail sales rose 1.6% year-on-year in November, broadly in line with our forecast (1.5%) and better than market expectations (0.3%). Sales continue to rise for necessities such as clothing and footwear (18.9% YoY), pharmaceuticals (6.1% YoY) and food (4.8% YoY), to which the Ukrainian refugees probably contribute Shoppers at the Poznan City mall in Poland   Seasonally-adjusted retail sales were 2.0% higher in November than in October. Consumers are very cautious about buying durable goods, resulting in declines in sales of furniture and household appliances (-7.6% YoY), and motor vehicles, motorcycles and parts (-6.4% YoY), among others. This is consistent with low consumer confidence. An additional factor curbing the propensity to spend is the high level of prices. This is arguably the key element behind the persistent decline in fuel sales (-14.4% YoY in November), which has continued for many months. Retail sales YoY dynamics source: GUS   Inflation continues to reduce real disposable income, as indicated by the continued decline in real wages. Despite this, we continue to see increases in sales of goods, and the YoY consumption growth rate likely remained positive in the fourth quarter. We estimate that it grew around 0.5-1% YoY in the fourth quarter, remaining close to the 0.9% YoY pace recorded in the third quarter. This is still a good result considering that 3Q showed a strong deceleration (a drop in the annual pace from 6.4% to 0.9% YoY), and 4Q21 also provided a high base, making it difficult to record positive growth in 4Q22. The statistical office confirmed that spending by refugees from Ukraine is being treated as resident spending and is included in the consumption data. At the same time, we know that some workers from Ukraine are not included in labour market statistics. This means that household disposable income may be underestimated. This calls for a cautious approach to data on household savings and the true situation in the household sector may differ from that recorded in the official data. If the real savings rate remains positive despite high inflation, it could support consumption in 2023. November high-frequency data suggests strong economic resilience to shocks, as consumption continues to grow and the slowdown is gradual. We estimate GDP growth in 4Q22 at around 2.5% YoY, which means we could see economic growth of around 5% for all of 2022. The resilience of the economy to the shocks we have seen at the end of 2022 is a good proxy for GDP in 2023, where we see growth around 1% YoY, i.e. slightly above consensus. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The UK economy contracted by 0.3% on the quarter in the three months to September of 2022 vs. -0.2% prior, the final revision confirmed on Thursday. The market expected a reading of -0.2% in the reported period. On an annualized basis, Britain’s GDP rate increased by 1.9% in Q3 vs. 2.4% registered in the first estimate while missing 2.4% expectations. Meanwhile, the UK Q3 Current Account arrived at £-19.402 when compared to the £-33.224B expected and the second quarter’s £-35.086B. The country’s Total Business Investment data for Q3 came in at 1.3% QoQ and -2.5% YoY. FX implications GBP/USD was last seen trading at 1.2115, retreating from daily highs of 1.2135, still up 0.25% on the day. The Pound Sterling remains unimpressed by the mixed UK data dump. About the UK GDP The Gross Domestic Product released by the Office for National Statistics is a measure of the total value of all goods and services produced by the UK. The GDP is considered a broad measure of the UK's economic activity. Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative (or bearish).  

Although macroeconomic data are improving after the Fed's sharp increase in interest rates, signs are showing that the biggest blow to the economy is yet to come. Fed Chairman Jerome Powell has stressed several times that the full impact of this year's rate hike remains to be seen, so it is not clear whether there will be a recession or not, and if there is, they are not sure if it will be deep or not. Nevertheless, the Fed said real GDP will hit 0.5% in 2023, the PCE index will slow to 3.1% and the federal funds rate will peak at 5.1%. Big banks have already anticipated what is going to happen next year, with some considering a soft landing as their best case scenario. Goldman Sachs said the US economy could avoid a recession since there are good reasons to expect positive growth in the coming quarters. They forecast core inflation to slow to 3% next year, the unemployment rate to rise by 0.5%, and the US economy to grow by 1%. However, the bank noted an obvious downside risk with a recession probability of 35% next year. Morgan Stanley predicts that the US economy will break out of recession, but the landing wil not be soft as "job growth slows significantly and the unemployment rate continues to rise". Risks are also present because of interest rates, which will remain elevated for most of the year. Credit Suisse believes the US will be able to avoid an economic slowdown next year as inflation slows and the Fed pauses its rate hikes. The bank forecasts the US economy to grow by 0.8% in 2023. JPMorgan is the one that warned that a recession is very likely next year due to the over-tightening of central banks. Similarly, the Bank of America predicts a recession in the first quarter of 2023, with GDP falling by 0.4%. It predicts unemployment to rise to 5.5% by 2024, and inflation to fall to 3.2%. UBS also predicts a recession, citing high interest rates and near-zero growth in the US next year and in 2024. Wells Fargo expects a recession in the third quarter next year as a sharp rise in rates hurts demand. Capital Economics expects a moderate recession in the US next year and the Fed to be forced to cut rates by the end of 2023. According to their forecasts, GDP will grow by 0.2% over the next year and core inflation to slow to 3.2%. Relevance up to 09:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/330522

Summary:  After Q3 GDP data revision that reminds us that the UK is in the vanguard for economies lurching into recession, sterling has lurched into a new slide and is even threatening a break down versus the euro as EURGBP tests the highs since the Truss-Kwarteng mini-budget sterling wipeout. Elsewhere, a plunge in the kiwi is likely down to position squaring and rebalancing ahead of year end after a remarkable recent run. Today's Special Edition Saxo Market Call podcast: Investors' Wish List for 2023.  FX Trading focus: Sterling stumbles after weak GDP, Kiwi longs take profit. Last important US data point of the year up today: November PCE inflation. The latest Q3 UK GDP revisions suggest the economy is weakening even more quickly than previously thought last quarter, as growth was revised down to -0.3% QoQ from -0.2% previously, and the Private Consumption figures was revised to -1.1% QoQ vs. -0.5% previously. The combination of a Bank of England that wants to soft-pedal further tightening and the promises of fiscal austerity from the Sunak-Hunt duo are a powerful negative for sterling as we look ahead into the New Year, which will likely bring relative UK economic weakness even if our thoughts that  recession fears for next year globally are over-baked for the first two and even three quarters. The FX fundamentals are entirely the opposite for the euro, as the ECB attempts a maximum hawkish stance as it recognizes the risks that the fiscal impulse can keep inflationary pressures elevated from here. The two-year yield spread is close to its highest since October of last year. Chart: EURGBPA weak GDP revision yesterday didn’t appear to be the proximate trigger for sterling’s latest lurch lower, but does remind us of the relative weakness of the UK outlook and the combination of a heel-dragging BoE (on further tightening) and austere fiscal picture could set up further declines in the weeks and months. Worth noting that the key EURGBP is pushing on the top side of the range established since the volatile days surrounding the Truss-Kwarteng mini-budget announcement. A hold above 0.8800 could lead to a test of the higher end of the range since the 2016 Brexit vote above 0.9200. A higher euro is straightforward if ECB maintains its hawkish stance as the EU fiscal impulse is far stronger from here. The wildcard for the euro side of the equation is the usual existential one of peripheral spreads and whether these stay orderly if yields resume their rise next year. Source: Saxo Group Elsewhere, the kiwi saw a sharp further run to the downside yesterday with no proximate identifiable trigger. AUDNZD traded all the way to 1.0719 before backing off to below 1.0650 at one point this morning. I suspect that this was an extension of the position squaring after a the remarkable run higher in the kiwi over the last two months, driven both by relative RBNZ hawkishness, but in particular by RBA (and arguably BoC), sparking heavy flows in AUDNZD just after the pair had traded almost to a decade high on hopes for a Chinese reopening boosting the outlook for Australia. The current reality on the ground in China is even worse than during the zero Covid tolerance days, but we know that the Arguably, recent record low consumer confidence readings in New Zealand suggest that the RBNZ will need to climb down from its hawkishness, at least in relative terms to its peers, going into next year. After an incredible slide in AUDNZD and rally in NZDCAD, I suspect we will see powerful mean reversion in the coming three months in those pairs. It feels like USD traders have checked out for this year. Hard to tell if today’s US November PCE inflation data can generate any excitement on a soft print after the soft CPI print earlier this month generated a lot of fuss that quickly faded on the very same day. A more interesting development would be a slightly hot core set of PCE core readings than expected today (the month-on-month core reading expected at +0.2% and year-on-year expected to have decelerated sharply to 4.6% from 5.0% in October. EURUSD has traded within a 100-pip range for more than a week and the 1-month implied volatility has recently plumbed lows (around 7.50%) not seen since the beginning of this year and would probably be lower still had not the Bank of Japan roiled markets this week. But the USD will have a hard time ignoring any further slide in risk sentiment to close out the year. And the beginning of the calendar year is nearly always interesting for new themes and often for demarcating key highs or lows for the year. Consider the following from the last six years of the EURUSD trading history: 2022: High for the year in EURUSD posted in February, but that high was only a few pips above the 1.1483 high water mark of January. Low for year posted in September 2021: High for the year was in January, on the third trading day of the year, low in late November 2020: Exceptional pandemic year, low for year posted in March, high in December 2019: High for quite year posted on January 10, low on October 1 2018: High for year posted in February, but highest daily close not above intraday high in January. Low posted in November 2017: Low for year in January, high in September (December high less than a figure from September high water mark) Table: FX Board of G10 and CNH trend evolution and strength.The JPY still sits with a strong positive reading, but has yet to “trend” after the huge one-day move this week – a few more days of lack of movement and questions marks would begin to flourish around its status. Elsewhere, note the NZD going full circle and now broadly outright weak after its status as king of the G10 as recently as less than two weeks ago. Gold posted a sharp reversal yesterday. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs.Note that the weakness in risk sensitive currencies like SEK, NZD, AUD & GBP are seeing those edging into a downtrend versus the US dollar – worth watching for a deepening of these moves if risk assets continue south into the New Year. The EURCHF bears watching if the pair can take out 0.9900-0.9950 as currently the pair is caught in a very tight range. NZD is rolling over in many pairings. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights 1330 – Canada Oct. GDP 1330 – US Nov. PCE Inflation 1330 – US Nov. Flash Durable Goods Orders 1500 – US Dec. Final University of Michigan Confidence   Source: https://www.home.saxo/content/articles/forex/fx-update-sterling-and-kiwi-stumble-as-year-winds-down-23122022

Signs of a painful contraction in the British economy continue to accumulate, causing analysts to doubt whether the currency can extend or even maintain the recent rebound against the dollar. The options market is also showing paranoia, with traders still pessimistic over the long term. The pound sterling jumped from its lowest level ever in September, driven by the government changes that followed the ill-fated term of Liz Truss as the country's prime minister, in addition to the collapse of the dollar. Despite this, the pound sterling still recorded a decline rate of 11% in 2022, to achieve its worst year since the vote to leave Britain from the European Union "Brexit" in 2016. Opportunities for gains next year may be limited by diverging central bank policies, as the Bank of England looks increasingly pessimistic in comparison to other central banks. Moreover, the U.K. economy continues to falter, the budget deficit is skyrocketing, and double-digit inflation has led to the steepest drop in living standards on record, leading to curbs in spending and the worst economic turmoil in decades. The housing market also looks vulnerable to a sharp correction. "The UK is at the forefront of economies teetering on the verge of collapse," said John Hardy, Head of FX Strategy at Saxo Bank. He explained that the pound sterling "could witness further declines in light of the combination of the Bank of England's slowdown towards the increasing tightening of monetary policy and the austere financial situation." The pound bounced back from losses caused by efforts for a broadly funded tax cut in two weeks, but it took more than two months to reverse risks for a year to pre-budget levels. The slow recovery of this gauge, which tracks market sentiment broadly, shows that traders remain deeply pessimistic towards the long-term GBP and that the recovery in the spot market was more based on positioning than outright growth. The latest data from the Futures Trading Commission showed leveraged funds switching to short positions on the British pound in the week ending December 13, after being long positions previously, while asset managers held short positions. JPMorgan Chase & Co. analysts expect the pound to fall to $1.14 at the end of the first quarter, from around $1.21 now, citing their "particularly negative views" on the outlook for British economic growth. And the looming local elections in May could stir up more political uncertainty. Strategists polled by Bloomberg expect the pound to fall to $1.17 in the first quarter before recovering slightly to $1.21 by the end of 2023. Relevance up to 14:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/330788

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

Before the end of the year, we asked InstaForex about UK economy, which is expected to decrease significantly, as we approach the end of the year. Let's have a look how do they see the near future of the UK economy and what would BoE consider as a gauge ahead of next interest rate decision. Although the UK GDP for the third quarter turned out to be noticeably worse than expected, the reading was still relatively positive. In annual terms, economic expansion contracted to 1.9% from 4.0%. However, a 2.0% economic growth is quite acceptable for Western countries. At first glance, it might seem that the British economy remains stable. However, in quarterly terms, it shrank by 0.3%. It indicates that the economy is gradually sliding into a recession. Notably, analysts have been predicting such a scenario for a long time. The energy crunch has considerably crippled the eurozone economy as well as the British one. The EU managed to fill its storage sites and avoid fuel shortages. However, it would hardly help it in the future. Even after some stabilization, energy prices soared by two or three times compared to last year. Such sharp price swings adversely affect the European economy. The manufacturing sector is bearing the brunt. Production costs have risen dramatically. Manufacturers are forced to reduce the profit margin to boost their market competitiveness. However, this move leads to a bigger extension of the payback period. However, in the EU,  the payback period is almost the longest one in the world. A few years ago, the payback period of individual industrial enterprises could stretch to 50 years. It made investments in the European economy less attractive.  Over such a long time, investors will only be able to return the invested funds, abandoning hopes for any profit. Recently, the situation has become even worse. It will inevitably lead to an increase in unemployment and a reduction in tax revenues.  Thus, many European manufacturers, including British ones, are now mulling over options for moving industrial production to other regions with lower energy costs and cheap labor. It will inevitably lead to an increase in unemployment and a reduction in tax revenues. In turn, governments will have to deal with worsening social policy, e.g. payments of pensions and benefits.  The situation is extremely challenging. However, those problems appeared a long time ago. The energy crisis and other economic woes have just exposed those cracks.  Things are getting worse due to the Bank of England’s monetary policy stance. It is adamant when it comes to rate increases. As a result, the borrowing costs are rising, which further extends the payback period. Such a problem is quite acute for those who are opening new enterprises or are going to modernize the existing ones.  Even if British companies decide to keep firms and staff, it will be difficult for them even to repair equipment. As for its upgrade, it would seem an attainable goal. Naturally, such companies will quickly lose market competitiveness and lower their production volumes. It will be a rather long and painful downturn.  Read next: Bitcoin: As for the price levels, one should pay attention to the level of $18,000 that has been recently hit. Probably, this level may well serve a starting point for buyers in case the price holds above it on a daily chart | FXMAG.COM The only thing the Bank of England can do is to reduce borrowing costs The Bank of England urgently needs to tame stubbornly high inflation. According to the latest data, inflation slowed to 10.7% from 11.1%. However, it is too early to talk about a steady decline in consumer prices. In June, inflation also dropped to 9.9% from 10.1%. Shortly after, it climbed again. Moreover, its rise was facilitated by supply chain disruptions and production cuts.That is, demand is constantly growing despite the shortage of goods. This is the main reason for an uptick in consumer prices. To some extent, the problem can be resolved at least partially by increasing the output volume. However, this option looks unlikely given the high cost of investment in the industrial sector.  The only thing the Bank of England can do is to reduce borrowing costs. Besides, the watchdog is not responsible for all other issues such as legislation and taxes. Judging by the results of the last meeting, the regulator may start lowering interest rates. Additionally, speculators were surprised that two of the nine board members voted for a rate cut. The Bank of England tries to act preemptively Once inflation starts to decline confidently, the Bank of England will stop the key interest rate hike. Then, after a small pause, it is likely to loosen its monetary policy. It is quite possible that the first key rate cut will take place as early as the first part of 2023. Notably, the BoE was among the first central banks that launched monetary policy tightening. In general, the economic situation in both the US and Europe is almost the same. On both sides of the Atlantic, most structural problems are identical. The Bank of England tries to act preemptively, whereas the European Central Bank and the Federal Reserve are closely monitoring the effect of these actions. If the result is not negative, they immediately take almost the same measures. At least in the last few years, the situation has been developing according to this scenario. There is no wonder. The fact is that the Bank of England is managing a large economy, but it cannot be compared with the economies of the US and the European Union. In other words, the Fed and the European Central Bank have weightier responsibilities. Any unwise decision may lead to alarming global consequences. Apart from inflation, central banks should also take into account the labor market condition. The Bank of England does not have difficulties with this issue. In the UK, the unemployment rate is 3.7%. In the last few months, it has been rising, thus approaching its usual level of 4.0%. This, in turn, provides the BoE with another reason to cut its benchmark rate, especially if the unemployment rate slightly exceeds 4.0%. This is likely to happen when the BoE sees a steady slowdown in inflation. It is highly likely that in early 2023, the Bank of England will raise the key interest rate once more. This time, analysts expect a 25-basis-point rise to 3.75% from 3.5% aimed at reinforcing progress in combat against inflation. At the second meeting of the year, the key rate will remain unchanged so that the regulator can analyze the effect of its previous decisions. At the following meeting, which is scheduled for May 11, the central bank may cut the benchmark rate to 3.5% from 3.75%. All the following cuts will be more moderate compared to the hikes in 2022. They are likely to be limited by rather high inflation and fears that it may resume surging amid a rapid drop in interest rates. It is highly possible that by the end of the year, the key interest rate will be lowered just to 3.0%. Could such measures support the UK economy? The UK is unlikely to avoid a recession. The fact is that the US is expected to slip into a recession, thus negatively affecting the European economy. However, the loosening of monetary policy may cushion the possible impact. Nevertheless, the Bank of England is unable to alter the situation considerably. It simply has no tools to affect structural economic problems. Thus, the regulator has only a minor influence on expenses in the industrial sector. It can settle just the financial component of the issue, which is of minor importance. The Bank of England can postpone the relocation of enterprises outside the United Kingdom, thus allowing the government to take effective steps if it decides to take this opportunity. 

Despite the positive headline reading for November retail sales, the overall consumption picture is bleak Vehicles line up to be fueled at a gas station in Budapest, Hungary 0.6% Volume of retail sales (YoY) Consensus 1.8% / Previous 0.6% Worse than expected   November retail sales data were a bad surprise for those who were hoping for the usual year-end shopping frenzy. The mediocre 0.6% year-on-year growth in the volume of retail sales in November is a result of a 0.15% month-on-month performance, which is pretty poor.  When it comes to the details, we can’t see any major surprises, at least not in the month-on-month developments. On a monthly basis, food retailing practically stagnated. And this is despite the fact the pensioners (who have the highest level of propensity to consume) got a significant lump sum payment as the government by law needed to match pension growth with inflation, retrospectively. So it's evident that consumers have been adapting to the new reality of galloping food prices. Breakdown of retail sales (% YoY, wda) Source: HCSO, ING   Regarding non-food retailers, we see a similar story as households reduced demand for non-essential goods. Sales volume in non-food stores shrank by 0.4% on a monthly basis causing a 2.3% year-on-year drop. And this performance comes in a month earmarked by the month-long Black Friday sales period. While sales events aren't as frequent and strong as they used to be, the dropping purchasing power of households is impacting non-food retailers. The two segments where we saw some positive developments were clothing (due to seasonal factors) and second-hand goods shops as consumers hunt for bargains. With weak performance in food and non-food retailing, this leaves us with only one sector which saw growth: fuel retailing. Drivers were queuing in long lines to fill up gas tanks as rumours started to swirl in November that the government might be ready to scrap the fuel price cap. As a result, the month-on-month fuel sales growth came in at 2.9%, in volume. The government phased out the fuel price cap in mid-December, so fuel retailing should post a strong December as well. However, this doesn’t change the underlying picture, which is that without fuel retailing, consumption is falling. Retail sales volume in detail (2015 = 100%) Source: HCSO, ING   As real wage growth will drop further into negative territory during the next few months (with further rising inflation), we see retail sales continuing to fall. As soon as car users begin to adapt to the market prices, fuel consumption will fall significantly, while extreme food price inflation and the move away from non-essential purchases will be a major drag on growth in retail sales. Against this backdrop, we expect a significant slump in consumption during the fourth quarter of 2022. This will be a major drag on GDP growth and after the third quarter’s negative quarter-on-quarter reading, we see a repetition of a downturn in the last quarter of 2022. This means Hungary falling into a technical recession in the fourth quarter. A subpar performance at the year-end will create a negative carry-over effect and the possible continuation of this poor performance during the first quarter will translate into a stagnation-like economic performance in 2023 as a whole. Read this article on THINK TagsRetail sales Hungary Households GDP Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

A difficult year ahead for the global economy is set to hit some countries harder than others. Inflation was one of the biggest macroeconomic themes in 2022 and it is likely to remain so in 2023. Inflation also contributes to gross domestic product. In Great Britain, this indicator does not look optimistic, and its upcoming reading may turn out to be crucial for the economy this year. The Bank of England has said the country is on track for a prolonged recession, as households struggle to keep up with the soaring costs of food, energy and other basic essentials. Economists opinion Around four-fifths of economists say the UK will experience a much longer recession than its peers. They predict a difficult year 2023 and a potential return to normal by 2024. The UK will face one of the worst recessions and weakest recoveries in the G7 in the coming year, as households pay a heavy price for the government’s policy failings, some economists say. A large proportion of experts expect the UK to fall behind its peers, with gross domestic product already contracting and expected to continue to do so for most or all of 2023. The result is expected to be an increasingly steep decline in household income as higher credit costs add to the pain already caused by soaring food and energy prices. In its macro forecast for 2023, Goldman Sachs forecast a 1.2% decline in UK real GDP over the course of the year, well below all other major G-10 economies. ING pointed out that GDP figures have been somewhat discrepant recently, partly due to the Queen's funeral in September last year. But the economy is clearly weakening and ING expects a negative monthly result in November, after an artificial rebound in October after September's extra day off. Inflation Throughout the last year, the Bank of England has been raising interest rates in an attempt to cool down rampant inflation. This resulted in an increase in interest rates from 0.25% to 3.5%. The cost of borrowing in the UK has increased dramatically, affecting the ability of businesses to borrow money, but also the cost of mortgage payments for millions of Britons. As mortgage repayments increase, household disposable income decreases. Disposable income is also affected by inflation as the cost of goods and services increases. The Office for National Statistics reported last month that Britain's inflation rate was 10.7% in November, down from a 40-year high of 11.1%. GDP Economic activity has slowed sharply in recent months as consumers tighten their belts in response to soaring living costs, while business investment has slumped amid concerns over the strength of the UK and global economy. Last month, GDP showed that the UK economy contracted at a rate of -0.3% in the last quarter. This reinforces speculation that the UK is facing a long recession. When it comes to forecasts for quarterly or year-on-year results, there are no forecasts, but a contraction is to be expected given the prevailing economic conditions. The Pound (GBP) on FX market Based on the current outlook, investors can expect a difficult year ahead for the pound, with the value of sterling coming under significant pressure if the economies of its major counterparts continue to outperform the UK. During the last recession, the pound fell to 1.05 to the euro and 1.14 to the dollar. Cable (GBPUSD) was trading at 1.14 Source: investing.com

Summary:  Volatility back in focus this week with US CPI on the radar, after jobs report showed a strong headline but softening wage growth. Economic concerns in the US are increasing but it still isn’t enough for the Fed to shift focus from inflation which is likely to remain about three times the Fed’s 2% target, and Fed Chair Powell’s comments this week will also be key. China’s December CPI is expected to come in modestly higher, with PPI less negative as well. Australia’s November CPI will key for further direction in AUDUSD. UK’s November GDP will likely signal the start of an incoming official recession, and Q4 earnings season kicks off with bank earnings in focus this week.         US CPI remains the most key data point to watch, Fed Chair Powell speaks as well There is enough reason to believe that we can get some further disinflationary pressures in the coming weeks. Economic momentum has been weakening, as highlighted by the plunge in ISM services last week into contraction territory, particularly with the forward-looking new orders subcomponent. An unusually warm winter has also helped to provide some reprieve from inflation pains. Bloomberg consensus forecasts are pointing to a softening in headline inflation to 6.5% YoY, 0.0% MoM (from 7.1% YoY, 0.1% MoM prev) while core inflation remains firmer at 5.7% YoY, 0.3% MoM (from 6.0% YoY, 0.2% MoM). Still, these inflation prints remain more than three times faster than the Federal Reserve’s 2% target. Fed officials have made it clear they expect goods price inflation to continue to ease, expecting another big drop in used car prices. But officials are seemingly focused on services ex-housing which remains high. So even a softer inflation print is unlikely to provide enough ammunition for the Fed to further slow down its pace of rate hikes. Fed Chair Jerome Powell this week as well, and his tone will be key to watch. Volatility on watch if US CPI sees a big surprise The last two months have shown that big swings in US CPI can spark significant volatility in the equity markets, given the large amounts of hedging flows and short-term options covering. With a big focus on CPI numbers again this week, similar volatility cannot be ruled out. Volume might be thin still this week as many are still on holidays, so moves in equities could be amplified in either direction. Meanwhile, FX reaction to CPI has been far more muted, but some key levels remain on watch this week. A higher-than-expected CPI print could keep expectations tilted towards a 50bps rate hike again in February, while a miss could mean expectations of further slowdown in Fed’s tightening pace to 25bps in February could pick up which can be yield and dollar negative. EURUSD looks stretched above 1.0650 and key levels to watch will be 1.0500, while USDJPY needs to close below 130.38 to extend the downturn further. USDCNH remains key to watch as well as it gets closer to test 6.8000 amid China reopening and easing in property sector. AUDUSD is also flashing a bullish signal after breaking above the key 0.69 this morning with China reopening momentum underpinning. The Aussie dollar flags a bullish signal, crossing a key level. Could inflation add to the rally? After the US dollar suffered its longest streak of weekly falls in two months, the commodity currency - the Aussie dollar broke above its 200-day moving average, which is seen by some as a bullish sign with the Aussie dollar (AUDUSD) trading at two-month high of 0.69 US cents. What's also supporting the currency is that China’s reopening is expected to add considerably to Australia’s GDP. There’s a potential 0.5% addition to GDP in a year once Chinese students and tourists return. Plus there is likely to be an extra boost to GDP from the anticipated pick up in commodity buying from China. Extra hot sauce could even come from China potentially buying Australian coal again. JPMorgan thinks over the next two years, Aussie GDP will grow 1% alone thanks to inbound Chinese students and holiday makers likely returning. The next catalyst for the currency is inflation, CPI data out on Wednesday Jan 11. Core or trimmed CPI is expected to have risen from 5.3% YoY to 5.5% YoY. If CPI come in line with expectations, or above 5.3% YoY, you might also think the AUD rally could be supported.  China’s CPI expected modestly higher, PPI less negative Economists surveyed by Bloomberg had a median forecast of China’s December CPI at an increase of 1.8% Y/Y, edging up from 1.6% in November, mainly due to base effects, as food prices are likely to be stable and higher outprices in the manufacturing sector might be offset by a fall in services prices. PPI in December is expected to be -0.1% Y/Y, a smaller decline from -1.3% Y/Y in November, benefiting from base effects. The decline in coal prices was likely to be offset by an increase in steel prices. Growth in new RMB loan and aggregate financing expected to slow in China The Bloomberg survey consensus is forecasting a modest decline in new RMB loans to RMB1,200 billion in December from RMB1,210 billion in November despite the Chinese authorities have been urging banks to lend to the real estate sector. New aggregate financing is expected to slow to RMB1,850 billion from RMB1,990 billion, primarily dragged by a decline in bond issuance from local governments. UK November GDP to signal an incoming recession UK’s monthly GDP numbers are due this week, and consensus expects a contraction of 0.3% MoM in November from +0.5% MoM previously which was boosted by the favourable M/M comparison vs. September, which was impacted by the extra bank holiday for the Queen’s funeral. The economy is clearly weakening, and another quarter of negative GDP print remains likely which will mark the official start of a recession in the UK. Start of the US earnings season The Q4 earnings season starts next week with major US banking earnings most notably from Bank of America, JPMorgan Chase, and Citigroup. Analysts remain muted on US banks with earnings expected to show another quarter of negative earnings growth compared to a year ago. For the overall Q4 earnings season we expect to see more industries experiencing margin compression than industries experiencing expanding margins. This will continue to be a headwind for earnings growth. Analysts did not see the margin compression coming in Q3 and judging from current estimates they have not materially revised down their expectations. That means that the Q4 earnings season and beyond could be paved with more disappointments. The list below shows the most important earnings releases next week. Tuesday: Albertsons Thursday: Fast Retailing, Seven & I Friday: DiDi Global, Aeon, Bank of New York Mellon, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, UnitedHealth, BlackRock, Delta Air Lines, First Republic Read next: The U.K. Economy Is In Trouble, Fall Of GDP Is Expected!| FXMAG.COM Key economic releases & central bank meetings this week Monday 9 January U.S. Manheim used vehicle index (Dec) Germany Industrial production (Nov) Eurozone Sentix Investor Confidence (Jan) Eurozone Unemployment rate (Nov) Japan: market closed for holiday Tuesday 10 January France Industrial production (Nov) Japan Tokyo-area CPI (Dec) Fed's Bostic speaks in a moderated discussion Fed's Daly interviewed in WSJ Live event Fed Chair Powell speaks at Riksbank event Wednesday 11 January Australia retail sales (Nov) Australia CPI (Nov) U.S. MBA mortgage applications (Jan 6) Thursday 12 January Australia trade (Nov) U.S. CPI (Dec) China CPI & PPI (Dec) Fed's Harker discusses the economic outlook Friday 13 January U.S. U of Michigan Consumer Sentiment (Jan, preliminary) Eurozone: Industrial production (Nov) UK: Monthly GDP (Nov) Japan: Money supply (Dec) China: Imports, exports and trade balance During the week: China: Aggregate financing, new RMB loans, money supply (Dec) Source: Saxo Spotlight: What’s on the radar for investors & traders for the week of 9-13 Jan? US/China/Australia inflation, UK GDP and the start of Q4 earnings season | Saxo Group (home.saxo)

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

The eurozone unemployment rate was unchanged in November despite economic conditions pointing to contraction. This leaves the labour market historically strong, but also makes it a key risk for second-round inflation effects for the ECB   November 2022 was another strong month for eurozone labour markets. Unemployment was unchanged from October at 6.5%, the lowest rate since the data series began in 1998, with many of the larger countries seeing the rate decline, such as France, Italy and Spain, however large increases in Austria and Portugal offset these developments. Overall, the resilient labour market is a positive for Europeans who are already seeing incomes come under pressure due to high inflation. This dampens the negative economic consequences of the inflation shock. With a mild recession as the most likely economic outcome for this winter, there is some cooling of the labour market to be expected. Still, with a labour market this tight, it is unlikely that unemployment will run up enough to make labour shortages a thing of the past. That makes this a key risk for the ECB at the moment. While inflation expectations are fairly well anchored right now, chances of higher trending wage growth remain an upside risk to inflation for this year. While there is no evidence of a wage-price spiral so far, the ECB has taken a hawkish turn and will remain worried about wage growth rising further anyway. Read this article on THINK TagsInflation GDP Eurozone   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Today, January 12, Thursday, the US dollar dropped significantly once more. Let me remind you that last Friday, reports on the unemployment rate, the labor market, and business activity were released in the United States for the first time in 2023. 223 thousand people were employed, the unemployment rate declined to 3.5%, and the ISM index unexpectedly went below the 50.0 level. Generally speaking, the only ISM index that is detrimental to the dollar is the one for the services sector. The remaining news is all favorable in my opinion, but the demand for the US dollar is still down significantly. The demand for the dollar was steady at the start of this week, but today data on inflation in the United States was released, which did not appear to startle the market but sparked a strong reaction. The market anticipated a decrease in the consumer price index of 6.5% y/y, which exactly happened. The market also anticipated a 5.7% y/y decline in the base index. There were no additional significant occurrences today. The demand for US dollars nonetheless decreased It turns out that although both results from the same report were almost exactly in line with predictions, the demand for US dollars nonetheless decreased, preventing both instruments from starting (or continuing) to build the correction portion of the trend. It is vital to note that the subsequent activities of central banks, in this case, the Fed, are more significant than inflation itself. Michelle Bowman, one of the FOMC's voting members, recently predicted that the rate will increase because inflation is still too high. At a Florida event, Bowman stated, "I believe we can cut inflation without a big economic slump as the jobless rate continues at its historic lows. Other FOMC members had previously argued for the continuation of monetary policy tightening. However, the market appears to be responding that all interest rate increases have already been fully absorbed by the US dollar's constantly declining demand. The rate is anticipated to climb to a maximum of 5.5% by the market, though it may be lower following today's inflation report The recession in the UK has reportedly already started It is important to keep in mind that the demand for the currency is supported by a tighter monetary policy. Therefore, as expectations for the rate decline, so does the demand for the currency. Therefore, from a wave perspective, I continue to anticipate the development of downward trend sections. Despite their significant length and complexity, the market indicates that it is willing to build upward segments. Only figures on British GDP, European and British industrial production, and the American University of Michigan's consumer sentiment index are available this week. The recession in the UK has reportedly already started, thus the most significant GDP data is likely to show a decrease. If this is the case, it would be difficult to predict that the GDP will increase over a single month. The MACD is indicating a "down" trend I conclude that the upward trend section's building is about finished based on the analysis. As a result, given that the MACD is indicating a "down" trend, it is now viable to contemplate sales with targets close to the predicted 0.9994 level, or 323.6% per Fibonacci. The potential for complicating and extending the upward portion of the trend remains quite strong, as does the likelihood of this happening. The building of a downward trend section is still assumed by the wave pattern of the pound/dollar instrument. According to the "down" reversals of the MACD indicator, it is possible to take into account sales with objectives around the level of 1.1508, which corresponds to 50.0% by Fibonacci. The upward portion of the trend is probably over, however, it might yet take a lengthier shape than it does right now. Relevance up to 16:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/332164

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

The British pound is slightly higher on Friday. GBP/USD is trading at 1.2234, up 0.24%. The pound has enjoyed a solid week, with gains of 1.2%. US inflation drops again US inflation continues to decline and slowed for a sixth straight month in December. Headline CPI fell to 6.5%, down from 7.1% and matching the estimate. The drop was driven by lower prices for gasoline as well as new and used vehicles. Core CPI showed a similar trend, dropping from 6.0% to 5.7%, which matched the forecast. Inflation is coming down slowly and remains much higher than the Fed’s 2% target, as any Fed member will be quick to point out. Still, it’s clear that inflation is on the right path as the impact of the Fed’s aggressive tightening cycle is being felt in the economy. The inflation data came in as expected, but the markets were nonetheless delighted and the US dollar sustained losses across the board on Thursday. The Fed was also pleased that inflation continues to downtrend. After the inflation release, Fed member Harkins said he supports a 25-basis point hike at the February meeting and expects rates to rise “a few more times this year”, with a 25-bp pace being appropriate. This sounds like an acknowledgment that inflation has peaked, although we won’t be hearing the “P” word from any Fed official, for fear of the markets going overboard and loosening conditions, which would complicate the fight against inflation. Other Fed members have come out in support of a 25-bp hike in February and the CME’s FedWatch has pegged the odds of a 25-bp increase at 93%. Barring some unforeseen event, a 25-bp hike looks like a done deal. In the UK, GDP for November outperformed, with a 0.1%, gain, above the forecast of -0.2% but weaker than the October read of 0.5%. The broader picture is not pretty, with GDP falling by -0.3% in the three months to November. The UK economy is sputtering and the Bank of England has its work cut out as it must continue raising rates, despite the weak economy, in order to curb high inflation. The BoE meets next on February 2nd.   GBP/USD Technical GBP/USD tested support at 1.2192 earlier in the day. The next support level is 1.2017 There is resistance at 1.2290 and 1.2366 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  

It’s been another lively week in financial markets and one in which investors have become increasingly hopeful that 2023 won’t be as bad as feared. In a way, the week started with the jobs report the Friday before as it was this that enabled the enthusiasm to build. The labour market has been a major barrier to optimism as the Fed was never going to pivot quickly unless there were signs in the labour market that slack was building and wages cooling. We’re now starting to see that. That optimism has been compounded by the first monthly inflation decline in two and a half years and further sharp annual declines in both the headline and core readings. While the final hurdle to 2% may be the most challenging, there’s no doubt we’re heading in the right direction and the threat of entrenched inflation has greatly receded. Now it’s over to corporate America to potentially spoil the party as the enthusiasm on inflation is not yet matched to the economic outlook. We haven’t seen mass layoffs yet but a number of firms, starting in the tech space but spreading further, have warned of large redundancies in the coming months. The fourth quarter earnings season may bring investors back down to earth with a bang. The start of the year has been fantastic but the rest of it will still be very challenging. More bleak Chinese trade data That’s very evident in the Chinese trade data, as it has in the data of other major trading nations in recent months. Imports and exports both slumped again, albeit to a slightly lesser degree than expected. The drop in imports reflects the Covid adjustment which is likely weighing on demand and the local economy. Exports is a global issue, with those to the US and EU sliding the most, reflecting the challenging economic environment. That may not improve in the near term but there will be a hope that it could in the second half of the year. Can UK avoid recession? The optimists may put to some of the recent data as an indication of some resilience in the economy but I’m not convinced. Take the UK, for example. It may not be in a technical recession after all, with spending around the World Cup enabling a better performance in November, delivering growth of 0.1% after a 0.5% gain in October. Aside from the fact that December could be worse as a result, or some of those gains could be revised out, those numbers don’t change the reality of the cost-of-living crisis and if accurate, it more likely reflects shifted spending patterns as opposed to a more willing consumer. A recession may be delayed but the economy is still under immense strain. The end of the tightening cycle The Bank of Korea may be among the first central banks to bring its tightening cycle to an end, after raising the Base Rate by 25 basis points before removing reference to the need to hike further. This was replaced with a commitment to judge whether rates will need to raise rates depending on multiple factors including incoming data. I think most others won’t be far behind, with in most cases the end coming at some point in the first quarter. All we have to contend with then is the economic consequences of the tightening. BoJ under pressure to abandon YCC And then there’s the anomaly out there. I’m not talking about the CBRT which I just can’t take seriously and that’s saying something at the moment. The Bank of Japan shocked the markets in December by widening its yield curve control buffer around 0% and it’s been paying the price ever since. Another unscheduled bond buying overnight occurred on the back of the 10-year JGB breaching 0.5%, as investors bail on Japanese debt on the belief that the YCC tool is being phased out and will be abandoned altogether before long. This makes the meeting next week all the more interesting. Revival underway? The risk rally over the last week has even lifted bitcoin out of its pit of despair. It goes without saying that it’s been a tough few months for cryptos but the lack of recent contagion in the space, or new revelations, and the risk rebound in broader markets has lifted it off its lows to trade at its highest level since the FTX scandal erupted. It’s trading at $19,000 and traders may harbour some hope of a move back above $20,000, a level once deemed a disturbing low but now potentially representing a sign of a revival. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

We expect Japan's GDP growth to slow in 2023 but to remain above its potential rate, supported by an accommodative macro policy environment. The near-term outlook is bleak due to high inflation and weak global demand conditions In this article Japan: At a glance 3 calls for 2023 Normalisation of Bank of Japan policy – a long and tough road ahead Wage growth is key to watch Fiscal policy is supporting growth   Inflation hasn't peaked yet in Japan and is likely to hit 4.0% in early 2023 Japan: At a glance After a slight contraction (-0.2% quarter-on-quarter seasonally adjusted) in the third quarter of 2022, we expect GDP to rebound (0.6%) in the fourth quarter. A stronger yen and more relaxed border controls are likely to improve trade conditions, plus the fiscal stimulus programme will support a fourth-quarter recovery. However, the rebound should be limited as cost-push inflation puts pressure on corporate margins and household spending. We expect GDP to grow by 1.0% year-on-year in 2023, slightly lower than the 1.2% growth we expect for 2022. Weakening demand from the US, EU, and China will hurt exports and manufacturing, while limited wage growth will slow private consumption in the first quarter. Inflation hasn't peaked yet in Japan and is likely to hit 4.0% in early 2023, but it will soon decelerate back to the 2% range in the second quarter. Fiscal policy will continue to support the recovery while monetary policy will reduce the extent of accommodation, but at a slower pace than the market currently expects.  GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1Normalisation of Bank of Japan policy – a long and tough road ahead The Bank of Japan's (BoJ's) unexpected decision to broaden its yield curve control band in December has paved the way for policy normalisation. But the path forward will face many challenges. A cloudy growth outlook early in the year could prevent the new central bank governor from taking immediate action, while cost-push inflation is likely to begin to subside in the second quarter. In our view, wage growth will rise more slowly than the 3% sought by the BoJ. Considering these factors, we believe the new governor will first adjust the BoJ's forward guidance in the second quarter and then call for a policy review in the third quarter. We also believe that revisiting inflation targets could be a consideration. Eventually, we expect the BoJ to lift the mid-point target for the 10Y Japanese government bond (JGB) from 0% to 0.25% in early 2024. If GDP recovers to pre-pandemic levels sooner than we expect, the timing could be moved up to the end of 2023. We also expect the BoJ to raise its short-term policy interest rate from -0.1% to 0.0% in the second quarter of 2024. That supports our view that the JGB yield curve will flatten by about 15 basis points and thus the 10Y JGB yield will come down to the 0.30-0.35% range by the year-end.  2Wage growth is key to watch We expect the job market to tighten in the short term as hospitality and tourism-related employment continues to rise, benefiting from the government's travel subsidy programme and the return of inbound travel. However, manufacturing jobs will likely decrease, mainly due to sluggish exports. Although the government offered incentives for wage increases this year, we anticipate that actual wage growth will be less than 3%. Base salaries may pick up, reflecting high inflation, but most of it is expected to be offset by a reduction in bonuses and other incentives as corporate earnings are likely to be squeezed. It is also questionable whether wage growth of 3% can be sustained in the upcoming years.  3Fiscal policy is supporting growth The second FY22 supplementary budget of 29 trillion yen (5.5% of GDP) will boost near-term growth, providing energy subsidies, maternity and childcare-related support, and vocational training support. In addition, the Cabinet approved a draft budget of 114.4 trillion yen for FY23, which is a 6.3% year-on-year rise from FY22's original budget. However, most of the positive impact of fiscal policy will be concentrated at the end of 2022 and early 2023. The budget rise in FY23 is mainly due to a large increase in defence spending (26.3% YoY), thus its policy impact on the real economy should be limited. In addition, if the government raises taxes and cuts other programmes to finance defence spending, it could hurt private consumption and result in a sudden drop in approval ratings.  Japan forecast summary table CEIC, ING estimates TagsWage growth Japanese inflation GDP Fiscal Stimulus Japan Bank of Japan

Despite an anaemic start to 2023, we expect conditions to improve in the second half of the year as global demand begins to pick up and the deleveraging cycle comes to an end In this article South Korea: At a glance 3 calls for 2023 Deleveraging will be painful Exports to lead a recovery in the second half of the year The Bank of Korea to turn dovish as inflation subsides     Korea's housing market is cooling as mortgage rates rise South Korea: At a glance South Korea's economy has deteriorated considerably since the start of the fourth quarter of 2022, with exports, manufacturing and service activity tumbling sharply. Consequently, we believe that fourth-quarter GDP will contract. With such an anaemic start to 2023, we expect the annual growth rate for Korea to decelerate to only 0.6% year-on-year in 2023 from 2.6% in 2022. Both external and domestic demand is likely to weaken further, especially in the first half of 2023, and painful deleveraging is expected to hurt short-term growth given high levels of private sector debt.  Inflation has clearly peaked and inflation expectations have fallen to around 3% and are expected to decelerate further. The accumulated pressure to raise utility and public service fees will add upward inflationary pressures, but most of these are expected to be offset by falling housing prices, global oil prices, and a stronger Korean won. Due to asset price adjustment and the higher debt service burden, the Bank of Korea (BoK) is likely to respond with a rate cut in the second half of 2023. GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1Deleveraging will be painful House prices have already declined significantly in 2022, but we expect prices to fall by another 10% in 2023 and remain stagnant throughout the year. Given the sharp rise in unsold units in major cities, it may take a while for the recovery to take hold in the residential housing market. The government will continue to soften real estate measures and lending conditions, but higher interest rates will not enable home buyers to return to the housing market quickly. Historically it usually takes two to three years to complete a downcycle. Deleveraging for corporates is also likely, and construction and real estate developers will suffer the most. The financial crunch in the corporate debt market has now subsided due to the government's response, but it is expected to come back to the surface as corporate bond issuance increases at the beginning of the year and high interest rates continue.       2Exports to lead a recovery in the second half of the year Despite the poor export performance in the fourth quarter of 2022, annual exports grew 6.1% year-on-year in 2022. However, in 2023 we expect exports to decline by about -7.0%, given the weakness of global demand and unfavourable price effects. We believe the downcycle for semiconductors will continue until the third quarter of 2023 and China's reopening could add a negative impact on Korea's exports in the first half of 2023, with a surge of Covid-19 patients, the risk of new variants, and supply chain disruptions. However, we expect exports to rebound quite meaningfully in the latter part of the year with the US and EU's economy bottoming out and China's situation normalising, which should lead the overall GDP growth in the second half of 2023. 3The Bank of Korea to turn dovish as inflation subsides   We expect the terminal interest rate to peak at 3.50% and the Bank of Korea to enter an easing cycle in the third quarter of 2023. Given that the current policy rate is at 3.25%, our call for an additional 25bp hike in February will be the final destination for the current tightening cycle. Despite a reduction in gasoline tax subsidies and higher public service charges, base effects will anchor headline CPI to around 4% in the first quarter of 2023. We expect the Bank of Korea to maintain its hawkish stance throughout the first half of 2023 as inflation is still likely to far exceed its 2% target, and uncertainties over utility bill hikes and the resulting secondary effects from these are still high. But, as the real economic activity contracts and deleveraging continues, the BoK's policy priority is expected to shift toward supporting growth.   South Korea forecast summary table CEIC, ING estimates TagsSouth Korea KRW Korea GDP Korea CPI Bank of Korea 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

Indonesia benefited from the commodity boom in 2022 but may not be able to bank on this next year In this article Indonesia: At a glance 3 Calls for 2023 Slowing trade momentum to keep FX pressured Tinkering with central bank charter a positive or a negative? Jokowi’s last full year in office ahead of early 2024 election    Shutterstock Share Indonesia: At a glance Growth in 2022 will likely average 5.3% year-on-year but momentum is slowing as the commodity boom fades and inflation accelerates. Forecasts by Bank Indonesia (BI) indicate GDP growth should settle between 4.7-5.5% YoY next year. Household spending was one solid factor behind the growth engine due in part to relatively well-behaved domestic inflation in the first half of the year. Relatively less pronounced price pressures allowed BI the space to delay rate adjustments until the second half of 2022, which also supported growth. By the second half of the year, price pressures finally caught up with Indonesia as headline inflation breached the central bank’s upper bound target of 4%.  Indonesia’s trade sector has also seen momentum fade as commodity prices have normalised after surging due to the war in Ukraine. This development will also be worth watching in the coming months.  Growth and inflation outlook Badan Pusat Statistik and ING estimates 3 Calls for 2023 1Slowing trade momentum to keep FX pressured Indonesia was one of the few countries that benefited from the commodity price boom in 2022, translating to record trade surpluses. This resulted in the current account also reverting to positive territory, which in turn provided robust support to the Indonesian rupiah (IDR). The relative stability of the IDR helped limit price pressures early in 2022 which in turn allowed the central bank to postpone rate hikes to the latter half of 2022. With commodity prices moderating and expected to slide further, we could see Indonesia’s trade surplus diminish or even move into deficit territory in 2023. The loss of this previous support suggests that the IDR will likely remain pressured for much of next year, especially if financial outflows continue. A weaker IDR in 2023 could also translate to additional rate hikes by the central bank early next year.  2Tinkering with central bank charter a positive or a negative? The Covid-19 pandemic’s impact on fiscal balances led to some central banks resorting to quasi-budget financing in addition to quantitative easing. Bank Indonesia (BI) was one of the more active central banks in terms of providing support to fiscal counterparts with BI purchasing government bonds in the primary market. This temporary scheme was termed a “burden-sharing arrangement” and was permitted via Presidential decree. BI Governor Perry Warjiyo promised to wind down such operations after the pandemic, but Indonesia’s lawmakers passed fresh legislation to make the quasi-central bank financing a permanent fixture for BI.  The use of “burden sharing” during Covid-19 raised eyebrows when first implemented but was justified given the fallout from the pandemic. The passage into law could call into question central bank independence, which in turn could cause some anxiety in the bond markets and the currency. 3Jokowi’s last full year in office ahead of early 2024 election  President Joko Widodo enters his last full year in office next year as he is not eligible to take up a third term as President. Indonesia holds presidential elections in February 2024. Jokowi appears to have made a veiled endorsement for his successor by suggesting that Indonesians vote for a candidate with “white hair” and “wrinkles”. Opinion polls currently have three front runners: Central Java Governor Ganjar Pranowo, former Jakarta governor Anies Baswedan and former defence minister Prabowo Subianto.  It will be interesting to see how Jokowi spends the last 14 months of his term as he could still pass key legislation given his control over the house of representatives. Key legislative bills include the New Capital City (NCC) law and a new penal code. In particular, the NCC could positively impact growth potential as amendments could bring in a fresh round of investment given the capital-intensive requirements to move the capital from Jakarta to East Kalimantan.  Jokowi, on the other hand, may become more involved in the campaign by explicitly endorsing one of the three front runners - a move which could distract him from passing amendments to existing laws or drafting fresh legislation.        Indonesia summary forecast table Badan Pusat Statistik and ING estimates TagsIndonesia GDP IDR Bank Indonesia

Philippine growth received a nice boost from 'revenge' spending but we don't think that will continue in 2023 In this article Philippines: At a glance 3 Calls for 2023 Revenge spending to fade by 2Q 2023 after savings depletion BSP policy stance up in the air but high inflation to persist Debt to GDP ratio still an issue. Wealth fund pushed by new administration   Shutterstock Philippines: At a glance The Philippine economy benefited from election-related spending in the first half of 2022 on top of pent-up demand after mobility restrictions were finally relaxed. Lockdowns in the country were particularly long (almost two years) which may be contributing to 'revenge' spending, which appeared to be quite robust at the end of 2022. Household consumption remained solid despite surging prices and rising borrowing costs. In particular, spending on items such as air travel, restaurants and hotels and recreation has now registered at least four quarters of double-digit growth giving more credence to the reopening story. Meanwhile, the potent mix of resurgent demand, currency depreciation and elevated commodity prices have all contributed to a pickup in price pressures. As a result, Bangko Sentral ng Pilipinas (BSP) has been busy, hiking rates by 350bp in 2022. BSP Governor Felipe Medalla has been particularly worried about the peso’s weakness given its impact on inflation but we could see an eventual reversal in policy stance as early as the first quarter of 2023.      Growth and inflation outlook Philippine Statistics Authority and ING estimates 3 Calls for 2023 1 Revenge spending to fade by 2Q 2023 after savings depletion Pent-up demand explained the better-than-expected growth numbers from the Philippines recently, but we need to ask the following questions: how much longer will this last? And more importantly, how are households funding these purchases amidst multi-year high inflation? In the past, surging prices resulted in a sharp cutback in spending, however, the reopening story appears to be more compelling, at least for now.  Robust spending is likely supported by improving labour market conditions. However, we believe that the recent run of spending may also be funded by a drawdown in savings.  The most recent BSP consumer expectations survey showed a decline in the number of households able to set aside savings. This could explain why consumption remains strong despite the twin headwinds of surging prices and rising borrowing costs.    With savings likely depleted to fund an extended run of spending, we expect households to eventually move to rebuild savings by the second quarter of 2023. As households shift a portion of their income back to savings, household spending should fade, resulting in the much-anticipated pullback in consumption, with GDP growth potentially slowing to below 5.0 YoY%.    2 BSP policy stance up in the air but high inflation to persist Although the current BSP governor has expressed his preference to match any Federal Reserve policy adjustment from here on, Governor Medalla is set to retire by July 2023.  Thus, we can expect the BSP to maintain a 100bp differential with the Fed but only until mid-2023. After that, we believe that the policy direction and the pace of any adjustment by the BSP next year will be largely dependent on who President Marcos appoints to head the central bank. And his choice for this post will be a key point to watch next year. Regardless of who will sit as the BSP governor, inflation will likely stay stubbornly high in 2023. Inflation is expected to peak by the end of 2022 at around 8.2% YoY and then only grind lower throughout 2023. Price pressures are spread across the CPI basket with nearly 60% of the items experiencing inflation above 4% YoY suggesting price pressures are well entrenched. Thus, we forecast 2023 full-year inflation to settle at 5.4%.    3 Debt to GDP ratio still an issue. Wealth fund pushed by new administration The current government debt-to-GDP ratio remains elevated (62.5%) and should remain above 60% for the next four years. The government expects this ratio to slip below 60% by 2026 suggesting that tight fiscal space will be the norm in the medium term. This would mean that government outlays will only have a limited ability to support growth should the economy face headwinds and this could in turn cap growth prospects for the Philippines. Given the tight fiscal space, the new administration is pushing for the creation of a sovereign wealth fund (SWF) to help attract foreign investors and generate fresh revenues. The proposed SWF hopes to attract foreign investors for big-ticket infrastructure projects. If successful, the SWF would help bring in foreign currency to help stabilise the currency and boost capital formation although we need to wait for more details on how the fund would operate. Philippines summary forecast table Philippine Statistics Authority and ING estimates TagsPhilippines inflation Philippines GDP Bangko Sentral ng Pilipinas Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The projected global downturn will impact Singapore. Will the return of tourists cushion the blow? In this article Singapore: At a glance 3 Calls for 2023 Singapore GST implementation to keep inflation elevated, slow growth Slowing global trade to dent growth momentum further Return of tourist arrivals to provide counterbalance to global headwinds   Shutterstock Singapore: At a glance Singapore managed to record respectable growth in 2022, supported by an improvement in global trade and robust domestic consumption, but momentum is now fading. The sharp uptick in inflation and supply disruptions caused by China’s repeated lockdowns due to Covid have been key factors for the moderation in growth momentum.  Surging inflation and rapid tightening from global central banks worked against the economy, which in turn forced aggressive action from the Monetary Authority of Singapore (MAS). The rise in price pressures was so pronounced it warranted tightening from the MAS at two non-policy meetings, on top of action during both scheduled meetings.   Meanwhile, industrial production and exports have been weighed down by softer demand from China and the rest of the world. While multi-year high inflation likely capped household spending, resurgent visitor arrivals may have provided a lift to department store sales.  Growth and inflation outlook Singapore Department of Statistics and ING estimates 3 Calls for 2023 1 Singapore GST implementation to keep inflation elevated, slow growth The planned increase in Singapore’s goods and services tax (GST) was pushed through on 1 January 2023. Previously delayed due to the pandemic, the GST rises from 7% to 8% in 2023 and should impact both the inflation outlook and growth momentum next year. The latest inflation forecasts from the MAS incorporate the scheduled GST increase, with core inflation expected to settle between 3.5% to 4.5% for the year. Relatively high inflation should cap household consumption next year as overall economic activity is set to slow due to global factors. Furthermore, given that core inflation will likely stay well above the MAS’s core inflation target of 2%, we also believe that the central bank will be forced to retain tight financial conditions to help bring inflation back to target. The backdrop of tight financial conditions coupled with high inflation should weigh on growth, and we expect full-year growth to settle at 2.5% year-on-year in 2023.        2 Slowing global trade to dent growth momentum further Expectations for a recession in the US and Europe have sparked concern about slowing global trade for the past few months. Rapid fire rate hikes from major central banks and stubbornly high inflation all point to a sharp slowdown in growth around the world which should reduce overall demand for goods and services.    Early signs that this development may be impacting Singapore surfaced late in 2022 with non-oil domestic exports (NODX) falling sharply, by more than 14% YoY last November.  Some were pinning their hopes on the much-anticipated economic reopening by China, however, with China's recent surge in cases, we remain sceptical that we will see any benefits from this anytime soon, or on the scale that was previously expected. What we can be sure of is the projected recession in the US and most of Europe which will definitely send ripples through the ASEAN export supply chain. Singapore will likely feel the impact of the slowdown in global trade and this factors into our modest growth projection for 2023.         3 Return of tourist arrivals to provide counterbalance to global headwinds Singapore’s growth momentum appears challenging given the projected slowdown in global trade. But one brighter spot for the economy is the return of foreign visitor arrivals.  In November, Singapore recorded 816,758 visitor arrivals, a little more than half the number it used to receive prior to Covid-19 but still more than the 330,059 visitors received for all of 2021. The influx of tourists boosted the services sector with hotels, restaurants and department stores benefiting from their return.  With most countries having fully relaxed border controls by now and with more people now more open to travel, we can expect a sustained increase in visitor arrivals for Singapore next year. The recovery in visitor arrivals will be even more pronounced if China can overcome its current Covid surges and its population resumes international travel again in large numbers. The projected global slowdown could blunt the impact of tourism to some extent, but if Singapore were to receive more visitors in 2023 than it did in 2022, we could expect a decent boost from the resurgent services sector to act as a counterweight to softer domestic demand and slowing global trade.      Singapore summary forecast table Singapore Department of Statistics and ING estimates TagsSingapore GDP SGD MAS 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

Proactive policy in 2022 leaves India in a good position to benefit from easier conditions in 2023. India's lesser reliance on trade with China also provides a buffer, while a rethink on global bond market inclusion for government securities could see substantial capital inflows In this article India: At a glance 3 calls for 2023 Nearing peak rates Global bond market inclusion India to benefit from FDI inflows   Shutterstock India: At a glance India’s economy is bucking the global trend, showing signs of strength in the third quarter of 2022 as the annual growth rate slightly beat expectations to grow at 6.3%YoY. That leaves GDP on track to grow by 6.3% for the full calendar year of 2022 and a bit less than 6% for the fiscal year 2022/23. While GDP remains relatively robust, inflation has shown clear signs of peaking out. The latest inflation print for November came in at just 5.88%YoY below the Reserve Bank of India’s target and materially lower than the policy repo rate (currently at 6.25%) following a 35bp rate hike in December. The INR remains one of the region's weaker currencies and has not held on to earlier gains in November and December. India GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1 Nearing peak rates Rates are close to a peak and will come down before the end of the year. Now that policy rates are positive in real terms (which will continue as the high inflation tide recedes), we're confident that the peak will be close even without further hikes from the RBI. There also remains a chance that we may already have seen it. The next rate decision doesn't take place until 8 February and could still be influenced by an additional inflation release on 12 January. With inflation in India likely closing in on 4-5% by the middle of the year, we believe the central bank could start to tentatively take back some of its tightening before the end of 3Q23. 2 Global bond market inclusion Indian bonds will be included in global indices in 2023. Both JP Morgan and FTSE Russell kept Indian bonds on their watch list for inclusion in 2022 and are expected to make a decision on inclusion early this year. Key reasons for excluding Indian government bonds from their indices in 2022 include tax treatment for foreign investors, which the government has not seemed in any hurry to change its stance on. Lengthy settlement of INR bond transactions which takes place onshore is not helping, although moving settlement to Euroclear is not a deal-breaker given that neither Chinese nor Indonesian bonds are settled there. Adding Indian government bonds to these indices will fill a gap left by the exclusion of Russian bonds. At stake for India is an estimated $40bn of capital inflows that will help pay for the current account deficit and support the INR. 3 India to benefit from FDI inflows India will continue to climb the rankings of foreign direct investment destinations in 2023, even as the external economic outlook darkens and China re-opens. India is increasingly being seen as an alternative destination for investment following policy measures designed to ease FDI inflows and promote the manufacturing industry, as well as investment issues in China (trade wars, tech wars, zero-Covid etc). India is the only economy in Asia to offer the potential for scalability, which was one of the main attractions of China. Its younger population and growing middle class also make it a sizable end-market for sales, in addition to being a site for export production. India forecast summary table CEIC, ING estimates TagsINR Indian bonds India investment India economy 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

While parts of the Australian economy, in particular the labour market, remain robust, there are already clear signs that the economy is slowing, and it should slow further in 2023. That at least will provide some scope for a relaxation of monetary policy as inflation is also showing signs of peaking out In this article Australia: At a glance 3 calls for 2023 GDP growth to be less than 2% in 2023 House prices will fall from their 2022 peaks Cash rates close to peak and could fall   istock Australia: At a glance The Australian economy is slowing down. In the third quarter of 2022, the GDP growth rate dropped to 0.6% quarter-on-quarter. And even though that still leaves the year-on-year growth rate looking very robust at 5.9%, most of that is due to base effects, and that growth rate will drop sharply in the fourth quarter of 2022. Inflation also appears to have peaked, with the new monthly CPI series showing inflation dropping below 7%. House prices too have been falling rapidly in the last quarter as the Reserve Bank of Australia has increased the cash rate to squeeze out inflation. Business investment remains depressed thanks to the higher rate environment and weak external backdrop, and while the trade surplus remains impressive, it is no longer adding to growth. The Australian dollar (AUD) has been moving in line with broader US dollar (USD) trends and is showing signs of strengthening again.   GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1 GDP growth to be less than 2% in 2023 GDP growth should fall below 2% for the full year. After projected growth of around 3.6% for 2022, GDP growth is expected to slow to a sub-2% pace in 2023. The household sector is running out of room to keep spending growing in the face of higher inflation and much more subdued nominal wage growth. Households are also running out of room to smooth spending by reducing savings, as savings rates have already fallen sharply from their pandemic peaks and the falling values of real assets (property) will also weigh on their balance sheets. Large discrete mortgage re-sets will probably not do too much damage, as many households are already making overpayments, but this will cause problems for some. 2 House prices will fall from their 2022 peaks House price growth should drop to nearly -10% YoY. In year-on-year terms, median Australian house price growth has already fallen from its pandemic stimulus-induced peak rate of 25.0% YoY, to just 1.1% YoY in 3Q22. Further small quarterly declines in the first and second quarters of 2023 will all but ensure that the annual rate of house price growth falls to close to -10% YoY at its most negative, delivering a full-year decline of just over 7%. Prices should stabilise by the end of 2023, but it may be closer to the end of 2024 before house prices are recording positive year-over-year growth rates again. 3 Cash rates close to peak and could fall Cash rates will peak at only 3.6% and will start to be reduced before the end of the year, in our view. The cash rate target was raised a further 25bp in December and now stands at 3.1%. We are calling for a peak rate of only 3.6%, in other words, after only another two rate hikes of 25bp each. This forecast derives from our assumptions of more slowdowns in GDP growth, further declines in consumer price inflation, worsening negative house price growth, and the discrete impacts of rate hikes on mortgage payments. Rates ending the year lower than their forecast peak will lessen the subsequent re-set impact in early 2024 and sow the seeds for a broader recovery.  Australia forecast summary table CEIC, ING estimates TagsRBA rate policy Australian inflation Australia economy AUD 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

Is the growth pause discounted already? The current economic environment is shaped by the experiences and actions of the past year (or three). It was ever thus, but that doesn’t lessen the importance of this observation. The outlook for growth, as foretold by leading indicators of activity, remains downbeat (see Exhibit 1). This reflects the cumulative tightening of monetary policy that the leading central banks have already made, and the further hikes that undoubtedly will be delivered in the early part of 2023. It also incorporates the hit to consumers’ confidence from costofliving effects — a result of wage gains, large though they have been in many economies, failing to keep up with the surge in inflation seen in 2022. All of this is further complicated by the lingering economic effects of COVID 19 and the very real consequences of China moving away from its zero-- COVID policy. But is the likely pause in developed market growth already discounted by financial markets? The signs of a slowdown have been building for a while, as we have discussed in Allocation Views in recent months. This has resulted in us continuing to anticipate a high probability that many developed economies will experience a recession in the coming year. In some, such as the United Kingdom, they may already be in recession, according to our analysis. Indeed, certain market commentators are describing this as “the most highly anticipated recession in history.” However, in the case of the United States in particular, where more lagging measures of activity remain robust, it doesn’t feel like recession. Indeed, corporate earnings expectations do not seem to fully reflect an impending recession. It is important to note that this is mainly because the US economy is not yet in recession. The lagging indicator in data from The Conference Board shown above reflects the ongoing strength of the labor market, which remains a focus of the US Federal Reserve (Fed) and continues to support the policy response which will see further rate hikes. But history suggests the cumulative effect of tighter policy will be felt in the end and see coincident measures (a proxy for reported gross domestic product growth) weaken further. Eventually, even the lagging indicators should confirm that a recession has happened. This is important for our outlook for risk assets, as our analysis suggests that markets usually trough around the same time as the macroeconomic data — within a few months of each other. Markets can and do recover before the end of a recession, but it seems unlikely that they would trough before its onset.   Inflation has peaked Part of the reason that financial markets have fared better in recent weeks, and led some market participants to anticipate an end to the Fed’s hiking cycle, is that it is seems increasingly clear that inflation has passed its peak. This statement may require a few caveats. Clearly, in the case of the United States, it is only six months since annual measures of Consumer Price Index inflation reached the highest level seen in many decades. Given the lopsidedness of that “decades to months” comparison, it is too early to say that any form of secular peak has been reached. As we discussed in last month’s Allocation Views, we anticipate ongoing inflation will remain above its previous trend level during the next business cycle. However, the postpandemic phase is likely to allow more of the imbalances that drove inflation to its 2022 high to be reversed. We continue to see silver linings to the supplychain bottleneck clouds that were dominating the discussion a year ago (see Exhibit 2).  With labor markets tight — especially in the United States, but also in the United Kingdom — wage pressures remain the dominant concern of policymakers. So long as job openings remain elevated and employers struggle to fill vacancies with appropriately skilled applicants, broad measures of inflation will be slow to normalize. These pressures are particularly acute in the service sector, where productivity gains can be harder to come by and automation is more problematic. As a result, central bankers continue to have a laser focus on developments in employment and the labor force. Even as we become more certain that inflation has peaked, it is too early to sound the “all clear” from a policymaker’s perspective. With labor markets tight — especially in the United States, but also in the United Kingdom — wage pressures remain the dominant concern of policymakers. So long as job openings remain elevated and employers struggle to fill vacancies with appropriately skilled applicants, broad measures of inflation will be slow to normalize. These pressures are particularly acute in the service sector, where productivity gains can be harder to come by and automation is more problematic. As a result, central bankers continue to have a laser focus on developments in employment and the labor force. Even as we become more certain that inflation has peaked, it is too early to sound the “all clear” from a policymaker’s perspective. Policy remains a headwind Developed market central banks’ policy objectives remain clear. Their resolve to keep inflation expectations anchored appears to have been stiffened by the period of uncomfortably high inflation during the last two years. We have talked about a singular focus on fighting inflation and a willingness to accept the collateral damage caused by higherthananticipated interest rates, in the form of slower growth and potentially higher unemployment, in the years ahead. However, in the past month, the last outlier has started to move in the same direction as its peers. The Bank of Japan (BoJ) surprised the markets by recalibrating its yield curve control policy, widening the range within which the benchmark 10 year government bond yield would be constrained. Although this is not directly a precursor to rate hikes, it has been taken as an indication of the direction of travel. If wage pressures in Japan rate policy. continue to build, the BoJ may eventually move away from its zero Despite what we view as a clear restatement of policy imperative by central banks, markets continue to discount a pivot toward easier monetary policy in the year ahead, by the Fed and others. This has fueled a bear-- market rally in stocks and the riskier parts of the bond market. With the Western central banks all confirming that they are indeed likely to slow the pace of future rate hikes (though they protest that this is not in any way the same as confirming the market view that easing is just around the corner), government bonds have also joined the “feel good” party. Taken together with the prospects for a slimming of central bank balance sheets, expected central bank hikes will moderate negative real rates and sustain restrictive conditions. Although fiscal policy is responding to energy costs in some countries, especially in Europe, it will be slow to sway dovish in others, leaving it more differentiated across economies. However, the anticipated shift in global policy is still quite hawkish. Overall, this sees our final theme complete a set of three unambiguously negative drivers for markets, even as it evolves to downplay the pace of hikes but emphasize “Policy to Remain Restrictive” we move through 2023. Equity valuations have moderated (the multiples of earnings at which stocks trade have fallen considerably), but the levels of anticipated earnings per share remain close to their peak. This appears to underplay ongoing concerns around economic growth, inflation, and likely policy responses that continue to weigh on investor sentiment and to support us remaining more cautious in our view of stocks, rather than becoming bolder. We moved to trim our toplevel allocation preference for equities early last year and took advantage of the ebbs and flows of sentiment that occurred to progressively temper our view. We enter 2023 with an allocation preference away from stocks, which we have retained in recent months as we do not see a sustained rally at this stage. Over the next few quarters, we anticipate that a nimble investment management style will continue to be required, and we look for assets that offer some protection if a less favorable scenario were to be realized. We are more attracted to the yields available in highquality government bonds. Although we still see attractive longerterm return potential for stocks and believe they should earn their equity risk premium over time (see Exhibit 3), we struggle to find a strong argument supporting an equity preference at this time.

UK economic data will be released next week. Wednesday will be a particularly special day, as CPI results will be released. Previous data The UK inflation rate fell in November 2022 from its previous record high in October. The measure of price growth across the UK economy fell from a 41-year high of 11.1% to 10.7%. This is a key indicator to understand how severe the ongoing cost of living crisis has become. This seems to confirm the predictions of the Bank of England and other economists that the inflation crisis has reached its peak. There are many factors that contribute to high product prices. Soaring energy costs are a key factor. Demand for oil and gas was higher as life returned to normal after Covid. At the same time, the war in Ukraine meant that fewer raw materials were available from Russia, putting further pressure on prices. The war also reduced the amount of grain available, driving up food prices. Source: investing.com Predictions For now, the focus shifts to the UK in the coming week. UK CPI will be released on Wednesday. They are expected to fall slightly again to 10.6%. The base indicator is estimated at 6.2% y/y, which means maintaining the previous level. Bank of England The Bank of England has a target of keeping inflation at 2%, but the current rate is more than five times higher. Its traditional response to rising inflation is to raise interest rates.When people have less money to spend, they buy fewer things, reducing the demand for goods and slowing down price increases. In December, the Bank raised interest rates for the ninth time in a row, lowering the main interest rate to 3.5%. Inflation and wages Lower inflation does not mean prices will go down. It just means they stop growing so fast.The Office for Budget Responsibility (OBR), which assesses the government's economic plans, predicts that inflation will fall to 3.75% by the final quarter of 2023, well below half of current levels. Prime Minister Rishi Sunak said halving inflation by the end of 2023 is one of five key commitments. But it is unclear whether he will announce new policies to achieve this, or if he is simply relying on earlier interventions.Wage increases for many people have not kept up with rising prices. This is despite wage growth at the fastest pace in more than 20 years. According to official data, average wages - excluding bonuses - increased by 6.1% in the three months to October 2022 compared to the same period in 2021. But when inflation is taken into account, the average wage actually fell. Economic situation The economy grew by 0.1%, supported by demand for services in the technology sector and despite households being squeezed by rising prices. The Office for National Statistics (ONS) said pubs and restaurants also boosted growth as people went out to watch football. While November's gross domestic product reading was much better than expected, the overall picture still suggests the economy is stagnating as food and energy bills soar. The Bank of England predicts that the UK has already entered its longest recession in history. Economic growth has slowed sharply in the country since October, partly due to strikes. Economists generally expect the country's economic performance to be among the worst in the developed world over the next two years.   Source: investing.com

The euro is almost unchanged on Monday, trading at 1.0831. The euro is coming off a strong week, as EUR/USD rose 1.8%. Earlier in the day, the euro hit 1.0874, its highest level since April 2022. Will Eurozone inflation sink? Eurozone inflation has been dropping and slipped into single digits in December. This is a remarkable turnaround after a year in which inflation soared and constantly beat expectations after Russia invaded Ukraine. In December, the ECB projected that inflation wouldn’t fall to the 2% target until 2025, but it now appears that the target could be reached much earlier, perhaps in Q4 of 2023. One of the key drivers of higher inflation was soaring energy prices, triggered by the Ukraine war. Oil and gas prices have since fallen substantially, and a relatively warm winter in Europe and extensive efforts to diversify supplies have eased concerns of an energy crisis in Europe. The downtrend in energy prices could of course change before the winter ends, but in the meantime, inflation is dropping and the economic outlook for the eurozone appears brighter. Last week, Goldman Sachs revised upwards its 2023 GDP forecast for the eurozone from -0.1% to a small gain of 0.6%. The positive news on the inflation front is unlikely to result in any change in policy from ECB policy makers. Headline inflation fell from 10.1% to 9.2% in December, but the core rate, which is a key factor for the ECB, has been rising. The ECB has said more rate hikes are coming in 2023, a stance that was echoed by ECB member Rehn earlier today. In the US, UoM Consumer Sentiment jumped to 64.6 in December, beating the forecast of 60.5 and above the November reading of 59.7. Inflation expectations for 2023 decreased to 4.0%, down from 4.4%, although long-term expectations inched higher. Read next: USD/JPY Pair Is Trading Above 128 Again, The Testimony Of Bank Of England Governor Andrew Bailey May Have Affect On The Pound (GBP/USD)| FXMAG.COM EUR/USD Technical 1.0829 is a weak support line, followed by 1.0691 There is resistance at 1.0921 and 1.1010 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Summary:  US equity and bond markets were closed on Monday for a holiday. Mainland China stocks surged 1.6% as northbound flows reached over RMB15 billion and were in net buying for the 9th day in a row. Ryan Cohen is building a stake in Alibaba. USD saw a rebound but will likely be driven by the Japanese yen in the next few days as the Bank of Japan meeting kicks off today. While China’s Q4 GDP scheduled to release today was expected to slip to 1.6% Y/Y, more than half of Chinese provinces are setting 2023 GDP growth targets at above 5.5%. The rally in industrial metals paused amid profit-taking ahead of the Lunar New Year.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) Closed for U.S. holiday US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Closed for U.S. holiday China’s CSI300 (03188:xhkg) gained 1.6%; Northbound net buying for the 9th day CSI300 rose 1.6%, led by brokerage, household appliances, pharmaceuticals, and semiconductor names. Northbound net buying through Stock Connect was RMB15.8 billion on Monday, the 9th day in a row of net buying for a total of around RMB80 billion. Coal miners, autos, and media stocks retraced. Hong Kong’s Hang Seng Index had a choppy session, rising initially to make a new recent high but failing to hold and sliding to losses in the afternoon before closing nearly flat. The news that the Chinese regulators allowed Didi to resume registration of new users failed to boost the sentiment for internet stocks. On the other hand, Meituan (03690:xhkg) slipped 3.3% as investors feared that the company’s ride-hailing business might lose market share as Didi returns. Hardware names, AAC (02018:xhkg) up 11.4%, Techtronic (00669:xhkg) up 6.2%, and Sunny Optical (02382:xhkg) up 4.0%, stood out as top performers. The automaker, Brilliance (01114:xhkg) tumbled 8.2% after announcing a special dividend of HKD0.96 per share from the disposal of its stake in Brilliance BMW below the street estimate of HK$1.5 per share. FX: USDJPY seeing a barrier at 129 USDJPY was seen fluctuating around 128.50 in the Asian morning session as Bank of Japan meeting kicks off with speculations of a further policy tweak continuing to build. GBPUSD also failed at another attempt on 1.2300 while AUDUSD returned below 0.7000 ahead of the key China activity data due today, despite January consumer confidence coming in higher at 84.3 from 80.3 previously. A break above 0.7000 could bring the tough resistance of 0.7125 in focus. NZDUSD testing a break above 0.6400. Crude oil (CLG3 & LCOH3) prices soften Crude oil prices eased on Monday with WTI falling below $79/barrel and Brent back towards $84/barrel as profit-taking emerged after the 8% rally last week. The World Economic Forum’s annual meeting began with warnings of global recession. This was aided by signs of stronger Russian supply. Seaborne crude exports soared by 30% to 3.8mb/d last week, the highest level since April. India was the biggest buyer, snapping up 33 times more crude than a year earlier. There is a lot to digest in the oil markets, with demand concerns and sanctions on Russian supply and risks of OPEC production cuts. Meanwhile, volatility in gas prices also underpins, suggesting crude oil prices can continue to see two-way price action in this quarter. US natural gas higher but European gas prices fall US natural gas settled back above $3.50, higher about 7% on Monday with risks of cold weather at the end of the month. European gas however fell sharply on a strong supply outlook. Dutch front month futures were down more than 15% as full stockpiles in China eased concerns of supply tightness in the LNG market. Chinese importers are trying to divert February and March shipments to Europe amid weak prices at home and high inventories. This is despite a cold snap expected this week. Iron ore selling eases; and respective equities hold record highs shaking off China’s accusations The key steel making ingredient, iron ore (SCOA) has fallen 5.3% from its high, including Tuesday’s 0.4% slide, which takes the price to $118.90. Still the iron ore price holds six months highs and is up 56% from its low. The pullback was triggered by China’s top economic planner, the NDRC accusing market participants of hoarding and price gouging after the iron ore price strongly rallied from October’s low in anticipation of demand picking up from China easing restrictions. Iron ore inventory levels are still lower than they were a year ago, which fundamentally supports iron ore price. And the technical indicators indicate the longer term rally could continue. The 50 day moving average is approaching the 200 day moving average. Historically when the 50DMA cross the 200 DMA buying has picked up. Also consider iron ore majors shares, BHP, Rio Tinto Fortescue are holding in record high territory, as investors remember China has made such accusations in the past of price gouging, and the iron ore price previously recovered over the medium to longer term. Brakes on Copper rally; Aluminium continues to surge higher A slight recovery in the US dollar on Monday paused the strong rally that has been seen in industrial metals so far this year. Copper fell as signs of weak demand persist. The Yangshan copper cathode premium over LME has declined to USD31.50/t, compared with the 10y average of USD72/t. Stockpiles of copper in Shanghai Futures Exchange warehouses are also higher. HG copper dipped back to $4.14 from highs of over $4.20 last week. Aluminium bucked the trend to push higher as inventories continue to fall. Expectations of stronger demand as China reopens also boosted sentiment. Rio Tinto (RIO) reported 4Q iron ore shipments of 87.3mt, +3.8% YoY vs est 86.2mt and still sees 2023 shipments of 320-335mt while mined copper output guidance raised to 650-710kt from 500-575kt previously.   What to consider? China GDP and activity data While the reopening of China from Covid containment is a highly positive development for the Chinese economy, the initial shockwave of infections could be significantly disruptive to economic activities in the near term. The median forecast of economists surveyed by Bloomberg on China’s Q4 GDP growth is 1.6% Y/Y decelerated from 3.9% Y/Y in Q3. Disruption in production activities resulting from infection-induced absence from work is expected to drag the growth of industrial production to 0.1% Y/Y in December from 2.2% in November. Retail sales are expected to shrink 9% Y/Y in December, decelerating further from -5.9% Y/Y in November as dining, retailing, and deliveries were slowed by inflection. Full-year fixed asset investment is expected to come at 5%, down from 5.3% in the first 11 months of the year. More than half of provinces and municipalities in China are targeting above 5.5% GDP growth for 2023 According to China’s Securities Daily, the 28 provinces and municipalities that have released their 2023 GDP targets set them at 6% on average. Hainan is the most aggressive with a 9.5% target. According to data from the Shanghai Securities News, more than half of the 31 provinces and municipalities that have released 2023 work reports, are setting their GDP growth targets above 5.5% for 2023. Economically important provinces of Zhejiang, Jiangsu, Guangdong, and Shandong set their targets at above 5%. BOE’s Bailey comments hint at relief from energy and inflation but worries about labor market The rally in cable has cooled off recently even as the decline in USD has continued. The pair is looking for direction and there may be some key catalysts to watch this week. Bank of England Governor Andrew Bailey spoke on Monday at the Treasury Select Committee hearing, saying that the risk premium on UK assets after the Truss government’s policy shock in September has gone. Still, confidence remains fragile, and risks also remain from China’s chaotic exit from Zero Covid, the continued fallout from the war in Ukraine and the shrinking of Britain’s labor force. Focus will now turn to economic data, with labor market data due today, CPI on Wednesday and retail sales on Friday. Any signs that labor market is cooling or CPI has topped out could mean the BOE could start to consider a slower pace of rate hikes going forward, and that could see the 200DMA in GBPUSD at 1.2000 get threatened. Japan’s military focus supports our optimistic view on the Defence equity basket Japan is looking to overhaul its security policy as geopolitical threats in the region and globally grow. PM Kishida’s G7 tour last week saw multiple deals not just with the US, but focus was also seen on enhancing military ties with Germany, Canada and France, including mutual troop access with the UK and upgrading of defence ties with Italy. The plan to build more nuclear reactors is also a step in that direction. Japan and India also held their first joint air drills as they step up military exercises with other countries amid concerns about China's assertiveness. Japan is looking to boost its 2023 defence budget substantially to a record 6.8 trillion yen, an increase of 20%. This further supports our optimistic view on our Defence equity theme basket as further deglobalization continues to suggest defence spending will remain a key focus. Activist investor Ryan Cohen built a stake in Alibaba According to the Wall Street Journal, Ryan Cohen has built a stake in Alibaba. Cohen is a Canadian investor who is know for investing and attracting a large crowd of retail investors to invest in meme-stocks such as GameStop. His buying into Alibaba may attract retail investors from North America to follow. For a look ahead at markets this week – Read/listen to our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: Market Insights Today: - China A shares see large Northbound buying, Ryan Cohen building a stake in Alibaba - 17 January 2023 | Saxo Group (home.saxo)

Headline inflation has peaked but pressure from the service sector continues to build. That's likely to tip the balance for Bank of England hawks in favour of one final 50 basis point hike at the February meeting   The good news, at least, is that it seems like UK headline inflation is slowing. At 10.5% in December, the latest CPI figure is below October’s 11.1% peak. We expect this headline measure to stay roughly where it is for the next couple of months before showing more dramatic signs of easing as we approach Easter, which is when electricity/gas base effects begin to become more favourable. Last year’s near-50% increase in bills won’t be matched, and if anything it looks like the Treasury will either need to lower unit prices for consumers later this year, or scrap April’s planned increase altogether, given the recent fall in wholesale gas prices. On current policy, we expect headline inflation to fall back towards 6% by summer and to 3.5-4% by year-end. UK services inflation has risen further 'Core goods' excludes food, energy and tobacco. 'Core services' excludes air fares, package holidays and education Source: Macrobond, ING calculations   The bad news, at least as far as the Bank of England is concerned, is that its favoured ‘core services’ measure of inflation has jumped, even as goods inflation slows dramatically. At 6.8%, core services CPI (which excludes volatile components like airfares and package holidays) is materially higher than the Bank had been forecasting back in November, and reflects ongoing pressure from both wages and energy bills on service sector costs. While we suspect this is nearing a peak, it provides further ammunition for the BoE’s hawks to push for one final 50 basis point rate hike at the February meeting, putting the peak at 4% for Bank Rate (or perhaps 4.25% if the Bank adds one further 25bp hike in March). The UK's somewhat unique combination of structural worker shortages, and therefore potential for persistently higher wage growth, as well as its exposure to Europe's energy crisis, suggests the Bank of England will be less quick to cut rates than in the US, where we expect cuts later this year.  Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Attention has recently focused on the World Economic Forum. Many statements were closely followed from economic to political information. Representatives of the United Nations also spoke. Un Secretary General Antonio Guterres calls for a focus on transforming into green energy. The reopening of the Chinese economy is also attracting attention, with speculation on what to expect from the reopening of the world's second largest economy. In this article: China's economy may improve The transformation of world powers into green energy Jim Cramer’s opinion China's economy may improve The reopening of the Chinese economy after several years of strict "zero-Covid" measures has lifted the mood among economists. China's GDP grew by just 3% in 2022, official figures revealed earlier this week, the second slowest growth rate since 1976 and well below the government's target of around 5.5%. However, short-term data point to a faster-than-expected recovery as pandemic measures have been phased out. Reopening has proven difficult as China has reported a massive spike in Covid cases and deaths in recent weeks. Nevertheless, how many economists are positive about the situation in the Chinese economy in the second half of the year. The situation of the Chinese economy is of particular importance for the rest of the economies. China as the second largest in the world is important for many other economies, for example for Australia with which it is related in trade. China's economy will be 'on fire' in the second half of 2023, StanChart chairman says https://t.co/fKyQs1kQpb — CNBC (@CNBC) January 18, 2023 The transformation of world powers into green energy The transformation of world powers into green energy was one of the main topics at the Davos forum. Investments in renewable energy sources may turn out to be crucial for the climate in the coming years. International constraints are increasingly putting pressure on companies to focus on policies that reduce greenhouse gas emissions. Concern for the planet has increased in recent years, but not all countries or companies are so quick to implement ecological changes. While companies are increasingly committed to reducing their greenhouse gas emissions as close to zero as possible, the metrics and criteria they use are often questionable or unclear. That's why UN Secretary-General Antonio Guterres called on business leaders gathered at the World Economic Forum in Davos on Wednesday to follow the rules outlined by a group of experts. The economic situation may make it difficult for companies or countries to implement these principles, but everyone must realize that it is extremely important now to take care of the climate for future generations. Davos 2023: UN chief urges 'credible' net-zero pledges or risk greenwashing https://t.co/ZF1ipes21P pic.twitter.com/U8SAGzai1z — Reuters Business (@ReutersBiz) January 18, 2023 Jim Cramer’s opinion Investors often take into account the opinion of experts about assets in the stock market. Jim Cramer, like an expert, gives valuable tips. This time he expressed opinions on Boeing Co, Biohaven, Flex and more. .@JimCramer also weighed in on Biohaven, Flex and more. https://t.co/fyzGTNUd2U — Mad Money On CNBC (@MadMoneyOnCNBC) January 18, 2023

Persistent falls in UK retail sales are another reminder that the UK is still entering a downturn. The good news is that lower gas prices mean the Treasury can afford to do away with April's planned increase in household energy bills, a move that would lower headline inflation by 1-1.5pp through the latter half of the year Retail sales have fallen - again British consumers spent almost 4% more on retail spending last year, but received almost 6% less for their money, accounting for the surge in UK inflation through 2022. That’s according to the latest year-on-year retail sales figures, which also showed that real-terms spending has fallen in 12 out of the last 14 months, and that December alone saw a 1% drop in expenditure. Coupled with another dip in consumer confidence released overnight, recession still looks like the base case for the UK economy. Admittedly, fourth quarter GDP is likely to come in flat, which is partly down to an artificial bounce-back in activity during October following the Queen’s funeral last September. But assuming ongoing weakness in consumer spending, coupled with some potential declines elsewhere (construction and manufacturing look vulnerable), we think first quarter GDP could see a fall in output in excess of 0.5% (Read more).  UK retail sales are down 6% year-on-year in real terms Source: Macrobond The fall in gas prices is welcome news for consumers The good news, at least, is that the squeeze on household incomes looks like it won’t be quite as bad as first feared. The recent fall in gas prices means the Chancellor can probably do away with his planned increase in energy bills in April, or failing that, can lower them again in July. Current plans would see a less generous household ‘price guarantee’ take the average annualised bill from £2500 currently (or £2100 accounting for an extra discount), to £3000 from April. When that change was envisaged last November, the average energy bill was projected to be well above that level until early 2024 in the absence of any government support. But recent falls in wholesale prices suggest that will only be the case during the second quarter. Our latest estimates, based on the regulator's pricing methodology, suggest the average annualised bill will have fallen back to roughly £2200 in the third quarter, without any government intervention at all. Energy bills should have fallen to £2200 in 3Q, without any government support The Energy Price Guarantee will currently see the average household energy bill increase from £2500 to £3000 from April Source: Macrobond, ING calculations, Ofgem   As well as improving the outlook for consumers, this is also good news for the Treasury. Suppose the government caps the average bill at £3000 in the second quarter and allows them to return to a level determined by market prices in the third. In that case, the cost in FY2023 will fall from almost £13bn to £1.5bn (excluding additional benefits/pensions payments the Treasury has committed to). If the Chancellor does away with the planned increase in unit prices altogether and keeps the average bill at £2500 in 2Q, the cost would be £4.5bn in FY2023, still well below November’s projections. Treasury looking at £11bn saving even if price guarantee is scrapped in 3Q The November figures, as well as the fixed welfare payment costings, are based on UK Treasury estimates. Our projections assume the average household energy bill increases to £3000 in April as planned, but falls back in Q3 to the standard Ofgem regulated price. Source: UK Treasury, ING calculatuons   Headline inflation should also be lower as a result. If household bills return to the default price level set by the regulator Ofgem, then we’d expect CPI to come in 1-1.5pp lower than currently forecast. For the Bank of England that’s a double-edged sword – lower headline inflation would undoubtedly please the hawks most worried about inflation expectations de-anchoring. But lower gas prices mean a less pronounced hit to economic activity, potentially justifying tighter policy. In reality, the Bank will probably lean more towards the former argument, and we still think we're close to the peak in terms of Bank Rate. That said, it looks like the combination of persistent wage pressures and higher core services inflation will unlock one more 50bp hike at the February meeting, potentially followed by a final 25bp move in March. UK inflation set to be 1-1.5pp lower if bills below £3000 government guarantee Source: Macrobond, ING calculations Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The German economy is showing some unexpected resilience, however it is a long way off displaying a strong economic recovery Olaf Scholz has served as German chancellor since December 2021   The German economy started the new year with positive news. Kind of. According to the first very tentative estimates by the statistical office, the economy avoided a contraction in the fourth quarter and ‘only’ stagnated. The positive effects of the post-lockdown rebound seem to have outweighed the negative impact of the war in Ukraine and surging energy and food prices. Even though this first estimate could still be subject to revisions, it definitely shows that the German economy has been more resilient despite a long series of crises in 2022, which threatened to push the economy into a deep recession. The reason for this resilience is not so much the structure of the economy but rather a simple policy recipe that the German government has successfully used over the last 15 years and perfected recently: fiscal stimulus. Contrary to common belief and what German governments have often preached to other European governments: in times of crisis, the government prefers outright fiscal stimulus. This was the case during the financial crisis, during the Covid-19 pandemic and now as a response to the war and the energy crisis. What German governments perfected during the pandemic and last year’s crisis is the use of big ballpark figures, hoping that eventually not all the money will have to be used. During the pandemic, outright fiscal stimulus amounted to more than 10% of GDP. Last year, after some months of hesitation, the government decided on several stimulus and price cap packages, amounting to a total of some 8% of GDP. The announcement effect and the actual money saved the economy from falling into recession, at least for now. Not falling off the cliff is one thing, staging a strong rebound, however, is a different matter. And there are very few signs pointing to a healthy recovery of the German economy any time soon. First of all, we shouldn’t forget that fiscal stimulus over the last three years stabilised but did not really boost the economy. Industrial production is still some 5% below its pre-pandemic level and GDP only returned to its pre-pandemic level in the third quarter of 2022. Industrial orders have also weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historical lows, and the loss of purchasing power will continue in 2023. Finally, like every eurozone economy, the German economy still has to digest the full impact of the ECB rate hikes. Demand for mortgages has already started to drop and in previous hiking cycles it didn't take long before the demand for business loans also started to drop. While the German economy will still have to cope with the delayed impacts of last year’s crises, there are a few positive developments: the reopening of China could help the battered export sector, and the prospects of decreasing inflation rates could support private consumption. However, when it comes to inflation, do not forget that households will not benefit from lower gas wholesale prices but are only now confronted with the pass-through of the energy price surge of 2022. At the same time, wage growth of at least 5% year-on-year this year and another 3-4% next year as well as the pass-through of high energy prices to other sectors of the economy will leave core inflation stubbornly high. Germany’s economic outlook for this year looks complicated, to say the least, with an unprecedentedly high number of uncertainties and developments in opposing directions. And there is more. Let’s not forget that the German economy is still facing a series of structural challenges which are likely to weigh on growth this year and beyond: energy supply in the winter of 2023/24 and the broader energy transition towards renewables, changing global trade with more geopolitical risks and changes to supply chains, high investment needs for digitalisation and infrastructure, and an increasing lack of skilled workers. This long list embodies both risks and opportunities. If historical lessons from previous structural transitions are of any guidance, even if managed in the most optimal way, it will take a few years before the economy can actually thrive again. The German economy in a nutshell Thomson Reuters, all forecasts ING estimates TagsGermany GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

After a resilient 2022 in France, where economic activity grew by 2.6%, 2023 should be characterised by quasi-stagnation. Inflation is expected to rise further, before starting to fall in the summer of 2023 In this article 2022, a year of resilience Higher inflation in 2023 than in 2022 Near stagnation of activity in 2023 Difficult exit from "whatever it costs”   Shutterstock French Economy Minister Bruno Le Maire   2022, a year of resilience In France, the year 2022 was characterised by resilience in activity despite the negative impact of the war in Ukraine and global inflation. The end of the restrictive Covid measures led activity in services to rebound significantly, while very expansionary public policies and the strength of the labour market largely supported household purchasing power, leading French GDP to grow by around 2.6% over the year. As a result of the government's policy of limiting the increase in French energy bills, French inflation remained much lower than in other European countries in 2022, averaging 5.2% (5.9% for the harmonised index). Higher inflation in 2023 than in 2022 While most European countries have already passed the peak of inflation, inflation in France is expected to rise further in the first quarter of 2023. The revision of the “tariff shield” will lead to a 15% increase in household energy bills, compared to a 4% increase in 2022. Many companies are facing the first upward revision of their energy bills since 2021. Rising production costs are expected to continue to support inflation in food and manufactured goods. In addition, the four indexations of the minimum wage to inflation in 2022 will continue to lead to increases in all wages, which will push up inflation significantly, particularly in services, in 2023. Ultimately, average inflation in 2023 will probably be higher than in 2022 (we expect 5.5% for the year, and 6.3% for the harmonised index), with a peak above 6.5% in the first quarter, before gradually declining from the summer onwards. At the end of 2023, inflation will probably still hover above 4%, a level higher than the European average. The deceleration should continue in 2024, with inflation averaging 2.6% over the year (3.5% for the harmonised index).   Near stagnation of activity in 2023 2023 should be characterised by a quasi-stagnation of the French economy in all quarters of the year. Although nominal wages per capita are expected to rise by around 6% in 2023, real purchasing power per person will remain very weak, weighing on private consumption. Given the uncertainties, the expected (albeit small) rise in the unemployment rate and the low level of household confidence, the household savings rate will probably remain high and above its historical average. Household investment in housing is likely to stall, weighed down by higher commodity prices and rising interest rates. The manufacturing sector should continue to see supply difficulties ease but will face much weaker global demand and will still be at risk of a further significant rise in global energy prices. We expect growth of 0.2% for the full year 2023 and 1.1% for 2024. Difficult exit from "whatever it costs” While in several European countries trade unions and public opinion are mobilising to demand wage increases, in France the protests are focused on pension reform. The government wants to implement reform that will, among other things, raise the legal retirement age from 62 to 64 in order to maintain the budgetary sustainability of the system. Although the reformed system can still be characterised as generous in comparison with its European neighbours, the unions and the political left are strongly opposed to it. The scale of the mobilisation has yet to be confirmed on the streets. After years of "whatever it costs" where the government has largely subsidised activity (in 2022 alone, 50 billion euros have been spent to protect households and companies against inflation),  fiscal sustainability has disappeared from the political debate. As a result, fiscal policy is likely to remain quite accommodative in the coming years. The deficit is expected to remain above 5% of GDP until 2025 with debt above 112%. The French economy in a nutshell TagsPublic finances Inflation GDP France Eurozone Quarterly Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Despite solid employment resilience, consumption looks set to decelerate in 2023. Still, together with investment, it should keep growth in positive territory In this article Gradual inflation decline, with energy fall prevailing over core stickiness Resilient employment should help limit the damage Investment still growing Fiscal discipline: a valuable political capital for upcoming negotiations   Shutterstock Giancarlo Giorgetti, Italian Minister for Finance   The jury is still out as to whether the Italian economy contracted in the fourth quarter of 2022, and we currently expect to see a minor -0.1% quarter-on-quarter fall in GDP. This year will likely see a soft start, followed by a gradual recovery over the rest of the year. The growth profile will be hugely affected by developments on the inflation front and their impact on both disposable income and domestic demand. Gradual inflation decline, with energy fall prevailing over core stickiness The sharp decline in TTF natural gas prices seen over the past month (falling 60% to around 60€/MWh) should have a positive impact on the energy component of the inflation basket, creating room for positive base effects on headline inflation to unfold over the first months of 2023. The pass-through of energy price pressures is not over yet and will likely weigh on core inflation for some time. Signals from the business sector point to a decline in intentions to hike prices among manufacturers but not yet in services, suggesting that some form of reopening-induced consumption is still at work. Over the first half of the year, we expect the drop in energy inflation to outweigh the inertia in the core inflation component. This should induce a gradual decline in the headline index, which is expected to end the year above 2.5% year-on-year. Resilient employment should help limit the damage Stubborn inflation is weighing on disposable income, but the effect is less noticeable than we had expected. In the third quarter of last year, real disposable income increased by 0.3% quarter-on-quarter despite accelerating inflation, mainly thanks to surprisingly strong labour market data. In November, against a backdrop of an economic slowdown, employment confirmed its peak at pre-pandemic levels. The unemployment rate, admittedly a backwards-looking indicator, was stuck at a multi-year low of 7.8%. High gas storage levels, which were just below 80% full by mid-January and resulted from unusually mild weather, further reduced the chance of energy rationing this winter and limited the scope for short-term supply shocks. Still, with a modest deterioration in employment and shrinking room for substantial declines in the saving ratio (which fell to 7.1% in 3Q22, the lowest level since 4Q12 and below the pre-Covid average), we anticipate consumption will cool down over the 4Q22-1Q23 period. We then see it picking up at a moderate pace so long as inflation recedes. A short-lived and soft technical recession in the first quarter of 2023 remains our base case, but short-term upside risks are rising. Unusually high gas storage levels make energy rationing unlikely this winter AGSI+, ING Research Investment still growing Private investment should also, in principle, remain a positive growth driver in 2023. This will build on two factors: a residual drive of residential construction investment fuelled by tax incentives, and the flow of new investments linked to the implementation of the national recovery and resilience plan (RRP). Both are exposed to downside risks, though. If residential construction suffers from the impact of rising interest rates, risks to the RRP front could emerge as the balance between reforms and investments shifts towards the latter. Further adding to the issue could be involvement from local administrations, which are less equipped to manage complex projects. Fiscal discipline: a valuable political capital for upcoming negotiations The macro backdrop described above will fit into a prudent fiscal framework. The Meloni government crafted its 2023 budget with a piecemeal approach, in continuity with the Draghi government. Almost two-thirds of the €34bn budget is devoted to refinancing deficit measures designed to support (until 31 March 2023) households and businesses weathering the inflation shock. The rest is dispersed among other measures, ranging from refinancing the cut to the tax wedge (again, in continuity with the Draghi government) to extending a flat tax system for independent workers. The government aims at a 4.8% deficit/GDP target for 2023, which implies a 1.1% reduction in the structural deficit. Fiscal discipline will be a valuable political capital to be spent in upcoming negotiations on reforming the stability and growth pact. In our view, risks to this for 2023 lie on the side of a slightly higher deficit but not enough to jeopardise another decline in the debt/GDP ratio. For the second year in a row, the inflation effect (through the GDP deflator) is set to work its magic on the debt ratio.   The Italian economy in a nutshell (%YoY) Thomson Reuters, all forecasts ING estimates TagsItaly GDP Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Dutch GDP is forecast to grow by a mediocre 0.4% in 2023 and a close-to-normal 1.4% in 2024. A short and mild recession is forecast to last until the first quarter of 2023, with GDP moderately picking up during the rest of 2023. Inflation has peaked but remains high, as core inflation is still on the rise. Fiscal expansion is the main driver of growth In this article 2022 closed with another contraction, despite robust private consumption 2023 starts worse before it gets better on the back of public spending Inflation is past the peak, but remains high   Mark Rutte, prime minister of The Netherlands 2022 closed with another contraction, despite robust private consumption While inflation in the Netherlands was among the highest of its peer economies in the eurozone, Dutch domestic private consumption held up surprisingly well, even going into the fourth quarter of 2022. Although not buoyant, retail sales and domestic consumption volumes have been showing stability or even some growth. Large amounts of savings (accumulated during lockdowns, particularly in the upper half of the wealth distribution), the €190 payout households received via their energy bill in November and December, accelerating wage increases, continuing low unemployment, and the certainty provided by the energy price ceiling for 2023 seem to contribute to robustness in consumer spending at the end of 2022, despite an environment of higher core inflation and low measured consumer confidence. As such, household consumption is forecast to have continued to grow in the fourth quarter of last year. As the outlook for net trade and investment has worsened with tougher financing conditions and high input cost inflation throughout Europe, Dutch GDP is nevertheless likely to continue to contract in 4Q22. Despite contractions in the last two quarters of 2022, the annual growth figure of 4.3% for that year represents a strong expansion. This stems from the strong rebound out of lockdown in the first half of the year. 2023 starts worse before it gets better on the back of public spending Government spending will be the main driver of GDP growth in 2023, while net trade and investment will be a drag on the GDP development, and private consumption is set to only expand negligibly. Private consumption may start the year in the first quarter with a decline: as energy taxes and the VAT on energy were normalised, the €190 lump sum terminated, and the energy price ceiling was introduced as of 1 January 2023, energy costs net of taxes may de facto have risen for some households – depending on their energy consumption level and contract – and fallen for others. Still, consumer confidence is low. Falling house prices and a lower number of home sales will provide a lid on consumption growth and are a risk for weaker-than-expected consumption. As inflation will fall, private consumption is expected to expand (although sluggishly) for the year on average. It indirectly benefits – via the multiplier effect – from the increased execution of ambitious plans in the coalition agreement and is still directly supported via the energy crisis support measures and some structural policy changes. Companies are increasingly signalling a downward pressure on profitability. This, the recession in the eurozone, and the prospect of a weakened global business cycle, makes it less attractive to invest, for instance in machinery. Higher financing costs due to interest rate increases also put a brake on investment. The development of building permits, due to insufficient capacity in municipalities and due to the nature of protection policies, indicates a decline in investment in construction work in 2023. This concerns housing and commercial premises and mobility infrastructure. In 2023 there is a risk that investment in buildings will fall for the first time since 2013. Both exports and investment will benefit however from backlogs in transport equipment. Due to previous major issues in global supply chains and the resulting delays in production and delivery, there are still many orders from 2022 that will be fulfilled this year. This is particularly true for passenger cars and to a lesser extent for heavy vehicles such as trucks and busses. Without this shift in time, the outlook for exports and investment would have been worse for 2023. For vans, the prospects are somewhat weaker, while ordered vessels may not be delivered until 2024. Mild GDP decline continues into 1Q23 as private expenditures weaken, but pick up in 2023 due to government spending Expenditures* as index where 4Q2019 = 100 Macrobond, ING Research forecasts as of 4Q22*seasonally adjusted and in constant prices   Higher financing costs for businesses resulting from higher market interest rates, generally lower profit margins and the challenge of paying back deferred taxes (accumulated during the pandemic) will also contribute to more business dynamics in 2023. This will facilitate a quicker movement of labour and capital from unproductive sectors and firms towards those with more growth potential, which could be beneficial for labour productivity. The number of bankruptcies has indeed recently started to increase recently but is still far below normal rates. A normalisation should coincide with higher unemployment. Yet, we forecast only a mild uptick in joblessness. As ING research shows, when European economies enter a recession with much strain in the labour market, the subsequent increase in unemployment is more limited. This can be explained by labour hoarding: solvent firms are unwilling to let go of their skilled personnel even during a downturn, trying to avoid hiring and training costs and the loss of firm-specific knowledge. Furthermore, while the market sector may have moved in a lower gear, (semi)public sectors will take over some of the employment. Vast government spending means fiscal deficits. Inflation is keeping the debt burden limited, however. Although the budgetary process was messy lately, with the government not adhering to its own fiscal rules and seems to have more easily led to uncovered additional spending, the ability of the Dutch government to finance its debt is not a serious concern for now: the public debt-to-GDP ratio is still low by international standards. Inflation is past the peak, but remains high HICP headline inflation reached its peak in September 2022, but at a forecast of 4.5%, it's set to remain quite high in 2023. As gas prices have come down in wholesale markets and the energy price ceiling was introduced in early 2023, energy will contribute less (and in some months negatively) to inflation. Selling price expectations of non-financial businesses remain very high though. This suggests that core inflation might peak somewhere later in 2023. Earlier peaks in purchasing prices of inputs like raw materials, transportation, and energy will still be passed onto consumers, while higher labour costs will also continue to drive inflation up. The reversal of the following temporary policies will also contribute to rising prices for consumers in 2023: The energy tax (on gas and electricity) was temporarily lowered for 2022. This will be normalised in 2023. The VAT rate on energy was temporarily lowered from 21% to 9% for July-December 2022. This will be normalised in 2023. The excise duty on fuel (gasoline and diesel) was lowered temporarily to 21% for April-December 2022. This will be normalised in 2023. College tuition fees halved during the Covid-19 pandemic period and normalised in September 2022. This will drive 2023 inflation upward (+0.25% points).  Covid-inspired regulation kept a lid on the increase of rents in both the social housing sector and the liberalised sector, at least until policy changes as of 1 July 2022 and 1 January 2023. Normalisation and reforms of the policies might on average be more inflationary for 2023, although there are also some lower-income households for which the reform is beneficial (as more will be income tested).  The excise tax on a pack of cigarettes will be increased in two substantial steps, to €10. The first step in April 2023 is estimated to have a nonnegligible effect on the HICP inflation rate of +0.6% points in 2023. Inflation past peak but still high Change in harmonised index of consumer prices for the Netherlands year-on-year in % and contributions in %-points Macrobond, forecasts as of 2023 by ING Research   The expiration of the energy price cap at the start of 2024 will result in higher inflation that year. Combined with some remaining pressure in core inflation, headline inflation might still be close to 4% in 2024. The Dutch economy in a nutshell (%YoY) Macrobond, all forecasts ING Research estimates TagsNetherlands Inflation GDP Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

We expect Spain's economy to grow by 0.9% this year, considerably less than in 2022, but better than most other eurozone countries. Headline inflation will fall further thanks to favourable energy effects but underlying inflationary pressures will remain high for some time In this article The strong reopening effect completely faded away in the second half of 2022 Spain likely to outperform other eurozone countries in 2023 Underlying inflationary pressures remain high Modest growth rate in 2023   Thanks to a relatively more service-oriented economy and a positive contribution from tourism, Spain is likely to outperform the eurozone average The strong reopening effect completely faded away in the second half of 2022 The Spanish economy cooled sharply in the second half of last year. Although the big drop in energy prices and cooling inflation have led to cautious optimism among companies and households, we expect the recovery to be very slow this year. Financial conditions will tighten further in 2023. The European Central Bank announced at the last policy meeting in December that interest rates still need to go significantly higher, and further 50bp rate hikes will follow. The ECB's deposit rate now sits at 2%, the level considered the neutral level where the economy is neither stimulated nor restricted. Thus, additional interest rate hikes will certainly dampen economic activity in 2023. Consumption will also remain under pressure as inflationary pressures will further erode purchasing power in 2023. Households are also very cautious about tapping into the savings accumulated during the Covid-19 pandemic to maintain consumption. The current energy crisis is just prompting more precautionary savings and, moreover, the value of these savings has already been eroded by the sharp price increases. In addition, rising mortgage rates will take an extra bite out of the budget of Spanish borrowers with variable interest rates, which are the majority in Spain. On the other hand, the tight labour market will support consumption. Spain likely to outperform other eurozone countries in 2023 We expect the Spanish economy to do slightly better than the eurozone average. Spain is less dependent on gas and the economy is relatively more reliant on the service sector. A further recovery in the tourism sector will also contribute positively to growth rates. In the first 11 months of 2022, the number of international visitors was still 15% lower than in the same period in 2019. We expect the number of international visitors to continue to rise gradually and exceed pre-crisis levels by summer. Finally, the roll-out of Next Generation EU (NGEU) funds will make a positive contribution to growth rates in 2023. In addition, the housing market is also much healthier than during the financial crisis. The high number of households with variable interest rates is a risk, but for now, there are no worrying signs that the number of households unable to repay their loans is rising sharply, helped by some government measures introduced last year. A scenario similar to what was seen during the financial crisis will not be repeated. The sharp rise in interest rates and the energy crisis will likely put an end to the sharp price increases of recent years, but we expect this to be very gradual. For this year, we expect house prices to grow by about 1%. Underlying inflationary pressures remain high Spanish inflation has cooled solidly since its peak. Harmonised inflation fell to 5.5% in December from 6.7% the month before, significantly below the eurozone average of 9.2%. The fall in Spanish inflation has started much earlier and more firmly than in other eurozone countries, thanks to a host of government measures and a greater cooling of energy inflation. Electricity inflation already turned negative in October and gas inflation is also falling sharply. In late December, Spain's Sanchez government announced a new €10bn package to address the cost-of-living crisis. The new package includes a VAT cut on essential food items and a six-month rent freeze, which will further reduce inflation in the coming months. Although lower energy prices and government measures have brought some temporary relief to headline inflation, the inflationary pressures in the rest of the economy are still very high. Core inflation, excluding the more volatile food and energy prices, reached a record high of 7% in December, a strong acceleration from 6.3% in November. As a result, core inflation is now above headline inflation for the first time since the start of 2021. For 2023, we project average inflation at 3.7%. Although the headline inflation will fall further thanks to these favourable base effects for energy, it will take somewhat longer for the pace of the food price increases to moderate and for underlying inflation to resume a downward trajectory. Food inflation reached a new record high of 15.7% year-on-year in December and the feed-through of higher labour and energy costs to final food prices is likely to continue in 2023. Moreover, fertiliser exports were severely disrupted last year, which might also affect global food production in 2023 and push food prices up. Moreover, fertiliser exports were severely disrupted last year by the war in Ukraine, which could also affect global food production in 2023 and cause higher food prices. Moreover, the Iberian gas price cap also expires at the end of May, meaning gas-fired power plants will have to pay more for their gas again. This will also put upward pressure on the inflation rate. Spanish core inflation above headline inflation for the first time INE Modest growth rate in 2023 Spain experienced a very strong reopening effect after the pandemic, but this effect faded away in the second half of 2022. Tightened financial conditions and an ongoing cost of living crisis will weigh on the growth outlook in 2023. Thanks to a relatively more service-oriented economy and a positive contribution from tourism, Spain is likely to outperform the eurozone average. For 2023, we expect growth of 0.9%. The Spanish economy in a nutshell (% YOY) TagsUnemployment rate Spain Inflation GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more    

Outlook for the global economy is gloomy. The economic outlook for 2023 will feel different depending on where you are in the world. The world's largest economy is also struggling, and some believe it may be facing a mild recession. There is evidence that the economy is improving, and the US may nevertheless avoid a major downturn. GDP forecast Since the beginning of the first half of last year with two consecutive quarters of negative GDP growth, the US economy has recorded a return to positive GDP growth in Q3 at the level of 3.2%. As we look at the first iteration of Q4 GDP this week, it seems quite likely that we will see a slowdown after the strong performance in Q3. A slight decline to 2.6% is expected, although given the signs of a slowdown in consumer spending in recent months, one would think that there could be a significant risk of lowering this estimate. Source: investing.com Steven Blitz opinion According to TS Lombard's chief US economist, Steven Blitz, a recent US Federal Reserve survey of real economy companies found that the majority of respondents said they expect little or no growth in their order books and that they are already seeing the pace of growth prices in the real economy slow. He said economic activity was returning to normal levels that had previously been spurred by stimulus during the pandemic. In his opinion, at the same time as the impact of the stimulus wears off, the central bank raised interest rates, which should lower the level of aggregate demand in the economy. Positive signs for the US economy Positive signs include the declining Consumer Price Index (CPI), which fell for six consecutive months through December, signaling easing inflation. Then there is the job market, which remains strong. Negative signals for the economy Retail sales fell by 1.1% in December after a downward-adjusted fall of 1% in November. The drop was larger than expected and it was the biggest drop in 12 months. Autumn is really unsettling because we are talking about the pre-Christmas shopping season. However, sales have been reduced in part due to falling prices. Industrial production also surprised negatively, falling by 0.7% in December. November saw a decline of 0.6% and was larger than expected. The decline was mainly due to industrial production, which fell by 1.3% in December and fell by 2.5% yoy in the fourth quarter. Higher interest rates and reduced purchasing power due to inflation hurt the demand for commodities. Will the Fed slow down with rate hikes? Disinflationary pressures and widespread signs of weakening demand may prompt the Fed to further decelerate the pace of interest rate hikes. That's what Philadelphia Fed chairman Patrick Harker suggested this week, saying he's "ready for the U.S. central bank to move to a slower pace of rate hikes amid some signs that hot inflation is fading away." Dallas Fed Chairman Lorie Logan expressed a similar view. Source: investing.com

There are two main drivers of Austria's economic activity: industry and tourism. While the current mild temperatures are benefiting industry, they are damaging ski tourism In this article Austria's economy is struggling Inflation high; consumer confidence low   Skiers in the Austrian state of Salzburgerland this month. Due to higher temperatures, there is less snow this year and the quality of the snow is worse Austria's economy is struggling In the third quarter of 2022, the Austrian economy recorded meagre growth of 0.2% quarter-on-quarter. The industrial sector in particular supported growth, while the hospitality and other services sectors had a negative impact on growth. Flash estimates for economic growth in the fourth quarter of 2022 will only be released at the end of January, but we do not expect that the Austrian economy managed to grow again – high inflation, uncertainty, and a strong dependence on exports in an environment where the global economy is slowing argue against this. Like almost every European country, Austria is feeling the economic impact of the war in Ukraine. High energy costs, high food prices and high uncertainty among companies and households are weighing on consumer and business sentiment in Austria, although leading indicators improved from low levels recently. However, the PMI for manufacturing stood at 47.3 most recently, which not only indicates a contraction of the sector but is also lower than the eurozone number. Weak business sentiment doesn’t come as a surprise, given the high dependence on Russian gas. Austria imports around 90% of its gas consumption. Prior to the war, 80% of gas imports came from Russia. In November 2022, however, the share of gas imported from Russia had dropped to roughly 40%. Inflation high; consumer confidence low Highly filled gas reserves and mild temperatures have avoided a gas supply crisis and seem to have boosted economic sentiment. Most recently, the gas storage facilities were filled at 88% capacity  a year ago, the level was about 40%. Even if the current winter seems to proceed without economic accidents, a requirement for more energy independence is a further acceleration of the green transition. The Austrian government is providing some €3bn and an additional €2.7bn will be made available for environmental funding, to promote Austria as a research and business location and for support with additional energy efficiency measures. In total, these measures correspond to 1.4% of 2021’s GDP. Consumer confidence, as measured by the European Commission’s consumer survey, was also lower in Austria than in many other eurozone countries in all three months of the fourth quarter of 2022. Inflation averaged 8.6% in Austria in 2022, and for the next 12 months, Austrians expect prices to continue to rise. We also assume that inflation will remain high in 2023, even if double-digit inflation rates should no longer appear in the statistics. Persistently high inflation is also affecting Austrian households’ propensity to save, which has increased recently, according to the OeNB's consumer survey. But it's not just Austrians who are saving more and spending less – the cost of living has also risen in neighbouring countries. As a result, many people are skipping ski vacations. According to a YouGov survey from October 2022, only 25% of Germans want to spend their skiing vacation as planned – the rest are shortening their travel time, cancelling their vacation altogether, or avoiding local gastronomy services. And what makes matters worse is that due to the mild weather and associated lack of snow, only around half of the slopes in Austria are open. After suffering from the pandemic in recent years, ski tourism is being hit by two factors this season: lower private consumption at home and abroad and the warm weather. On a more positive note, despite the difficult economic environment, we expect the Austrian labour market to remain relatively stable in 2023. Although unemployment rose to 5.6% in December 2022, we do not expect widespread waves of layoffs. This is mainly due to labour shortages, which are particularly prevalent in Austrian handcraft and hospitality companies and affect a total of 73% of Austrian businesses. Furthermore, companies and households are being supported by various government support measures. The latest example of such measures is the electricity price brake, which came into effect in December 2022. Due to those support measures, however, Austrian government debt increased recently. In the third quarter of 2022, government debt rose to €355.6bn from €333.1bn in the previous quarter. However, the debt ratio fell to 81.3%, driven by economic growth. In 2023, we expect the debt ratio to fall further, but government support coupled with only low growth from the second quarter of 2023 onwards comes at the price of a slower-than-expected decline in the debt ratio. In contrast to other eurozone countries, the warm temperatures of recent weeks do not only bring relief for Austria. They are a double-edged sword, also threatening the overly important tourism sector. In any case, 2023 will be another economically challenging year in which we expect the Austrian economy to contract slightly. The Austrian economy in a nutshell (%YoY) TagsEurozone Austria 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

Ireland's economy boomed in 2022 and the same is expected this year. The country has been relatively unscathed by the energy crisis, but high inflation will weigh on household consumption In this article Structural outperformance But 2023 will see moderation Healthy government finances continue   Leo Varadkar, Ireland's Taoiseach Structural outperformance The Irish economy continued to outperform the rest of the eurozone in 2022 and is likely to do the same in 2023. We’re currently expecting the Irish economy to have grown by just under 12% in 2022. It is well known that this is in part due to multinational accounting activity, which inflates the Irish GDP growth figure. This is causing volatility in the data, which has become worse in recent times. But this is not the only reason for Ireland’s strong performance. Modified domestic demand, the preferred measure for economic activity from the Irish statistical office, is expected to have grown in the double-digits last year as a sign of an economy that is booming beyond accounting statistics. The Irish economy is set up incredibly well to handle the aftermath of the Covid-19 pandemic and energy shock. Its main growth engines ahead of the crises were already the pharmaceutical and ICT sectors, which both profited from the pandemic and have been relatively unscathed by the energy crisis. Having comparatively few energy-intensive industries, Ireland has been able to maintain a dizzying growth pace. This has shown in the domestic labour market as unemployment has bottomed out at just above 4% at the moment and more people than ever are in work. But 2023 will see moderation For 2023, some correction can be expected as high inflation will continue to weigh on household consumption with reopening effects fading and real wages likely to remain negative for some time. Besides that, higher interest rates are set to cool off business investment, which has also been growing at a stellar pace. These factors should lead to a normalisation of economic activity after the abnormally strong 2022. Still, we expect the GDP growth rate to drop only to 3.8%, which is still far higher than the eurozone average. The housing market remains a key concern in the Irish economy. Housing supply continues to be a problem and even though interest rates rose dramatically over 2022, house prices have yet to show a peak while other European countries are cautiously experiencing a turning point for prices. With interest rates rising, housing affordability is reducing, adding to the problem. Still, some cooling in prices is not unimaginable as the ECB raises interest rates further in 2023. Healthy government finances continue From a government debt perspective, Ireland will go through an unexciting year. The government reshuffle has brought Leo Varadkar back into the position of Taoiseach but won’t see a landslide change in government spending as a result. Last year saw a huge increase in tax income, which – together with inflation – will boost government debt levels further into safe territory. For 2023 and 2024, Ireland is expected to run a budget surplus which further solidifies its already very stable fiscal position. Ireland in a nutshell TagsIreland Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Finnish economy is set to undergo a milder economic winter than previously expected, but structural challenges will work against a swift recovery in 2023 In this article No vigorous bounce back in the making Exporters continue to face a challenging environment A robust labour market and government support dampen inflation impact Sanna Marin has been prime minister of Finland since 2019 No vigorous bounce back in the making The Finnish economy shrank in the third quarter of 2022 and is expected to currently be in recession. This is mainly because of the energy crisis and subsequent purchasing power squeeze. Thanks to the warmer winter weather Europe is experiencing, the impact of the energy crisis is smaller than initially expected, which means that a recession in Finland is likely to be rather mild. That means the big question for 2023 is how fast Finland can recover. The Finnish economy is set to remain under strain over the course of 2023. A fast recovery seems unlikely as the current drivers of economic weakness are set to persist over the coming quarters. While inflation is expected to moderate during 2023, real wage growth is set to remain negative for quite some time to come as energy prices are expected to remain elevated. That will put pressure on consumption growth as purchasing power will remain squeezed. Exporters continue to face a challenging environment Exports are also set to remain under pressure in Finland as the main export markets are likely to experience mixed economic activity this year. Concerns about Germany and China remain significant, where weak recovery in Germany is likely to dampen external demand for Finnish products, while China remains a big uncertainty in terms of how it will recover from the current wave of Covid-19. Russia – traditionally one of the largest trade partners of Finland – is unlikely to return to that position given the sanctions in place. In the meantime, it is not just the energy crisis and Russia that provide persistent headwinds for 2023. The housing market is also cooling off on the back of the aggressive ECB rate hikes as mortgage rates rise quickly. Home sales have been on the decline since the beginning of 2022 as rates started to increase. Prices have also started to correct with December showing a 3.4% year-on-year drop. On the back of this, building activity has started to moderate. As rates are not expected to show a correction again, we expect the housing market to continue to have a dampening effect on economic activity over the course of 2023. A robust labour market and government support dampen inflation impact So no miracles are to be expected for 2023; a mild recession followed by a sluggish recovery. Still, there are positives to mention despite this environment. Like much of Europe, Finland has a very strong and resilient labour market at the moment, which is not expected to show a large surge in unemployment despite economic challenges. That means that labour shortages are likely to remain elevated in 2023 and beyond, which will keep wage pressures more significant than before the pandemic. While this is a concern from a competitiveness perspective, it also dampens the negative income impact of this winter’s downturn. From a government finance perspective, Finland has challenges ahead. Debt-to-GDP has fallen to 71.6% after peaking at 75.6% in early 2021 after government support during the pandemic caused spending to soar. The high inflation rate has been beneficial for government finances, but forecasts for 2023 and 2024 see government debt increasing again. Compensation measures for the energy crisis and increased defence spending are set to contribute to higher debt levels for Finland this year. Finland in a nutshell TagsFinland Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The end of re-opening effects will bring about softer demand as normalising fiscal policy takes away extra support. Upcoming elections will also add a pinch of political uncertainty to the mix In this article Greece's economic profile End of re-opening effect to be followed by more domestic demand uncertainty Normalising fiscal policy to help further declines in debt/GDP Elections also carry some uncertainty   Greece's prime minister Kyriakos Mitsotakis Greece's economic profile The Greek growth profile has recently reflected developments on the inflation front. The acceleration of inflation over the summer (culminating in September's 12.1% peak) took its toll on consumption, which saw a 0.1% quarter-on-quarter contraction in the third quarter of 2022 despite generous energy subsidies. Together with a net export drag, this caused a 0.5% contraction in GDP for the third quarter of 2022. We suspect a similar pattern will follow in the fourth quarter despite confirmed fiscal support and decelerating inflation. End of re-opening effect to be followed by more domestic demand uncertainty The outlook for 2023 remains uncertain. With GDP well above pre-Covid levels, re-opening effects should now be over. Tourism receipts also returned back to their historical peak in the summer of last year, making it unlikely that we'll see further substantial gains in 2023. The recovery seen in employment was a powerful driver of consumption over 1H22 but now appears to be losing steam. Changes to real disposable income will increasingly depend on inflation developments, with inevitable side effects on consumption. Investments should, in principle, remain relatively supported thanks to the inflow of European Recovery Funds but will not be immune to persistent uncertainty surrounding the cost of projects. Employment recovery is losing steam Refinitiv Datastream Normalising fiscal policy to help further declines in debt/GDP Fiscal policy, while possibly accommodating some extra temporary support in the case of continued energy price disruptions, will take a more disciplined turn. The Greek budget for 2023 targets a return to a primary surplus, which is consistent with the fiscal overperformance of 2022 and a more optimistic GDP projection. We're currently less upbeat on growth, and although the primary surplus could be slightly missed, we see a substantial fall in the debt/GDP ratio towards the 170% level materialising nonetheless. With an average debt maturity of more than 18 years, the ongoing sharp rise in interest rates can still be accommodated in the short run without raising debt sustainability concerns. The inflation tax effect, albeit less powerful than in 2022, will still be at work. Elections also carry some uncertainty 2023 will be an election year for Greece. Legislative elections are due to be held in July, but we can't exclude the possibility of prime minister Kyriakos Mitsotakis calling Greeks to the polls a few months early. The upcoming election will be held under a purely proportional system, a shift from the previous structure, which integrated the proportional element with a majority premium and has allowed New Democracy (ND) to rule the country in isolation since 2019. The new system will make it much more complicated for any participant to obtain a parliamentary majority. According to the latest available opinion polls, ND leads with 37% of the votes, followed by Syriza (28%) and Pasok (11.5%). With these numbers, ND would be far from reaching a majority under the new system if it does not align itself with others (Pasok). Setting up a reliable coalition may turn out to be a difficult task. Add to this a campaign which might touch upon delicate issues (such as Qatargate) along with wiretapping accusations, and you get a decent mix of potential sources for political uncertainty over the second quarter. The Greek economy in a nutshell (%YoY) Thomson Reuters, all forecasts ING estimates TagsGreece Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Belgian economy coped well with the inflation shock in 2022. Even if 2023 looks more difficult, a strong labour market should limit the damage. But in the medium term, the economy will not be able to ignore the challenges of competitiveness and public finances In this article Resilience Household income holds up Slight recession Slow recovery… ... and inflation down, but still high Competitiveness and public finances, problems for tomorrow   Shutterstock Belgium's Prime Minister Alexander De Croo attends a panel at the World Economic Forum in Davos, Switzerland, Jan 2023 Resilience Torn between the post-Covid reopening of the economy and the negative effects of the war in Ukraine, the Belgian economy showed, like other eurozone economies, strong resilience to headwinds. For the year 2022 as a whole, GDP is expected to have grown by 3%, which puts last year's volume of activity around 3.5% above that of 2019, before the succession of negative shocks. It should be noted, however, that on the supply side of the economy, not all sectors have developed so positively: even though the figures for the fourth quarter are not yet available, it is highly likely that activity will have contracted (by around 0.3%) in the manufacturing sector in 2022. Growth is therefore essentially linked to services, and in particular to (retail) trade, which has benefited from the complete end of Covid restrictions. Household income holds up It may seem surprising that in the context of the war in Ukraine and the sharp rise in commodity and energy prices, the economy, and household consumption in particular, has shown such resilience. This is most likely linked to two factors: on the one hand, the labour market has put in one of its best performances in recent decades. Indeed, according to the latest available figures, some 100,000 jobs were created in 2022, which is exceptional for the Belgian economy. Even if these are not always fixed-term and full-time contracts, the volume of hours worked has increased (+2.7% year-on-year in the third quarter 2022). This has therefore contributed to an increase in household disposable income. On the other hand, the automatic indexation of income (wages, pensions, social benefits, etc.), itself linked to the evolution of prices, has pushed income upwards, which has enabled households to cope with the energy price shock, especially as many additional measures have been taken to mitigate its effects. These two elements combined have allowed household disposable income to rise by more than 7% in 2022, or by almost €25 billion. Consequently, despite the sharp rise in prices, households have not had to reduce their savings rate (this stood at 13.6% in the third quarter of 2022, whereas it did not exceed 12.0% on average over the three years prior to the start of the Covid), while increasing the total volume of consumption. Recent growth in compensation of employees (YoY) This has been driven by an increase in hours worked, but more by the nominal increase in hourly wages in 2022 Statbel, NBB, computation: ING Slight recession However, it is undeniable that the pace of growth slowed during the year. As mentioned above, activity even contracted in the manufacturing sector. Household and business confidence have recovered somewhat in recent months, but household confidence remains very low. On the labour market, there has also been some deterioration: although temporary unemployment (which can be used by companies that are suffering too much from the rise in energy prices) has returned to its normal level, there has been a deterioration in activity in the temporary employment sector (it has fallen by more than 11% YoY in November 2022). The number of job seekers is also up by 5% over the same period. As elsewhere, the slowdown in activity should be less pronounced than we anticipated a few months ago, thanks of course to the fall in energy prices. This is all the more true as the measures taken to combat the rise in energy bills for households will be maintained in the coming months. The manufacturing sector should also benefit from the fall in energy prices and make a positive contribution to growth. Slow recovery… Barring a sharp rise in energy prices similar to that seen in the summer of 2022, a slow recovery of the Belgian economy is likely to take shape in the course of the year. However, this will initially be hampered by more restrictive financing conditions for the economy, due to the rapid and significant increases in European Central Bank interest rates. This could weigh on construction activity in particular. Indeed, there is already a clear cooling of the housing market, with mortgage lending down by almost 25%. In addition, job creation is likely to slow down significantly this year, which will limit the growth of real household income, and therefore consumption. ... and inflation down, but still high In 2022, inflation reached almost 10%. This is quite exceptional. Of course, the direct impact of rising energy prices is largely responsible for this figure. But we should not forget that in December last year, more than 70% of the prices of goods and services included in the consumer price index had risen by at least 5% over the previous 12 months. The indirect effects of rising energy, commodity and labour costs have thus played an important role in the inflation dynamics. Thanks to the recent fall in energy prices, inflation has started to decline. It should continue to fall in the coming months, although this will probably be hampered by the desire of many companies to try to pass on the recent increases in labour costs to their sales prices. Indeed, around 500,000 workers will see their wages indexed by over 11% from this month. This is good for household income but represents a significant cost for the companies concerned. Competitiveness and public finances, problems for tomorrow In the end, therefore, despite the multiple shocks impacting the Belgian economy, it should get through the turbulent period without too much damage. This is at least the case at first sight. However, the shocks and the measures taken to deal with them will leave their mark. In other words, the legacy of multiple crises over recent years will continue to be felt.    On the one hand, it is known that the automatic indexation of wages is largely responsible for the increase in households' disposable income, and thus their ability to cope with the increase in energy bills. But it is also an equivalent cost for companies. Therefore, if wage growth (and therefore labour costs) does not reach an equivalent level in Belgium's trading partners, Belgium will lose competitiveness. As the inflation wave is huge, the wage cost differentials could be substantial. This may ultimately affect the economic recovery, in terms of jobs or income, if no measures were to be taken to correct the excessive wage handicap. On the other hand, it should be noted that the state has borne the brunt of past shocks. For example, between March 2020 and the end of 2022, more than €6 billion of additional temporary unemployment benefits were paid to counter the loss of activity linked to the shocks (mainly the Covid crisis). To this must be added aid to businesses, aid to households for energy bills (tax cuts, lump sum cheques, etc.), as well as indexation of civil servants' salaries and social benefits. In the end, the budget deficit has struggled to fall since 2020, and should still approach 5% of GDP in 2022 and 2023. It should also be added that the level of interest rates on the markets is now higher than the average financing rate of the existing debt, and the replacement of maturing debt will tend to increase the latter. No major corrective measures are currently being put in place, while the prospect of federal and regional elections in 2024 will make it increasingly difficult for the parties in the broad governing coalition to reach agreement. For the same reasons, the much-needed structural measures to reform the labour market and the pension system are also in jeopardy. The health of public finances is likely to be a drag on the economy sooner or later. Corrective measures will inevitably include tax increases or spending cuts. The question is when the pressure will be felt to take these corrective measures. This may come from the new European fiscal rules under discussion, or from a loss of creditor confidence in the financial markets. The former may still take some time to be decided, while the latter is unpredictable.  The Belgian economy in a nutshell (% YoY) Thomson Reuters, all forecasts ING estimates TagsInflation GDP growth Belgium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The AUD/USD pair has come under heavy pressure this week, following the release of the Australian labor market report. The release unexpectedly came out in the red zone, and the aussie made a new weekly low, sliding to 0.6876. However, we can say by the end of the week the bears couldn't take their successes, on Friday, the aussie regained some of the lost ground and got back to the 69th figure area. I note that the main "test" for the Aussie is yet to come – key data on inflation growth in Australia in the 4th quarter of 2022 will be published next week. If this report disappoints the AUD/USD bulls, then the implementation of bullish ambitions will have to wait: further growth of the pair will be possible only due to the weakening of the greenback. But today, all is not lost for bulls, although the "Australian Nonfarm" has significantly spoiled the fundamental background for aud/usd. Aussie lost an rally It should be noted that the Australian labor market has been a staunch ally of the aussie over the past few months. The unemployment rate gradually decreased during the first half of last year, and since June it has fluctuated in the range of 3.4% -3.5% (for comparison, we can say that the peak was recorded in October 2021 at around 5.2%). The growth rate of the number of employed has recently shown a positive trend (October and November should be especially noted in this context). Given the trends of recent months, no "trick" was expected from the December report: experts predicted a decrease in unemployment and an increase in the number of employed. However, the published release was, to put it mildly, controversial, and it is not at all surprising that the market interpreted it against the aussie. Traders focused their attention on the fact that unemployment remained at 3.5%, while according to forecasts, it should have fallen to 3.4%. The proportion of the economically active population unexpectedly dropped to 66.6% (although an upward trend was observed over the past three months). But most of all, the indicator of the increase in the number of employees was disappointing: the indicator came out at -14,600, despite the fact that experts expected to see a 27,000 increase. However, one point needs to be clarified here. The structure of this component indicates that in December the level of part-time employment significantly decreased (-32.200). While the number of full-time employees increased by 17,600, it is known that full-time positions offer a higher level of wages and a higher level of social security, compared to temporary part-time jobs. And yet, the "overall result" was against the aussie (especially since the 17,000th increase in full employment did not impress investors). Australian Nonfarm put a lot of pressure on AUD/USD. Bulls were forced to retreat from the key resistance level of 0.7000. All is not lost yet As a result of the trading week, bulls still managed to return to the area of the 69th figure. Therefore, the 0.7000 price barrier is still on the horizon. The inflation report, which will be published in Australia next week, can play a decisive role here. According to preliminary forecasts, the consumer price index in the 4th quarter will come out at around 1.8% in quarterly terms (in the 3rd and 2nd quarters, an increase of 1.8% was recorded). While in annual terms, an increasing trend can be recorded - experts predict growth to a record 7.5%. If both components of the release come out in the green zone, the Australian dollar paired with the US currency will again try to gain a foothold in the area of the 70th figure. Let me remind you that the Reserve Bank of Australia slowed down the pace of rate hikes to 25 points last fall - earlier than many central banks of the world's leading countries. Therefore, this issue was removed from the agenda a few months ago. However, in December, there were rumors on the market that the RBA might even pause in tightening monetary policy. And although representatives of the Australian central bank have repeatedly denied such intentions, the relevant rumors do not subside. And if inflation indicators in Australia show a downward trend next week, talk of a "dovish character" will again be on the agenda, especially against the backdrop of weak "Australian Nonfarm". Findings Despite the disappointing data in the labor market, it is still too early to write off the Australian dollar. A strong inflation report may well bring the aussie back to life, especially against the backdrop of a weakening greenback. If Australian inflation disappoints, then the bullish outlook for AUD/USD will depend solely on the US dollar. Given the high degree of uncertainty, before the release of the above-mentioned inflation report (Wednesday, January 25) for the pair, it is advisable to take a wait-and-see attitude.   Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/332913

High volatility continues to rock the markets. Last week was also influenced by it, especially after new data from the US published an important report. Last Wednesday's report showed a slowdown in inflation in the country, this time in the production of various goods: the PPI fell in December (to -0.5% against the forecast of -0.1% and the previous value of +0.2%, and to 6.2% on an annualized basis against the forecast of 6.8% and the previous value of 7.3%). A week earlier, consumer inflation data had also shown another slowdown, with the annual CPI falling back to 6.5% in December from 7.1% a month earlier and the core CPI dropping to 5.7% from 6% in November. At the same time, data on some of the most important sectors of the U.S. economy show a slowdown, which is a consequence, among other things, of the Federal Reserve's tight policy. In particular, according to the data from last week, the volume of industrial production declined again (to -0.7% in December from -0.6% in November), moreover, the forecasted decline by -0.1%, and capacity utilization rate - to 78.8% from 79.4% a month earlier. Despite the fairly good labor market conditions, the aforementioned and other data put pressure on Fed policymakers to reconsider their tough approach to monetary policy parameters in the direction of easing. Raising rates as macroeconomic indicators deteriorate is an unacceptable mistake, economists say, especially since the Fed's tight monetary policy has already borne fruit - inflation is falling, though still far from the 2% target. Next week will provide new food for thought for market participants regarding the Fed's monetary policy outlook. Particular attention will be paid to Thursday's release of preliminary U.S. GDP data for Q4 2022. Growth is expected to be 2.8% (after a 3.2% increase in Q3 and a decline in the first half of the year). This data will push back the threat of a technical recession (2 consecutive quarters of GDP decline). Market participants will pay attention to the release of important macro data on both the U.S. and other major economies of the world, such as Canada, Australia, Germany, the eurozone economy, British, as well as the results of the Bank of Canada meeting (Wednesday) on the monetary policy. Monday, January 23 Australia. Manufacturing Purchasing Managers Index (PMI) (from Commonwealth Bank of Australia and S&P Global). Services PMI (from Commonwealth Bank of Australia and Markit Economics) (preliminary releases) These reports are an analysis of a survey of 400 purchasing managers in which respondents are asked to assess relative levels of business conditions, including employment, production, new orders, prices, supplier deliveries, and inventories. Since purchasing managers have perhaps the most up-to-date information on company conditions, this indicator is an important indicator of the state of the Australian economy as a whole. These sectors form a significant part of Australian GDP. A result above 50 signals is seen as positive (or bullish) for the AUD, whereas a result below 50 is seen as negative (or bearish) for the AUD. Data worse than 50 is seen as negative for the AUD. Previous Values: Manufacturing PMI: 50.2, 51.3, 52.7, 53.5, 53.8, 55.7, 56.2, 55.7. Services PMI: 47,3, 47,6, 49,3, 50,6, 50,2, 50,9, 52,6, 53,2. The level of influence on the markets is medium. Tuesday, January 24 Germany. Manufacturing PMI (PMI). Composite index (PMI) of business activity (preliminary releases). This S&P Global report is an analysis of a survey of 800 purchasing managers in which respondents are asked to assess the relative level of business conditions, including employment, production, new orders, prices, supplier deliveries, and inventories. Since purchasing managers have perhaps the most up-to-date information on company conditions, this indicator is an important indicator of the state of the German economy as a whole. This sector accounts for a large portion of Germany's GDP. Normally, a result above 50 signals is seen as positive, or bullish for the EUR, whereas a result below 50 is seen as negative, or bearish for the EUR. Data worse than the forecast and/or the previous value will have a negative impact on the EUR. Previous values: Manufacturing PMI: 47.1, 46.2, 45.1, 47.8, 49.1, 49.3, 52.0, 54.8, 54.6, 56.9, 58.4, 59.8, Composite PMI: 49.0, 46.3, 45.1, 45.7, 46.9, 48.1, 51.3, 53.7. January forecast: 47.5 and 48.9, respectively. The level of influence on the markets (pre-release) is high. Eurozone. Manufacturing PMI Composite (preliminary release) S&P Global Manufacturing PMI (manufacturing PMI) released by S&P Global is a significant indicator of business conditions in the eurozone. A result above 50 signals is seen as positive (or bullish) for the EUR, whereas a result below 50 is seen as negative (or bearish) for the EUR. Data worse than the forecast and/or previous value will have a negative impact on the EUR. Previous values: 49,3, 47,8, 47,3, 48,1, 48,9, 49,9, 52,0, 54,8, 55,8, 54,9. Forecast for January: 49.0. The level of impact on markets (pre-release) is high. UK. Manufacturing and Services sectors (PMI) (provisional release) The PMI Manufacturing and Services Business Activity released by S&P Global is a significant indicator of British economic conditions. If the data is worse than expected and the previous value, the pound is likely to decline short-term, but sharply. Data better than the forecast and the previous value will have a positive effect on the pound. In the meantime, a result above 50 is seen as positive and strengthens the GBP, below 50 is seen as negative for the GBP. Previous values: Manufacturing PMI: 45.3, 46.5, 46.2, 48.4, 47.3, 52.1, 52.8, 54.6, 55.8, 55.2, 58.0, 57.3. Services PMI: 49,9, 48,8, 48,8, 50,0, 50,9, 52,6, 54,3, 53,4. Forecast for January: 45.0 and 49.9, respectively. The level of influence on the markets (pre-release) is high. US. S&P Global Business Activity Indices (PMI): Manufacturing, Composite and Services Economy (Preliminary Release) The S&P Global Composite PMI and Services PMI are among other monthly reports released by S&P Global and are important indicators of the health of the US manufacturing and US economy as a whole. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish) for the USD. Readings above 50 signals an acceleration in activity, which is positive for the USD. If the indicator falls below the forecast, and especially if it is below 50, the USD may weaken sharply in the short term. Previous PMI values: 46.2, 47.7, 50.4, 52.0, 51.5, 52.2, 57.0, 59.2 in the manufacturing sector. Composite 45.0, 46.4, 48.2, 49.5, 44.6, 47.7, 52.3, 53.6, 56.0; In the services sector 44.7, 46.2, 47.8, 49.3, 43.7, 47.3, 52.7, 53.4, 55.6. The level of market impact of this S&P Global report (preliminary release) is high. However, it is still lower than the similar report from ISM (American Institute for Supply Management). The outlook for January is 46.1, 44.7 and 44.5, respectively. The level of influence on the markets (pre-release) is high. New Zealand. Consumer Price Index (CPI) (Q4) Consumer prices account for most of the overall inflation. Rising prices cause the central bank to raise interest rates to curb inflation, and conversely, when inflation declines or there are signs of deflation (this is when the purchasing power of money increases and prices of goods and services fall), the central bank usually seeks to devalue the national currency by lowering interest rates in order to increase aggregate demand. This indicator (Consumer Price Index, CPI) is key to assess inflation and changes in consumer preferences. A high reading is bullish for the NZD, while a low reading is bearish. Previous values: +2.2% (+7.2% annualized) in Q3, +1.7% (+7.3% annualized) in Q2, +1.8% (+6.9% annualized) in Q1 2022). Data better than forecast and previous values should reflect positively on NZD. Forecast for Q4: +2.4% (+7.1% YoY). The level of impact on the markets is high. Wednesday, January 25 Australia. CPI (Q4). Reserve Bank of Australia CPI, Core Inflation Trimmed mean (Q4) The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a certain period. CPI is a key indicator to assess inflation and changes in purchasing habits. Assessment of the inflation rate is important for the central bank management in determining the parameters of current monetary policy. A figure below the forecast/previous value can provoke weakening of the AUD, as low inflation will force the RBA governors to pursue a soft monetary policy course. Conversely, rising inflation and high inflation will pressure the RBA to tighten its monetary policy, which is seen as positive for the currency in normal economic conditions. Previous values of the index: +1.8% (+7.3% annualized) in Q3, +1.8% (+6.1% annualized) in Q2 2022, +2.1% (+5.1% annualized) in Q1 2022, +1.3% (+3, 5% annualized) in Q4, +0.8% (+3.0% annualized) in Q3, +0.8% (+3.8% annualized) in Q2, +0.6% (+1.1% annualized) in Q1 2021. Forecast for Q4 2022: +1.7% (+7.2% annualized). The level of impact on markets is high. The RBA Core Inflation - Trimmed mean - (for Q4) Released by the RBA and the Australian Bureau of Statistics. It captures the movement of retail prices of goods and services, which are included in the consumer basket. The simple truncated average method takes into account the weighted average core, the central 70% of the index components. Previous index values: +1.8% (+6.1% annualized) in Q3, +1.5% (+4.9% annualized) in Q2 2022, +1.4% (+3.7% annualized) in Q1 2022, +1.0% (+2, 6% annualized) in Q4, +0.7% (+2.1% annualized) in Q3, +0.5% (+1.6% annualized) in Q2, +0.3% (+1.1% annualized) in Q1 2021. Forecast for Q4 2022: +1.9% (+6.7% annualized). The level of impact on the markets is high. Canada. Bank of Canada interest rate decision. Accompanying statement of the Bank of Canada. The interest rate level is the most important factor in assessing the value of a currency. Investors look at most other economic indicators only to predict how rates will change in the future. The country's inflation rate has accelerated to a near 40-year high (in February 2022, Canadian consumer prices rose 5.7% year-over-year after rising 5.1% in January to a 30-year high, in May to 7.7%, and already 8.1% in June). This is the highest rate since early 1983! The Bank of Canada estimates that the neutral interest rate level, at which it neither stimulates nor slows economic activity, is 2.5%. The current interest rate level is 4.25%. The Bank of Canada is widely expected to raise interest rates again at this meeting, most likely by 0.25%. In an accompanying statement, Bank of Canada policymakers will explain the decision and possibly share plans for the monetary policy outlook. The tough tone of this statement will cause the Canadian dollar to strengthen. A more softer tone may provoke weakening of the CAD. The level of impact on the markets is high. Canada. Bank of Canada Press Conference The press conference consists of 2 parts - first the prepared statement is read out and then the conference is open to questions from the press. This is one of the main methods the Bank of Canada uses to communicate with market participants about monetary policy, also giving hints about future monetary policy. It elaborates on the factors that have influenced the bank's interest rate management decision. During the press conference, Bank of Canada Governor Tiff Macklem will explain the bank's position and give an assessment of the current economic situation in the country. If the tone of his speech is firm on the monetary policy of the Bank of Canada, the CAD will strengthen in the foreign exchange market. If Macklem argues in favor of monetary policy easing, the CAD is likely to decline. In any case, during his speech high volatility in the CAD is expected. The level of influence on the markets is high. Thursday, January 26 US. Annual GDP for Q4 (Preliminary Estimate). Core Personal Consumption Expenditures Index (PCE Price Index). Unemployment claims. Durable goods orders. Orders of capital goods (excluding defense and aircraft) The GDP is a key indicator of the US economy. Along with labor market and inflation data, GDP data are crucial for the US central bank in determining its monetary policy. A strong result strengthens the U.S. dollar; a weak GDP report negatively affects the dollar. There are 3 versions of GDP released at monthly intervals - Preliminary, Revised, and Final. Preliminary release is the earliest and it has the biggest impact on the market. The Final release has less impact, especially if it coincides with the forecast. Previous values for the index (annualized) are: +3.2%, -0.6%, -1.6%, +6.9%, +2.3%, +6.7%, +6.3% (Q1 2021). Forecast for Q4 2022 (preliminary estimate): +2.8%. The level of impact on markets (pre-release) is high. The Core Personal Consumption Expenditure Index (or Core PCE) is the primary measure of inflation which Fed FOMC officials use as the primary indicator of inflation. The level of inflation (in addition to labor market and GDP conditions) is important to the Fed when setting its monetary policy parameters. Rising prices put pressure on the central bank to tighten its policy and raise interest rates. Price index (PCE) values that are higher than forecasted could push the U.S. dollar up, as this would hint at a possible hawkish shift in the Fed's outlook, and vice versa. Previous values are +4.7% (Q3), +4.7% (Q2 2022), +5.2% (Q1 2022), 5.0% (Q4 2021), +4.6% (Q3), +6.1% (Q2), +2.7% (Q1 2021). Forecast for Q4 2022 (preliminary estimate): +5.3%. The level of impact on markets (preliminary release) is high. Also at the same time, the U.S. Labor Department will release its weekly report on the state of the U.S. labor market with data on the number of initial and continued jobless claims. The labor market condition (together with GDP and inflation data) is a key indicator for the Fed in determining its monetary policy parameters. A result above expectations and a rise in the indicator suggests weakness in the labor market, which negatively affects the U.S. dollar. A fall in the indicator and its low value is a sign of labor market recovery and can have a short-term positive impact on the USD. The initial and continued Unemployment Claims are expected to remain at pre-pandemic lows, which is also a positive sign for the USD, indicating a stabilization of the US labor market. Previous (weekly) values for initial jobless claims data: 190,000, 205,000, 206,000, 223,000, 216,000, 214,000, 231,000, 226,000, 241,000, 223,000, 226,000, 217,000, 214,000, 226,000, 216,000, 219,000, 190,000, 209,000, 208,000, 218,000, 228,000, 237,000, 245,000. Previous (weekly) values on unemployment reapplication data: 1647k, 1634k, 1694k, 1718k, 1669k, 1678k, 1670k, 1609k, 1551k, 1503k, 1494k, 1438k, 1383k, 1364k, 1365k, 1346k, 1376k, 1401k, 1401k, 1437k, 1412k. The level of influence on the markets - from medium to high. Orders for durable goods. Orders for capital goods (excluding defense and airvraft) Durable goods are defined as hard products with an expected life of more than 3 years, such as cars, computers, appliances, and airplanes, and imply large investments in their production. This leading indicator measures the change in the total value of new orders for durable goods placed with manufacturers. Growing orders for this category of goods signal that manufacturers will increase activity as orders are filled. Capital goods are durable goods used to produce durable goods and services. Goods produced in the defense and aviation sectors of the U.S. economy are not included in this indicator. A high reading strengthens the USD, while a low reading is negative for the USD. A low reading is also negative for the USD, while a high reading is positive for the USD. Previous Durable Goods Orders Indicator: -2.1% in November 2022, +0.7%, +0.3%, +0.2%, -0.1%, +2.2% in June, +0.8% in May, +0.4% in April, +0.6% in March, -1.7% in February, +1.6% in January. Previous values for the "capital goods orders excluding defense and aircraft" indicator: +0.2% in November 2022, +0.3% in October, -0.8% in September, +0.8% in August, +0.3% in July, +0.9% in June, +0.6% in May, +0.3% in April, +1.1% in March, -0.3% in February, +1.3% in January. Forecast for December: +2.5% and 0%, respectively. The level of impact on the markets is high. Friday, January 27 U.S. Personal Consumption Expenditures (PCE Core Price Index) The annual core price index PCE (excluding volatile food and energy prices) is the main inflation indicator used by Fed FOMC officials as the main indicator of inflation. The level of inflation (in addition to labor market and GDP conditions) is important to the Fed when setting its monetary policy parameters. Rising prices put pressure on the central bank to tighten its policy and raise interest rates. Core Price Index (PCE) values above the forecast could push the U.S. dollar up, as this would hint at a possible hawkish shift in the Fed's outlook, and vice versa. Previous values: +4.7% (annualized), +5.0%, +5.1%, +4.9%, +4.7%, +4.8%, +4.7%, +4.9%, +5.2%, +5.3%, +5.2% (in January 2022). Forecast for January: +0.2% (+4.6% annualized). The level of influence on the markets is medium to high. U.S. University of Michigan Consumer Confidence Index (final release) This index is a leading indicator of consumer spending, which accounts for most of the overall economic activity. It also reflects American consumers' confidence in the country's economic development. A high reading indicates economic growth while a low reading indicates stagnation. Generally speaking, a low reading is seen as negative (or bearish) for the USD in the short term. An increase in the indicator would strengthen the USD. The previous indicator values: 59.7, 56.8, 59.9, 58.6, 58.2, 51.5, 50.0, 58.4, 65.2, 59.4, 62.8, 67.2 in January 2022. Forecast for January: 64.6 (preliminary estimate 64.6 with a forecast of 61.6). The level of impact on markets (final release) is medium   Relevance up to 12:00 2023-01-25 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/332879

Data for December suggests that fourth-quarter and full-year GDP growth will be a bit weaker than expected. However, the economic outlook for 2023 has improved thanks to the drop in gas prices, supporting our above-consensus growth forecast of 1%   Poland's GDP outlook has improved thanks to falling gas prices Industrial output decelerates In December, production decelerated further. In year-on-year terms, the rate of growth slowed to 1% vs. 4.5% in November. This was close to expectations (ING 1.2%, consensus 1.7%). In monthly terms, output grew for a fourth consecutive month (seasonally-adjusted), up by 0.7%. Monthly declines were recorded between the second and third quarters, after the outbreak of the war in Ukraine. Industrial output continues to slow Industrial output (% YoY) Source: GUS   Export sectors are still strong thanks to improvements in global supply chains. At the same time, heavy industry (power generation, metallurgy, chemicals) looks weaker due to high energy prices (shutdowns in the chemical industry and some steel mills due to expensive gas). Gas prices have been falling since December which should help to unlock production in some sectors, potentially adding about 0.2pp to GDP in the first quarter. However, production will be negatively affected by the high base in energy production from the first half of last year when the Polish power industry exported a lot of electricity, competing with the expensive gas from Western producers. Still, the GDP outlook for 2023 has improved thanks to falling gas prices, which significantly raises the outlook for the European and German economies - Poland's main trading partners. The net effect of these developments is positive, supporting our 1% YoY GDP forecast for 2023, which is above consensus. Construction output in contraction Construction output fell 0.8% YoY in December, compared to a 4% YoY increase a month earlier and a consensus estimate of 2.7% YoY. In October and November, production was supported by unusually warm temperatures. But this effect was no longer present in December. As a result, work related to public investment, i.e. civil engineering (up 1.4% vs 6.9% YoY a month earlier) and specialised construction works (down 1.7% after an 8.6% YoY increase in November), declined significantly. Building construction also fell for a second consecutive month (down 0.8% vs -4.2% YoY in November). The construction outlook remains negative and in fact, is likely to be one of the weakest areas in the economy this year. Infrastructure investment is suffering from a lack of EU funds and rising prices, making it difficult to execute tenders. Even accessing the Recovery Fund this year will not change this picture in 2023, as tenders and design work will need to be completed before actual construction can begin. Residential construction, meanwhile, is suffering from a slump in demand. Higher interest rates and regulatory requirements have significantly weakened the demand for credit. This has been compounded by a general deterioration in household sentiment, which discourages households from making major purchases like durable goods and housing. Developers, on the other hand, still have a very large number of apartments under construction - only recently falling below record levels. In all likelihood, projects already underway are now being completed, while new ones are not being started. Retail sales increasingly weak In December, retail sales of goods rose by merely 0.2% YoY (consensus: 1.4%; ING: 1.5%), following a 1.6% YoY increase in November (all in real terms). The trends seen in previous months are continuing. Sales of durable goods remain weak. The decline in sales of furniture, consumer electronics and household appliances deepened to double-digit levels (-10.4% YoY), while increases in total sales were driven by rising consumption of primary goods (pharmaceuticals: +7.6% YoY; food: +1.9% YoY). The strong increase in the price of necessities (food, fuel) is limiting consumers' ability to purchase other products. This is especially so against a backdrop of shrinking real household income from work. Real wages in the enterprise sector fell by 5.3% YoY in December. Retail sales remain weak Real retail sales and wages (% YoY) Source: GUS   December's goods sales performance was weak. Growth in pharmaceutical sales was buoyed by the strong wave of seasonal flu. The slightly lower magnitude of the year-on-year decline in fuel sales might have been related to concerns about price increases as VAT on gasoline and diesel was due to rise from 8% in December to 23% in January. Annual growth rates in food and clothing sales slowed markedly. Retail sales data in recent months suggest a further weakening of goods consumption in the fourth quarter after an already soft third quarter. GDP estimate for 4Q22. Slightly improved outlook for 2023 Overall, the December data was marginally weaker than expected (wages, construction output, retail sales), while industrial production slowed in line with our nowcasting models, but was marginally weaker than the trend rate. Based on that, we estimate GDP growth in 4Q22 at 2.0% YoY and for the full year at just below 5%, slightly weaker than previously expected. On the other hand, the GDP outlook for 2023 has improved thanks to the falling gas prices. This has significantly improved the forecasts for the European and German economies - Poland's main trading partners. The net effect of these developments is positive, supporting our 1% YoY GDP forecast for 2023, which is above consensus. Read this article on THINK

The Japanese yen has edged lower on Monday. In the European session, USD/JPY is trading at 130.15, up 0.45%. The yen slipped 1.3% against the dollar last week, falling as low as 131.57 before recovering. Inflation heads higher Core CPI jumped 4.0% y/y in December, its highest level since 1981. This matched the forecast and followed a 3.7% gain in November. The usual suspects were at play, as food and energy prices rose sharply. Energy prices climbed 15.2%, while food prices were up 7.4%, the fastest pace since 1977. Core CPI has exceeded the BoJ’s 2 percent inflation target for nine straight months, as the central bank’s argument that inflation is transitory has become increasingly hard to defend.  The BoJ is projecting that inflation will peak at 3% in March, but it’s unclear why inflation will start to fall, barring a complete turnaround in energy and food prices. With wage growth lagging behind inflation, the cost of living is squeezing consumers, who are likely to cut back on consumption which will hamper economic growth. We’ll get another look at inflation on Tuesday, with the release of the central bank’s preferred inflation gauge, BoJ Core CPI. The index rose steadily in 2022, from just 0.8% in January to 2.9% in November. The consensus for December is unchanged but a reading of 3.0% or higher will put pressure on the BoJ to tighten policy, which would be bullish for the yen. The BoJ surprised the markets last week when it maintained policy settings at its monthly meeting. The non-move may have been primarily aimed as an ambush on speculators who bought yen in anticipation of the BOJ tightening policy. Still, the markets are expecting a shift in the BoJ’s ultra-loose policy, although it could occur after the new governor takes over in April. What is clear is that the BoJ will continue to command the attention of traders. The BoJ’s next meeting is on March 8th.   USD/JPY Technical There is resistance at 130.67 and 131.69 129.46 and 128.41 are providing support This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  

The jump in the composite PMI from 49.3 to 50.2 indicates that the economy is performing better than expected. Businesses are experiencing fewer cost pressures than before, but selling prices remain high. For the ECB, this should seal the deal for a 50 basis point hike next week The eurozone economy was boosted in December by the mild winter weather   Sometimes you just need a bit of luck. The eurozone economy has avoided dramatic scenarios for the winter thanks to an extremely mild December in which gas storages have been depleted much less than feared. Whether this is a recession or not is almost semantics at this point. The PMI jumped above the 50 level, which indicates growth in the business economy. While the difference between -0.1 and 0.1% growth is interesting for economists, the overall sense of stagnation will likely prevail for most. More important is that improvements in the PMI were broad-based as both the manufacturing and services PMIs ticked up. New orders are still falling, but at a slower pace than before and businesses have again seen hiring increase. The latter confirms our view that labour shortages are here to stay despite the sluggish economic performance. That brings upside risk to the wage growth outlook. For inflation, the survey continues to bring good news on supply-side pressures. Input costs are rising much less rapidly than before, but for now that mainly seems to benefit corporate profitability as selling price growth is expected to remain high, according to the survey. This means that while headline inflation is set to fade more substantially over the coming months, risks to core inflation staying high remain. For the ECB, this is once again a tricky report card. Falling inflationary pressures are good news, but stubbornly high selling prices and a strong labour market performance will cause alarm bells to ring in Frankfurt. For next week’s governing council meeting, this means that the ECB is likely to stay the course and hike by another 50 basis points. Read this article on THINK TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Today's PMI and business climate indices are the first sentiment data for French companies this year. They indicate that an economic slowdown is underway, but companies are saying it may only be short-lived. We are more cautious and believe that a near-stagnation of activity over the year as a whole is likely France's manufacturing sector is recovering but services remain a drag First glimpses of business sentiment in 2023 Since the beginning of the year, good weather and a drastic drop in global energy prices have led to widespread optimism and an upward revision of the growth outlook by consensus opinion. The question was, therefore, whether this renewed optimism was shared by the real economy and especially by companies. Today's publication of the PMI and business climate indices for January allows us to make an initial diagnosis. The manufacturing sector is recovering The composite PMI index fell slightly in January for the third consecutive month and stood at 49 compared to 49.1 in December. It is the services sector that is dragging the overall index down, given the context where the boom linked to the end of health restrictions is being brought to an end. The services PMI hit a 22-month low of 49.2 in January, down from 49.5 in December. At the same time, thanks in particular to the improvement in the global energy situation, the manufacturing sector is recovering and the index for the sector has risen above the 50 mark, reaching a 7-month high of 50.8. Overall, the PMI survey indicates a deterioration in the demand faced by French companies: new orders are falling and sales are decreasing. At the same time, companies are optimistic for the coming months. Their business and hiring prospects are improving. All in all, the PMI survey indicates that French companies are expecting an economic slowdown but that this is expected to be short-lived before we see an upturn. The surveys carried out by INSEE show a slightly more contrasted situation between the various sectors. The overall business climate remained stable at 102 in January for the fifth consecutive month, but the sectoral situation differs markedly. In wholesale trade, both the assessment of current and expected demand weakened. At the same time, industrial companies are revising upward their assessment of current demand and their outlook for the future is stable. Companies in the services sector are much more optimistic about current demand but are less positive about the overall outlook. Finally, the assessment of past and expected future sales is revised upwards by companies in the retail trade. All this data suggests the French economic outlook is uncertain but far from dramatic; it's not leaping into recession. Moreover, companies indicate that the employment outlook remains very positive in all sectors. Near stagnation of activity expected in 2023 We expect 2023 to be characterised by near-stagnation in the French economy in all quarters of the year. Given inflation, the evolution of real purchasing power will remain very weak, which will slow down the dynamism of private consumption. Given the uncertainties, the expected (albeit small) rise in the unemployment rate and the low level of household confidence, the household savings rate will remain high and above its historical average. Household investment in housing is likely to stall, weighed down by inflation, higher commodity prices and rising interest rates. In addition, industrial production should continue to see supply difficulties ease but would face much weaker global demand and would still be at risk of a further significant rise in global energy prices. We expect GDP growth to be 0.2% for the full year 2023. 2024 could see a little more dynamism thanks to a more pronounced fall in inflation, although this will remain moderate. We expect 1.1% growth in 2024. Inflation higher in 2023 than in 2022 While most European countries have already seen inflation peak, inflation in France is expected to rise further in the first quarter of 2023. The revision of the tariff shield will lead to a 15% increase in household energy bills, compared to a 4% increase in 2022. The PMI survey indicates in January that, while inflation in production costs is falling, inflation in invoiced prices is still rising. This is particularly the case for the services sector, where the prices forecast by the January INSEE survey are at their highest level since 1988, but also in retail trade. If we add to this the fact that many prices are only reviewed once a year at the beginning of the year, we can expect a clear rise in underlying inflation at the beginning of 2023. In addition, rising production costs should continue to support food and manufacturing inflation. Many companies are facing the first upward revision of their energy bills, which will push up costs. In addition, the four indexations of the minimum wage to inflation in 2022 will continue to lead to increases in all wages, which will push up inflation, particularly in services, significantly in 2023. Ultimately, average inflation in 2023 will probably be higher than in 2022 (we expect 5.5% for the year, and 6.3% for the harmonised index), but the annual profile will be fundamentally different, with a peak above 6.5% in the first quarter, then a gradual decline from the summer onwards. At the end of 2023, inflation will probably still be above 4%, a level higher than the European average. The deceleration of price developments should continue in 2024 but will still be slow, averaging 2.6% over the year (3.5% for the harmonised index).   Read this article on THINK TagsPMI Inflation GDP France Eurozone Business climate Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

For a long time, the Bank of Japan has been at war with financial markets, but in January decided to conclude a truce with them. Keeping the overnight rate at -0.1% and the range of the targeted yield of 10-year bonds at +/-0.5%, the BoJ offered banks a new system of lending not at a fixed, but at a floating rate secured by securities. The volume of bids at the first auction amounted to £3.13 trillion, three times the amount offered. Commercial institutions will invest the money received, including in bonds, which will stabilize the situation both in the Japanese debt market and in the USDJPY pair. Everyone needs rest. After sharp movements that first led the yen to fall to a 30-year bottom against the U.S. dollar, and then to its strengthening by 17%, the Japanese currency requires rest. A truce is the best way to ensure it, but it was not without a change in the external background here, either. Rising U.S. Treasury bond yields have allowed the USDJPY bulls to raise their heads. The prevailing market optimism about China and Europe's resilience in the face of the energy crisis suggests that the United States will be able to avoid a recession. This reduces the demand for such a reliable asset as American debt obligations and contributes to the growth of interest rates on them. It's quite possible that institutional investors, who took their net positions on the yen into positive territory for the first time since June 2021, will have to moderate their ardor. At least in the short term. Dynamics of USDJPY and speculative positions on the yen As history shows, inflation can sharply slow down to 2% only in the event of a downturn in the U.S. economy. This was the case in the 1970s, when the Fed's aggressive monetary tightening under Paul Volcker pushed the U.S. into recession. This was the case during the global economic crisis of 2008. Now the situation looks different. The U.S. labor market remains strong as a bull, and the improvement in the economies of China and the eurozone raises global risk appetite and weakens financial conditions. Risks of a rebound in inflation are increasing, and the odds of a U.S. GDP contraction are shrinking. Not surprisingly, Treasury yields are rising, contributing to USDJPY pair consolidation. Read next:South African Petrochemical Company Sasol Is Moving Away From Fossil Fuels, Germany Again Refused To Send Tanks To Ukraine| FXMAG.COM Undoubtedly, the downward trend remains in force as, sooner or later, the Bank of Japan will have to give up control of the yield curve and raise rates. All the more so given the acceleration in consumer prices in Japan to 4%, the highest mark in 41 years, and accelerating wages. Nevertheless, any asset needs a break on a long hike, so USDJPY consolidation is just what the doctor ordered. Technically, there is a steady downward trend on the daily chart of the pair, but it is too early to speak about its recovery without quotes falling below the fair value of 128.5. The rebound from the 128–128.5 convergence area can be used for buying. Unsuccessful EMA tests near 131.8 and 133.3 can be used to sell the USDJPY.   Relevance up to 11:00 2023-01-29 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/333107

USD/CAD is set to extend the downside to near the weekly low around 1.3320. Bank of Canada is expected to hike the interest rate further by 25 bps to 4.5%. The expectation of a smaller interest rate hike by the Federal Reserve is backed by escalating recession fears. USD/CAD is expected to deliver a breakdown of the Inverted Flag chart pattern that might expand volatility ahead. USD/CAD is hovering near the critical support above 1.3340 in the early European session. The Loonie asset has dropped after failing to sustain above 1.3400 and is expected to decline further to near the weekly lows around 1.3320. The major is following the footprints of the US Dollar Index (DXY), which is displaying a subdued performance. Weakness in the S&P500 futures led by a dip in Microsoft earnings due to missed estimates in the cloud business and technical glitches in the NYSE has turned investors’ risk-averse. Also, investors are restricting themselves from building full-capacity positions ahead of the United States Gross Domestic Product (GDP) data. The US Dollar Index (DXY) is struggling to sustain above the 101.50 resistance. The alpha created by the US government bonds has rebounded firmly. The 10-year US Treasury yields have scaled to near 3.47%. Bank of Canada to tighten policy further To tame stubborn inflation, the Bank of Canada (BoC) might continue to tighten its monetary policy further. Canada’s inflation has been recorded at 6.3% from its December Consumer Price Index (CPI) report, which is three times more than the 2% inflation target. According to a poll from Reuters, Bank of Canada Governor Tiff Macklem’s aggressive policy tightening campaign is expected to calm down as the street sees a further interest rate hike by 25 basis points (bps) to 4.50%. Also, it conveys that the Bank of Canada will keep interest rates at 4.5% for the rest of the year, which indicates that this might be the end of further policy tightening. Canada’s headline inflation stood at 6.3% for December and is expected to remain above 2% inflation target till Q3CY2024. Factors that have kept Canada’s inflation at the rooftop are the tight labor market and supply chain bottlenecks. Upbeat employment opportunities have not provided a significant reason to producers to trim the prices of goods and services at factory gates. A higher-than-projected hawkish interest rate decision by the Bank of Canada might strengthen the Canadian Dollar. Oil price attempts a recovery from $80.00 Sheer weakness in the oil prices witnessed on Tuesday has met with demand in Wednesday morning around the critical support of $80.00. The black gold witnessed immense pressure as oil demand is expected to witness short-term pain due to extended holidays in Chinese markets for Lunar New Year celebrations. Also, the absence of chatters about supply cuts in the report from OPEC impacted the oil price. Meanwhile, the oil price has attempted a recovery amid headlines that the United States is considering refilling the Strategic Petroleum Reserve (SPR). US President Joe Biden exploited the oil reserves to fight rising oil prices in CY2022. It is worth noting that Canada is a leading exporter of oil to the United States and a recovery in the oil price might support the Canadian Dollar. Read next: The Aussie Pair Is Above 0.70$, GBP/USD Pair Lost Its Level Of 1.24$| FXMAG.COM Contraction in US GDP might accelerate recession fears After a better-than-projected preliminary United States S&P PMI data, investors are shifting their focus toward the release of Thursday’s Gross Domestic Product (GDP). The street is expecting the fourth quarter GDP at 2.8% vs. the prior release of 3.2%. Investors should be aware of the fact that the US Bureau of Economic Analysis reported negative growth in the first two quarters of CY2022. And further contraction in the fourth quarter might accelerate recession fears. The rationale behind softening of economic activities is the higher interest rates by the Federal Reserve (Fed), which has trimmed the leakage of borrowings due to higher interest obligations. Apart from that, chatters about interest rate policy by the Federal Reserve are impacting the US Dollar. The street is expecting a further deceleration in the pace of policy tightening by the Federal Reserve as inflation has been softened significantly. USD/CAD technical outlook USD/CAD is forming an Inverted Flag chart pattern on an hourly scale that indicates a sheer consolidation, which is followed by a breakdown in the same. Usually, the consolidation phase of the chart pattern serves as an inventory adjustment in which those participants initiate shorts, which prefer to enter an auction after the establishment of a bearish bias. Downward-sloping 20-and 50-period Exponential Moving Average (EMA) at 1.3365 and 1.3375 respectively are acting as a major barricade for the US Dollar. Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates volatility contraction

Silver takes offers to renew intraday low as US Dollar licks its wound ahead of the key data. Sluggish markets, China-inspired optimism put a floor under XAG/USD prices. Firmer prints of US Q4 GDP could renew hawkish Fed bets and extend latest pullback. Silver price (XAG/USD) renews intraday low near $23.75 as it adds to the weekly gains ahead of Thursday’s European session. In doing so, the bright metal drops for the first time in three days as traders stay cautious ahead of the key US data comprising the first readings of the US fourth quarter (Q4) Gross Domestic Product (GDP). It should be noted that the latest Reuters poll challenging the market optimism toward growth conditions seems to weigh on the XAG/USD price. “Global economic growth is forecast to barely clear 2% this year, according to a Reuters poll of economists who said the greater risk was a further downgrade to their view, at odds with widespread optimism in markets since the start of the year. Additionally, the downbeat performance of US equities in the last few days and anxiety ahead of the top-tier data, as well as hopes of more rate hikes, also challenge the sentiment and please the Silver buyers. Alternatively, the softer US Treasury yields and downbeat expectations from the scheduled US data keep the US Dollar on bear’s radar, which in turn put a floor under the Silver prices. It’s worth mentioning that the receding market bets on the Fed’s hawkish move and chatters surrounding the policy pivot also seem to favor the XAG/USD buyers. On the same line could be optimism in Hong Kong as the nation’s equity benchmark Hang Seng leads the Asia-Pacific gainers with above 2.0% gains by the press time even if markets in Australia, India and China are closed. The reason for the upbeat sentiment could be linked to the market chatters suggesting strong holiday spending in China, the world’s biggest commodity user. Looking forward, the US Q4 GDP is expected to ease and personal spending might also recede during the Q4, which in turn allows the Fed policymakers to go soft on their rate hike trajectory. The same could direct market players away from the US Dollar and may underpin the XAG/USD upside. Technical analysis Silver price takes a U-turn from the downward-sloping resistance line from January 16, close to $24.00 by the press time, as it drops back towards the 50-DMA support of $23.15.    

Summary:  Risk sentiment was boosted in the US afternoon session after Bank of Canada’s pause signal sparked hopes of the Fed taking a similar turn next week. This saw dollar dipping and Gold surging to fresh cycle highs. Earnings results continue to be mixed with cost cutting efforts in the limelight, but some optimism came from buyback announcements from companies like Chevron and Blackrock. Meanwhile, Tesla beat on the EPS but missed on margin and free cash flow. HK stocks return today after Lunar New Year holiday while China markets are still closed.   What’s happening in markets? Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) pared early losses to finish little changed On the back of the weakness in the outlook, especially a 7%-8% sequential decline in its Azure cloud computing in the current quarter, from Microsoft (MSFT:xnas), at one point in the New York morning Nasdaq 100 fell as much as 2.5% and S&P 500 slide nearly 1.7%. Stocks then spent the rest of the day climbing to recover from the morning losses. Nasdaq 100 finished the Wednesday session down only 0.3% and S&P 500 nearly unchanged. Microsoft pared early loss to close 0.6% lower. AT&T (T:xnys) jumped 6.6% on solid wireless subscription growth. Boeing (BA:xnys) plunged as much as 4.2%, following reporting a Q4 loss due to margin weakness, but pared all the loss and more, closing 0.3% higher. After the close, Tesla (TSLA:xnas) reported EPS of USD1.19, beating expectations slightly but EBITDA margin of 22.2% missing expectations. The EV giant expects to deliver about 1.8 million vehicles in 2023, in line with expectations. Tesla shares surged over 5% in extended hour trading. US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) richer by 1-3bps on lower UK & European yields Treasuries got a bid across the pond from stronger U.K. gilts and European government bonds which were helped by safe-haven buying on concerns of a potential escalation of the war in Ukraine as Germany and the U.S. are supplying tanks to Ukraine. Traders also took note of the Bank of Canada’s indication of a plan to pause rate hikes to assess the impact on the economy after raising its policy rate by 25bps to 4.5% on Wednesday. The 5-year auction went well with strong demand. Treasury yields fell 1 to 3 bps across the curve, with the 2-year finishing the session at 4.13% and the 10-year at 3.44% Hong Kong’s stock market back from the Lunar New Year holiday; Shanghai and Shenzhen closed Hong Kong’s stock market is resuming trading today after a 3-day long Lunar New Year Holiday while the mainland bourses remain closed for the holiday. During the first four days of the Lunar New Year holiday from Saturday to Tuesday, China’s passenger trips by road, rail, air, and water waterways reached nearly 96 million in China, about 29% higher from the same period last year. Chinese ADRs were in general firmer from their pre-holdiday closes in Hong Kong, with Alibaba (BABA:xnys; 09988:xhkg) up 1.2%, Tencent (TCEHY:xnas; 00700:xhkg) up 2.1%). JD.COM (JD:xnas; 09618:xhkg) up 0.6%, Li Auto (LI:xnas; 02015:xhkg) +6.5%, and NIO (NIO:xnys; 09866:xhkg) +7.1%. FX: Dollar downturn resumes amid expectations of a dovish Fed While a downshift in the Fed rate hike trajectory has been broadly signalled by the members of the board before the quiet period kicked off, the Bank of Canada’s pause signal has left the markets hoping for a similar turn from the Fed next week. This brought a fresh weakness in the US dollar overnight, with G10 gains led by AUD after a firmer-than-expected Q4 CPI print yesterday which would likely drive the RBA to continue to hike for now. AUDUSD hold above 0.71 with AUDNZD marching above 1.0950. GBPUSD returned back above 1.2400 as well while EURUSD is hovering near the YTD high of 1.0927 with a strong German Ifo report (read below) and hawkish rhetoric from the ECB continuing. USDJPY also back below 129.50 in the Asian morning. Crude oil (CLG3 & LCOH3) prices range-bound Crude oil prices remained firm on Wednesday after the EIA data showed an unexpected rise in US crude inventories. EIA reported a 0.5mln bbl build for US crude stocks in the latest week, marking the fifth straight build, albeit considerably less after the 8.4mln bbl build for the prior week, and on the lighter side of analyst expectations for a 1mln bbl build. Meanwhile, a weaker dollar and sustained positive signals from China reopening underpinned as well. WTI continued to find bids at $79.50 while Brent was supported around $85.50 with eyes on the December high of $89.40. Gold (XAUUSD) pushes to fresh 9-month highs; eyes on 1950 The weakness in the dollar amid expectations of a Fed downshift to a smaller rate hike next week continues to push Gold prices higher. The yellow metal surged to 1949.20 overnight, the highest levels since April 2022. A dovish hike by the Bank of Canada last night has set up the markets for a similar shift from the Fed next week. The US GDP release today will be of key interest to gauge whether the market expectations shifting in favor of a soft landing rather than a recession can continue to hold. The focus will then turn to the PCE data on Friday before we head into the Fed meeting week. Support at $1900.  Read next:Despite The Challenges Starbucks Is Developing In Italy, Bank BNP Paribas In Frankfurt Have Been Raided| FXMAG.COM What to consider? Bank of Canada’s dovish hike The Bank of Canada raised interest rates by 25bps to 4.50%, the highest level in 15 years. It plans to hold going forward, but Governor Tiff Macklem said he's "prepared" to hike again if needed. The decision was slightly dovish with a clear pause being signalled, despite the caveat to hike again. The MPR saw the bank lower its 2022 and 2023 inflation forecast but sees 2024 inflation at 2.3% (prev. 2.2%), the same year it expects it to reach its target. Growth forecasts were raised in 2022 and 2023, but lowered in 2024. Markets are taking this as a positive signal in the hope that the Fed could take a similar turn next week. Improving German business outlook further lowers recession risk Germany business confidence survey signalled that the worst may be over for the economy and a slowdown may be ahead, but a deep recession appears to be unlikely at this point. The threat of an immediate energy crunch has receded due to the less harsh winter, and supply-chain constraints are also easing with China’s reopening. The expectation index of the Ifo survey rose for the fourth successive month to 86.4 in January from 83.2 previously, but remained historically subdued amid elevated inflation curbing purchasing power. The current assessment slightly deteriorated. US GDP on the radar today, along with jobless claims An advance print of the Q4 GDP will be released in the US today, and some deceleration is expected from last quarter’s 3.2% YoY. But consensus still expects a strong growth of 2.7% YoY as spending on services sustained. The big concern will be if we see consumers pulling back, as was signalled by a slump in retail sales this month. That could raise concerns on whether a soft landing is really possible. However, judging from the recent labor market strength, it may be too soon to count the consumer out. Initial jobless claims for last week will also be on watch after the previous figure dipped to sub-200k levels signalling a still-tight labor market. Tesla earnings beat Tesla reported Q4 revenue of USD24.32 billion, 1% above the consensus estimate of USD24.07 billion as per Bloomberg’s survey, and a growth of 13% Q/Q and 37% Y/Y. Adjusted net income grew nearly 60% to USD 3.69 billion from a year ago. Adjusted earnings per share came in at USD1.19, beating the consensus estimate of USD1.12 by 6%. The gross margin of 25.1% was below the 26.6% expected by the street and the EBITDA margin of 22.2% was lower than the 22.6% forecasted by analysts. The EV giant said it is accelerating cost-cutting actions. Tesla commented that its factory in China has been running near full capacity and it is not expecting meaningful volume increases in the near term. Chevron boosts buyback on record profits Chevron (CVX) announced $75 billion buyback (22% of marketcap and tripling the current program) that will start in Apr 1 and raised dividend by 6.3% to $1.51/share a quarter implying yield of 3.4%. 4Q earnings are due tomorrow. Other companies like Blackrock and Netflix have also announced buybacks for 2023, sending some optimism on a soft landing scenario as companies are not hoarding cash with fears of an incoming recession.   Source: Market Insights Today: Bank of Canada’s dovish hike; Step up in share buybacks – 26 January 2023 | Saxo Group (home.saxo)

Korean GDP contracts in 4Q22. Philippine GDP due later, also US GDP Source: shutterstock Macro outlook Global Markets: US stocks opened sharply lower yesterday, but clawed their way back to end the session more or less flat on the day. In contrast, Chinese stocks had another better day. The CSI 300 finished 0.6% higher, and the Hang Seng index rose 1.82%. Bond markets were, if anything, slightly more boring even than equities, with yields on 2Y US Treasuries edging down about 2bp to 4.125%, and yields on 10Y US treasuries fell only 1bp to 3.447%, though there was a little more volatility in the 10Y space, with trading in a 7bp range. In the absence of much excitement in other markets, EURUSD has traded above 1.09 for the first time since April 2022. This marks the 50% retracement from the June 2021 peak and makes subsequent moves more significant in terms of where we go next. ECB speakers yesterday – Makhlouf, Nagel and Vasle, all talked up the prospects of 50bp rate hikes at forthcoming meetings, which probably helped buoy the single currency. Other G-10 currencies are also trading stronger against the USD. The AUD is above 71 cents now, helped by yesterday’s higher-than-expected inflation print (see also here for what this means for the Reserve Bank of Australia’s rate policy) sterling is back above 1.24, and the JPY is back to 129.40. Other Asian FX are quite mixed, with the MYR and SGD making gains yesterday of more than 0.5%, but the PHP and IDR both losing ground against the USD. G-7 Macro:  Yesterday was fairly light in terms of data releases in the G-7, though Germany’s Ifo survey came in a bit higher. Here’s Carsten Brzeski’s take on that. And the Bank of Canada raised rates 25bp as expected to 4.5%, which looks like a peak according to James Knightley. Today, we get 4Q22 GDP for the US, which is expected to show a slowdown to a 2.6% annualized rate of growth, down from 3.2% in 3Q22. Our “ING f” forecast is actually a little lower than the consensus figure at 2.3%. December US durable goods orders are out later too – too choppy to make sense of this data series. US new home sales data for December are also released and will likely slow further, though this is a low turnover time of year, and seasonal anomalies are to be expected. The December US advanced goods trade balance rounds off the data for the day. South Korea: Real GDP dropped sharply as expected, posting a contraction of 0.4% QoQ (sa) in 4Q23 (vs +0.3% in 3Q22). For domestic components, private consumption dropped 0.4% with declines in both goods and service consumption. Construction and facility investment rose 0.7% and 2.3%, respectively. We think the impact of the cumulative interest rate increases has begun to slow down private consumption. As monthly activity data showed, construction and investment increased mainly due to the completion of pre-ordered projects, but we expect both to decline this quarter. For external components, exports and imports both fell significantly by 5.8% and 4.6% respectively. Sluggish exports of semiconductors and petrochemicals weighed on the total, and imports of crude oil and primary metal products also declined quite meaningfully. Both imports of crude oil and primary metals are mostly for re-export, suggesting that global demand conditions weakened sharply in the last quarter and this quarter as well. Philippines: The Philippines reports external trade and GDP numbers today.  4Q GDP growth is expected to expand 6.6%YoY - a slowdown from the 7.6% growth reported in the previous quarter.  Robust household spending likely supported growth to close out 2022.  Solid growth numbers should give the central bank space to push through with additional rate hikes in the first half of the year to slow multi-year high inflation.   What to look out for: US and Philippines GDP South Korea GDP (26 January) Philippines GDP (26 January) Singapore industrial production (26 January) Hong Kong trade (26 January) US GDP, personal consumption, core PCE, initial jobless claims (26 January) Japan Tokyo CPI inflation (27 January) Australia PPI inflation (27 January) US personal spending and University of Michigan sentiment (27 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia 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

Economic growth hit 7.2% in 4Q22, taking 2022 full-year growth to 7.6% Consumption in the Philippines accounts for roughly 72.8% of all economic activity 7.2% 4Q 2022 YoY growth   Higher than expected 4Q GDP growth lifts 2022 growth above target Philippine 4Q 2022 economic growth hit 7.2% YoY, taking full-year growth to 7.6% YoY.  The official government target had GDP growth at 6.5-7.5% YoY for the year.  So-called “revenge spending” extended into the holiday season, when face masks were no longer required and limited capacity restrictions eased .  Household spending grew 7% YoY in the face of multi-year high inflation, powered by yet another quarter of double-digit growth for restaurants & hotels (24.7%) and recreation (15.2%).  Government spending was also a positive, growing 3.3%. Capital formation rose 5.9% and received a boost from construction (8.4%).  The solid household spending mirrored the strength of the services sector which was up 9.8% while industrial activity rose 4.8%.  Agriculture, however, fell 0.3% as the sector faced substantial crop damage due to powerful storms during the period.  Although 4Q GDP growth was impressive, we believe that momentum could finally moderate this year amidst a challenging environment of still elevated inflation, rising borrowing costs and tight fiscal space.  Philippine GDP surprises on the upside Source: Philippine Statistics Authority Philippine exports slump on fading demand for electronics Released alongside 4Q GDP today was the December 2022 trade report.  Exports finally came down to earth, dropping 9.7% YoY as electronic exports struggled amidst softening global demand.  Meanwhile, imports also contracted (-9.9%) after capital imports and raw materials recorded steep falls.  The overall trade deficit swelled to $4.6bn. The previous month’s shortfall was revised substantially to $4.5bn, from the initial estimate of $3.7bn.  The sizeable trade deficit suggests that the Philippines will likely post a current account deficit in 4Q 2022.  Robust growth leaves BSP with space to tighten further The above-consensus GDP growth in 2022 should give the Bangko Sentral ng Pilipinas (BSP) space to tighten policy further in the first half of 2023.  Inflation, although close to peak, remains well-above target and could prove to be sticky over the coming months.  BSP Governor Medalla hinted at possible rate hikes at the March meeting but has remained non-committal to hiking past 6% for the remainder of his term as Governor.  Rapid-fire rate hikes may have already begun to impact capital formation which posted the slowest growth this year.  Just like for most other ASEAN central banks, we believe that the current rate hike cycle could be coming to an end soon, with the BSP likely taking their lead from moves by the FOMC.  The PHP has largely tracked the moves of regional peers and is up 2.4% for the year.  The peso may benefit from the upside surprise in growth. Today’s other Philippine data release (external trade) should be a reminder that the economy’s current account challenges could remain an issue in 2023.      Read this article on THINK TagsPhilippines GDP Bangko Sentral ng Pilipinas 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

Real GDP dropped sharply as expected, recording a -0.4% decline in the fourth quarter vs 0.3% in the third. Sluggish exports and private consumption were the main reasons for the contraction We don't expect domestic and external growth conditions to improve meaningfully this quarter, thus the Bank of Korea should hold policy steady over the coming months Source: Shutterstock -0.4% Real GDP % QoQ seasonally-adjusted As expected Korea's weak growth is likely to continue into this quarter Korea's fourth quarter GDP contracted for the first time since the second quarter of 2020. We think that the impact of the cumulative interest rate hikes along with fading reopening effects have begun to slow down private consumption while weak global demand conditions are hurting Korea's exports.  Private consumption fell 0.4% with declines in both goods and service consumption. The debt service burden on households will not be relieved any time soon since Korea's households are highly leveraged and more than 70% of the outstanding household loans are based on floating rates. As such, the rate hike by the Bank of Korea in January will weigh on consumption this quarter. Also, we expect the unemployment rate to rise quite meaningfully in the first half of the year, thus household incomes are likely to worsen.  Meanwhile, construction and facility investment rose 0.7% and 2.3%, respectively, mainly due to the completion of pre-ordered projects. Forward-looking construction orders and machinery orders data have declined over the last few months, and we expect investment to decline this quarter. The credit crunch has eased a bit since late December, but many investment plans have already been cancelled or trimmed down due to the high level of funding costs and uncertain global conditions.  For external components, exports and imports both fell significantly by 5.8% and 4.6% each. Weak global and Chinese demand drove not only the decline of semiconductor and petrochemical exports but also the sluggish imports, as more than 40% of imports are for re-exports. We do not expect these weak global demand conditions to turn around sharply during the first half of the year. China’s reopening is key for Korea’s exports, but the positive impact will likely materialise in the second half of the year. Korea GDP contracted in 4Q22 Source: CEIC GDP forecast With a fairly sharp contraction last quarter, we revised up the first quarter GDP forecast slightly, mainly on the back of a technical rebound. But we still think that GDP for this quarter will contract or at best stagnate. The contribution to net exports is expected to improve mainly due to a sharper decline in imports, but domestic demand is expected to worsen. Private consumption is likely to shrink, while investment is also expected to decline. Thus, we maintain our annual GDP growth forecast of 0.6% year-on-year in 2023.  BoK watch The Bank of Korea will likely stand still on monetary policy from now on due to the weak growth but may also keep its hawkish stance for a while. Inflation still remains around the 5% level and upside risks are high. But we think that if GDP continues to contract this quarter then the BoK could consider a rate cut later this year. Read this article on THINK TagsSouth Korea GDP Bank of Korea 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

Despite a huge energy shock in the economy, production has held up well. There are no miracles here, though. Currently the post-pandemic catching up has simply outweighed the negative impact from higher energy prices. For now Industrial production in the eurozone has held up despite the energy crisis Industrial production has held up well in a challenging 2022 Despite substantial energy reduction efforts, eurozone industry has held up relatively well in terms of production. Most recent data show annual growth of 1.9% in industrial production in the eurozone, which almost sounds too good to be true. If an energy crisis of the magnitude just experienced is not resulting in production setbacks, do we need high levels of energy use to begin with? Looking under the hood of industry data, we see that indeed this conclusion is too good to be true. There are multiple shocks working against each other that have an important impact on different sectors and result in a relatively neutral impact so far. Let’s also not forget that industrial production in the eurozone is currently only just above its pre-pandemic level. In any case, if the energy crisis were to persist, the impact on production will likely become more broadly visible in 2023. Production has surprised on the upside as dramatic scenarios are avoided Source: Eurostat, ING Research The energy shock has weakened production in energy intensive sectors When we look at the performance of different industrial subsectors over the past year, we see that there are big differences. The weakest performing sectors are all among the most energy intensive within broader industry. It is therefore no surprise why they have seen contractions up to -14% for the chemicals industry. In chart 2 we see the relationship between energy inputs as a share of total output of the sector and production growth in the past year. The sectors that are very energy intensive are all showing negative output growth and there is quite a strong relationship in terms of energy intensity and production over the past year. The paper industry has seen a decline of -6%, basic metals -7% and coke and refined petroleum products -9%. So far, there are no miracles happening. Germany is so far the only country in which the statistical agency releases a time series for energy-intensive production, which was down by around 13% year-on-year in November. Energy intensity is strongly related to production performance over the past year Source: Eurostat, ING Research The aftermath of the pandemic shock now boosts production As the energy-intensive sector have clearly taken a hit, the question is why some of the other sectors are performing so strongly. There are two main reasons for such outperformance: pandemic winners and post-pandemic winners. The so-called pandemic winners are the sectors which benefitted from the pandemic like pharmaceuticals. Strong production growth still continues as we saw growth of almost 40% in production over the past year. We also see strong growth for another stronghold during the pandemic: computers, electronics and optical products. With shortages of semiconductors having faded, production continues to be strong for these products, resulting in above 20% growth. And then there are the post-pandemic winners, e.g. the sectors which were hit by the pandemic but are catching up and reducing backlogs as supply chain frictions fade. The main representative of this  group is the car industry. Production of motor vehicles, trailers and semi-trailers increased by 15% last year. All in all, production has held up well because two shocks are playing into one another at the moment. The aftermath of the pandemic shock to the economy is at this point quite favourable as supply chain problems fade which boosts industrial production for now. The energy shock on the other hand has the exact effect that you’d expect as the most energy intensive sectors are all seeing large declines in production. Also, the reduction is energy consumption in industry does often not refer to less energy consumption in production but rather in very ordinary reduction in heating. The pandemic winners lead the pack of sub-sectors in recent production growth Source: Eurostat, ING Research Outlook is getting less bleak as energy crisis moderates The question for 2023 is now whether industry can weather the energy shock without an overall dip in production. The good news is that post-pandemic effects should fade, but likely not immediately. Supply-chain problems continue to fade at the start of the year, which should benefit the more restrained sectors in terms of inputs. The auto sector for example is expected to continue recovery of production at the start of the year which is a large part of total industrial production. Besides that, current energy prices are a lot more favourable for production than prices seen in most of 2022. That means that the energy intensive sectors could rebound a bit on the back of lower input costs. Still, risks may have moderated but chances of the energy crisis flaring up again in the coming months are high. Also, it is not unreasonable to expect that the energy crisis will simmer for longer than post-pandemic catch-up effects as demand for goods has been decreasing over the course of last year with people spending more on services again now that economies have reopened. The Inflation Reduction Act is just an example how lower energy prices elsewhere combined with local subsidies could also further weaken industrial production in the eurozone. All in all, while industry has surprised by not contracting according to most recent data, we shouldn’t expect too much from industry over 2023 either and the risk of delayed contraction continues to hang over the sector. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Summary:  Despite some improvement in the growth narrative recently, the Fed has limited new trends of the US economy to take note of at their January 31-February 1 meeting. The recovery in Q4 GDP comes with a weakening consumer spending, and incoming data remains volatile at best. This means there is reason to believe that the Fed will want to lengthen its tightening cycle, and go in smaller steps, in order to buy more time to assess the growth and inflation dynamics. Improving US economic momentum The expectations of a soft landing have picked up since the start of the year, relative to the rising recession bets seen in H2 of last year. Meanwhile, inflation has been on a steady downtrend in the last six months, which has allowed the Fed to downshift to a 50bps rate hike in December after a spate of rate hikes in 75bps increments before that. Yesterday’s US economic data, including the Q4 GDP or durable goods, further supported the case for sustained economic activity and eased recession fears. The advance print of Q4 GDP came in at a stronger-than-expected +2.9% YoY (vs. 2.6% YoY exp) for the fourth quarter from 3.2% YoY in Q3. In addition, sustained labor market strength was once again signalled by another sub-200k print in the weekly jobless claims. Massive tech layoffs at odds with labor market strength The wave of layoffs seen in the tech sector is now even extending to other sectors. But broader US labor market data, including nonfarm payrolls or weekly jobless claims, continues to signal sustained tightness in the US labor market. These divergent data signals are underpinned by several factors: Layoffs so far have been mostly concentrated in a few sectors (especially tech) that was bloated to start with, and some of the hiring freezes are just a step back from years of hiring sprees Services and lower wage sectors such as healthcare, education and hospitality still have a lot of job openings The mass layoff announcements from big tech companies are largely global headcount reductions, and not just for the US Overall, most of the layoffs appear to be steps to control costs in the current scenario of margin pressures and an impending slowdown, but do not really signal any fears of a prolonged recession. Read next: Trump Returns To Social Media, Meta Will Restore The Former President's Account| FXMAG.COM Fed speakers have broadly guided for a smaller hike at the next meeting Besides the Fed’s most hawkish member, James Bullard, all other FOMC members have broadly hinted at a further slowdown in the pace of rate hikes. Bullard does not vote this year or next, and the overall Fed committee composition for 2023 hints at a slightly more cautious to dovish stance ahead unless inflation shoots up again. Most recently, two of this year’s voters, Waller and Harker, have backed a clear preference for 25bps rate hikes from February onwards. Volatility of economic data vs. easing financial conditions Economic data recently has been extremely volatile. Moreover, the fourth quarter GDP report may have been above expectations on the headline, but details are still patchy. Consumer spending grew 2.1%, which was below the 2.9% rate expected, suggesting that the consumers may be starting to pullback after using their excess savings last year. The recent activity data in January, from retail sales to ISM surveys, suggests pressure may be building for Q1 growth. This means there is some reason to believe that Powell and team may be aiming to lengthen the hiking cycle in order to buy more time to assess both the incoming data and the impact of their previous aggressive rate hikes. This warrants a smaller rate hike of 25bps at the February 1 decision. The key risk factor, favouring another 50bps rate hike, could be the financial conditions which are the easiest since April 2022 or the risks of another shoot higher in inflation due to China’s reopening and the resulting rise in commodity prices. Source: Bloomberg, Saxo Markets   Source: Macro Insights: Will the US Fed step down its rate hike trajectory again? | Saxo Group (home.saxo)

US equities rallied on Thursday, boosted by a decent rally in Tesla and Chevron stocks, and a better-than-expected GDP read in the US. But be careful! The US growth number was good, but not necessarily for good reasons. US data The US will reveal another gauge of inflation, the PCE data, that is closely watched by the Federal Reserve (Fed). A slower than expected core PCE would be a cherry on top for closing a week where the S&P500 rallied past its 2022 bearish trend top, and which could soon confirm a cup and handle pattern above the 4100 mark. But beware, Intel slumped 10% in the afterhours trading after revealing a worse-than-expected quarterly loss due to a steeper than expected fall in PC chip sales, and giving a weaker-than-expected forecast for the current quarter. Forex In the FX, the US dollar is better bid on the back of a strong GDP report, while gold is down from the $1950 resistance. The EURUSD is again below the 1.09 mark, while Cable consolidates below 1.24, with a clear resistance forming into the 1.2450 mark. The AUDUSD on the other hand extends gains above 71 cents level as the heated inflation report this week boosted the Reserve Bank of Australia (RBA) hawks. The market remains strongly short the Aussie, meaning that if the Aussie gains further momentum to the upside, we could see a short covering that could further emphasize the bullish trend. Read next: GBP/USD Pair Is Struggling To Extend Previous Highs, EUR/USD Pair Continued Its Gains| FXMAG.COM Watch the full episode to find out more! 0:00 Intro 0:25 S&P extends rally to bullish era 0:39 Tesla rallies 11% on record profits 1:41 Chevron jumps near 5% on stock buyback, pre-earnings 2:02 US GDP growth is good, but not for good reason 4:30 Luxury is the new Tech! 7:05 Watch US PCE data today! 7:40 Intel down 10% post-earnings, Nvidia extends rally 8:32 FX update: Aussie’s ascent could trigger a short squeeze! Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #Intel #Nvidia #Tesla #Microsoft #Chevron #earnings #US #GDP #inflation #data #Fed #expectations #USD #EUR #GBP #AUD #crude #oil #XAU #China #Covid #reopening #luxury #rally #Burberry #Hermes #LVMH #Swatch #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH

Sharp declines in private sector borrowing in December show that the ECB's sharp interest rate rises are starting to have the desired effect. In an already weak economy, this is another dampening effect for 2023 growth, but don’t expect it to be enough to sway next week’s ECB decision on rates. We expect another 50 basis point hike Given the hawkish stance that the ECB has taken recently, this release must be encouraging as it shows that monetary transmission is at work   The decline in bank lending in December was seen across the board. Household borrowing growth had been trending down since early 2022 – when longer-term rates started to rise – but saw a particularly sharp monthly drop in December. The month-on-month growth was 0.1% down from 0.3% in November, indicating that household borrowing growth has now all but stagnated. This is especially important for the housing market as the majority of household borrowing is for mortgages. The decline in non-financial corporate sector borrowing has been even more pronounced. Month-on-month growth turned further negative in December, falling from -0.1% in November to -0.3% in December. Business borrowing growth had been very strong in 2022 and even accelerated despite higher interest rates. The bank lending survey already indicated that this was mostly for working capital reasons and not for investment plans, which was actually a sign of weakness rather than overheating. Now we see sharp declines in borrowing occurring, which is in fact more of a recessionary sign. Read next: Another Sector Announced Layoffs, Hasbro Reduced Its Workforce, IBM And SAP Have Joined Technology Companies That Are Reducing Employment| FXMAG.COM Given the hawkish stance that the ECB has taken recently, this release must be encouraging as it shows that monetary transmission is at work. At the same time, it comes at a time when a very weak eurozone economy is flirting heavily with recession. With a lot more rate hikes to come, the question is how well the economy can swallow substantially higher rates. We expect that the ECB hike cycle will have a significant dampening effect on the economy over the course of 2023. With supply-side problems that caused inflation diminishing, the question is whether doves will become more vocal in coming meetings as we start to see monetary transmission at work. For next week, we don’t expect much to change: another 50 basis point hike is in the making. Read this article on THINK TagsGDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

eur to usd, eur usd, eur/usd, convert eur to usd, 1 eur to usd, eur vs usd, 100 eur to usd, euro to usd, what is euro?, what is dollar?, what is us dollar? US equities rallied on Thursday, boosted by a decent rally in Tesla and Chevron stocks, and a better-than-expected GDP read in the US.   The latest US GDP update was a strong beat. The US economy grew 2.9% in Q4, down from 3.2% printed a month earlier, but significantly better than the 2.6% penciled in by analysts.   But be careful! The US growth number was good, but not necessarily for good reasons.   Inventory adjustments and government spending were the main boosters of the GDP in the latest quarter, while domestic purchases increased just around 0.2%, down from 2% printed in Q1.   Plus, the housing sector took a massive 27% hit on annual basis, business inventories grew around 0.6% versus 6% printed a quarter earlier, and trade with other countries was good, but not because Americans exported more, but because they imported less.   In summary, the latest GDP data was boosted by government spending and inventory adjustments, but the growth engines, which are consumption and investment - that hint at the health of the future economy did quite poorly.   So what do you make of the data?  In one hand, slowing demand is great news for the Fed because their aggressive tightening policy hammers demand, and that should further ease inflation and further soften the Fed's policy. And all that, with the weekly jobless claims headed further down as a sign that the jobs market is still not feeling the pinch of the higher rates and the slower demand – although IBM announced it will cut 3900 jobs, and SAP 3000 this week. But oops, IBM is down 4.5% after the news. Too bad.  On the other hand, weaker demand is not great news, as it means that your favorite companies will be selling less stuff and will be making less money.   But there is always this hope that the Chinese could fill in the gap this year, thanks to the pandemic savings that will be flowing into the stuff that Chinese like to buy the most in the coming months. In this sense, Burberry and Swatch shares look nothing less exciting than the tech stocks during the pandemic. And that despite the war and a global cost-of-living crisis.  Focus on US PCE  The US will reveal another gauge of inflation, the PCE data, that is closely watched by the Federal Reserve (Fed). A slower than expected core PCE would be a cherry on top for closing a week where the S&P500 rallied past its 2022 bearish trend top, and which could soon confirm a cup and handle pattern above the 4100 mark.  But beware, Intel slumped 10% in the afterhours trading after revealing a worse-than-expected quarterly loss due to a steeper than expected fall in PC chip sales, and giving a weaker-than-expected forecast for the current quarter.  Aussie shines  The US dollar is better bid on the back of a strong GDP report, while gold is down from the $1950 resistance.   The EURUSD is again below the 1.09 mark, while Cable consolidates below 1.24, with a clear resistance forming into the 1.2450 mark.   The AUDUSD on the other hand extends gains above 71 cents level as the heated inflation report this week boosted the Reserve Bank of Australia (RBA) hawks. The 50-DMA crossed above the 200-DMA, confirming a golden cross formation on the daily chart, while the market remains strongly short the Aussie, meaning that if the Aussie gains further momentum to the upside, we could see a short covering that could further emphasize the bullish trend.   

The first Czech National Bank meeting of the year will take place on Thursday. The Board believes inflation expectations will remain anchored and that overall inflation will return to levels around 2% in two years. Thus, we expect the interest rate to remain at 7%. In Turkey, we predict January inflation will be 3.5% month-on-month In this article Turkey: Risks are on the upside Czech Republic: Central bank to confirm stable rates and present new forecast Shutterstock Turkey: Risks are on the upside We expect January inflation of 3.5% month-on-month, leading to a further decline in the annual figure down to 53% from 64.3% at the end of 2022 due to strong base effects and stability in the currency. However, given deeply negative real interest rates, further disinflation would be quite challenging, while risks to the outlook this year are on the upside with significant deterioration in pricing behaviour, higher trend inflation and still elevated level of cost-push pressures. Czech Republic: Central bank to confirm stable rates and present new forecast In the Czech Republic, we expect the flash GDP estimate for the fourth quarter to show the economy entered into a mild recession. The increase in consumer prices has weighed heavily on purchase power hence private consumption decreased markedly. Despite the deterioration of the economic stance, inflation remains elevated and it seems likely we will see an increase in CPI growth from December levels of 15.8% to above 17%. Still, the dovish bank board is not expected to increase the interest rate from 7%, where it has remained since June last year. According to recent statements by board members, everything is pointing towards the same outcome as we saw in the second half of the year; five votes for stable interest rates and two votes for a rate hike. Thus, the main focus will be on the central bank's new forecast, especially on expected inflation for January and February. Given the upside risk due to the new year repricing, the tone of the meeting should remain the same: "higher rates for longer" and "don't rule out a rate hike at the next meeting". We expect rates to remain unchanged throughout the first half of the year and the topic of rate cuts to be open in the third quarter. Key events in EMEA next week Refinitiv, ING TagsTurkey Czech Repulbic   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

The Federal Reserve Policy-making Committee will meet January 31-February 1, 2023, and their decision will be a tough one, harder than any of their choices in 2022. US Inflation Inflation is the number one concern for the Fed, and the news is pretty good. The Fed is watching the price index for personal consumer spending excluding food and energy, while labor markets continue to show strong strength in the economy. The United States recently released its Consumer Price Index (CPI) report for December 2022. It was mostly in line with expectations, pointing to a slowdown in both headline and core inflation. There is no doubt that the pressure has eased and inflation is coming down. The monthly total CPI fell by 0.1% in December, the first drop since June 2020. The core CPI, which removes the effects of volatile items such as food and energy, hit a monthly low of 0.3%. On the other hand, food inflation remains stubbornly high due to Covid-induced supply chain disruptions, extreme weather conditions in some parts of the world and the Russo-Ukrainian war. Given that food security is likely to remain an issue in 2023, the decline in food prices may take longer than expected. As such, any increase in commodity prices would only add fuel to the fire and is still an upside risk in the fight against inflation. Forecast The market predicts the Fed will hold interest rates steady or even start cutting them later in 2023. Economists say the Federal Reserve will cut its interest rate to a 25 basis point hike at its upcoming interest rate meeting. Despite this, many Fed policymakers continue to comment that rates are likely to rise to more than 5%. This is contrary to what the market expects. The widely anticipated quarter-point interest rate hike will raise the Fed's reference rate to a range of 4.5%-4.75%. Prices were close to zero last March. Investors who trade the federal funds futures markets now expect the Fed benchmark rate cap to be 4.5% at the end of this year and 2.9% at the end of 2024. Economic growth In the last three months of 2022, the US economy grew by 2.9% compared to the same period last year. Growth was driven by increases in consumer spending, business investment, and government spending. Consumer spending in the US also increased by 2.1% compared to the same period last year. This spending remained high as inflation began to fall. And the US job market remained tight. Overall, for the full year, GDP grew by 2.1% compared to 2021. Despite an overall increase in 2022, the economy showed signs of cooling in the fourth quarter, declining slightly from 3.2% in the third quarter. Retail sales also fell in the last two months of 2022. Recession? However, the US economy is not clear. Solid growth in the October-December quarter will do little to change the widespread view among economists that a recession is very likely later this year. Elevated lending rates and persistently high inflation are expected to gradually weaken consumer and corporate spending. In response, companies are likely to cut spending, which could lead to layoffs and higher unemployment. And a likely recession in the UK and slower growth in China will reduce the revenues and profits of US corporations. Such trends are expected to trigger a recession in the United States in the coming months. Source: investing.com

The week ahead sees several key event risks for FX markets - largely in the form of central bank meetings in the US, eurozone, and other parts of Europe. Fresh communication from central bankers will stress test investors' view that the peak in tightening cycles is close at hand. A Fed push-back against 2H23 easing expectations could support the dollar USD: Action kicks off tomorrow The dollar starts the weak in very narrow ranges and not far from the lows of the year. This week will stress test the consensus view amongst investors that i) the Federal Reserve will start to acknowledge easing price pressures and soon end its tightening cycle, ii) China reopening will support global growth and iii) that lower energy prices mean improved European growth prospects. Our macroeconomists discuss many of those themes in their week ahead preview, including links to full previews for this week's FOMC, European Central Bank and Bank of England meetings. Our FX contribution to the FOMC preview outlines a scenario where the dollar could sell off and EUR/USD trade over 1.10 were the Fed to hugely surprise by suggesting that any additional hikes, after this week's 25bp increase, would be data dependent. That seems unlikely. More likely is the Fed pushing back against the 50bp of easing priced into the second half of the year and the dollar enjoying a brief rally. In addition to Wednesday's FOMC meeting, the US data calendar contains two important pieces of US data. The first is Tuesday's release of the fourth quarter Employment Cost Indicator (ECI) - one of the Fed's preferred gauges of price pressures in labour markets. This had spiked to 1.4% in the first quarter of last year from the previous three months, but is expected to drop back to 1.1% in the fourth quarter from 1.2% in the third. Any upside surprise here could see expectations swing toward a more hawkish FOMC outcome. And Friday sees the US January jobs report. ING's US economist, James Knightley, sees the headline job creation starting to dip. And assuming there are no upside surprises in the average earnings figures, we assume this data release would continue to support the benign, dollar-bearish environment. Clearly, it is a busy week for FX with arguably most of the volatility coming between the FOMC meeting outcome on Wednesday evening and the ECB/BoE decisions and press conferences on Thursday lunchtime. In the background, this week also sees the reopening of Chinese markets after the Lunar New Year public holiday. Investors are very bullish on China reopening prospects and will need to be fed more supportive data points this week. Here, tomorrow sees the Chinese PMIs for January, where sizable rebounds are expected - and required to support bullish positioning. Our game plan sees the dollar staying supported into Wednesday's FOMC meeting (e.g. DXY holding support down here at 101.30/50), but any FOMC-inspired rally in DXY to the 102.50/103.00 area proving temporary. Chris Turner EUR: Drifting into Wednesday/Thursday As above, Wednesday/Thursday could prove the most volatile period of the week. Our core view for the ECB meeting is that the central bank will stay hawkish and push back against the easing priced in for 2024. That should see two-year EUR:USD swap differentials continue to narrow and be positive for EUR/USD. We had cited this narrowing in swap differentials as a major factor when revising our EUR/USD forecasts substantially higher.  Before Thursday's ECB meeting, today sees the release of January economic confidence readings for the eurozone. These are expected to have improved marginally, but any upside surprises would feed the narrative of lower energy and strong fiscal stimulus ensuring that recessions if seen, are mild.  Expect EUR/USD to drift in a 1.08-1.09 range - probably into the US ECI data release tomorrow. Chris Turner GBP: Bank of England could be supportive As we discuss in the BoE monetary policy preview, a 50bp rate hike could prove mildly supportive for sterling. Our base case of a 50bp hike is not fully priced by the market. And with wage pressures remaining firm and base effects not expected to see CPI rolling substantially lower until the second quarter, it looks too early for the BoE to be sounding the all-clear on inflation. Depending on the state of the dollar after the FOMC meeting, GBP/USD could be pressing 1.2500 by the end of the week. Chris Turner CEE: Czech National Bank to confirm stable rates After a busy two weeks in Poland and Hungary, the main focus will shift to the Czech Republic. But first, today, we will see the final GDP number for Poland for last year. On Tuesday, fourth quarter GDP for the Czech Republic will be released. On Wednesday, we'll see the Czech Republic's state budget for January and PMI numbers across the region. We expect sentiment to improve in Poland, to be unchanged in the Czech Republic, and to deteriorate in Hungary. The Czech National Bank is scheduled to hold its first meeting of the year on Thursday. We expect rates and the FX commitment to remain unchanged. The main focus will be on the central bank's new forecast and outlook for January inflation. Thus, given the risk of higher inflation in the first quarter, we expect the tone to remain unchanged with the Bank citing "higher rates for longer" and warning that it does not "rule out a rate hike at subsequent meetings". However, we expect that rates will remain stable at least until the second quarter. In Hungary, S&P on Friday decided to downgrade the rating by one notch to BBB- with a stable outlook, highlighting the impact on the economy due to Covid-19, the Ukrainian war, and delays in EU money flows. The FX market in the region this week will, of course, be driven mainly by the global story and high volatility will not be a surprise. However, overall global conditions should remain positive for the region. Moreover, gas prices are testing new lows again, which is always good news for CEE. On the local front, we expect the Hungarian forint to absorb the negative shock of the downgrade and move back towards 395 EUR/HUF. In our view, the Czech koruna has the heaviest long positioning at the moment and therefore we see no room for the CNB meeting to support a move lower. On the contrary, we believe the koruna is overvalued and should move back towards 24.0 EUR/CZK. Frantisek Taborsky Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

So much for reliable statistics! The German economy contracted in the fourth quarter of 2022 after the first tentative statistics pointed to stagnation Germany's economy isn't just cooling, it's facing a winter recession   The German statistical office just released its first official estimate for fourth-quarter GDP growth, and recession fears are back. The economy shrank by 0.2% Quarter-on-Quarter, from + 0.5% QoQ in the third. GDP details will only be released in a few weeks, but private consumption was the main drag on growth according to the statistical office, As a result, annual GDP growth for 2022 was also revised downwards to 1.8%, from 1.9% YoY. Economic outlook anything but rosy Not falling off the cliff is one thing, staging a strong rebound, however, is a different matter. And there are very few signs pointing to a healthy recovery of the German economy any time soon. First of all, we shouldn’t forget that fiscal stimulus over the last three years stabilised but did not really boost the economy. Industrial production is still some 5% below what it was before Covid, and GDP only returned to its pre-pandemic level in the third quarter of 2022. Industrial orders have also weakened since the start of 2022, consumer confidence, despite some recent improvements, is still close to historic lows, and the loss of purchasing power will continue in 2023. Let's also not forget that, like every eurozone economy, the German economy still has to digest the full impact of the European Central Bank's rate hikes. Demand for mortgages has already started to drop and, as in previous hiking cycles, it didn't take long before the demand for business loans also started to drop. In short, the German economy will still be highly affected by last year’s crises throughout 2023. Germany’s economic outlook for this year looks complicated Germany’s economic outlook for this year looks complicated, to say the least, with an unprecedentedly high number of uncertainties and developments in opposing directions. And there is more; the German economy is still facing a series of structural challenges which are likely to weigh on growth this year and beyond: energy supply in the winter of 2023/24 and the broader energy transition towards renewables, changing global trade with more geopolitical risks and changes to supply chains, high investment needs for digitalisation and infrastructure, and an increasing lack of skilled workers. This long list embodies both risks and opportunities. If historical lessons from previous structural transitions are of any guidance, even if managed in the most optimal way, it will take a few years before the economy can actually thrive again. Winter recession remains base case for German economy Today’s GDP numbers once again show that caution, better than hope, is probably the best guidance for predicting German and European economic growth. The warmer winter weather, along with implemented and announced government fiscal stimulus packages, have prevented the economy from falling off a cliff, but a technical recession is still a likely outcome. We stick to our forecast of a winter recession in Germany and a very mild recession for the whole of 2023. Read this article on THINK TagsGermany GDP Eurozone

Economic sentiment in the eurozone increased to 99.9 in January, the third consecutive increase. Service sector businesses were particularly upbeat, resulting in stubbornly high selling price expectations. The latter will be taken as hawkish input for the ECB meeting Service sector businesses are particularly upbeat at the moment   Can we trust sentiment indicators? When consumer confidence was at its lowest last September, consumption continued to grow. Now that it’s recovering, we see signs of faltering household consumption. January’s economic sentiment indicator paints a picture of recovery while data released today show Germany’s economy contracted in the fourth quarter. While there is some doubt about how well these indicators track economic performance at the moment, we don’t want to ignore them either. Manufacturing businesses performed slightly weaker than before, but optimism about production in the months ahead is on the rise. Importantly, selling price expectations are down sharply as supply chain problems improve and demand for goods has fallen. Read next: Glovo Planned To Lay Off 250 Workers Worldwide, The Middle East Is Already Suffering From A Water Shortage| FXMAG.COM The service sector saw improving economic activity at the start of the year and remains upbeat about the months ahead. Employment expectations are also rising again, which puts continued strain on the labour market despite a slowing economy. In turn, selling price expectations also remain at very elevated levels for services, which could keep core inflation high for longer. For the ECB, this will be the main concern from the survey as worries about the second-round effects of the energy crisis are front and centre of Thursday’s governing council meeting. Read this article on THINK TagsInflation GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

According to a flash estimate, GDP grew by 4.9% in 2022, compared to 6.8% in 2021. This implies growth of around 2.0% in the fourth quarter. This year, GDP should slow to around 1% year-on-year given that inflation will eat into disposable incomes and inventories will dent growth   Household consumption increased by 3.0% last year and fixed investment jumped by 4.6%. The change in inventories boosted economic growth by 2.9pp, while foreign trade subtracted 0.4pp. We estimate GDP growth in the fourth quarter at around 2.0%-2.3% YoY - a marked slowdown from 3.6% in the third. Still, the end of the year was not as weak as the consensus estimate (1-1.5% YoY) and GDP growth was close to our GDP estimate for the fourth quarter (around 2% YoY). The full-year data also provides a preliminary estimate of GDP components in the fourth quarter. The reason for stronger-than-expected GDP growth remained the rebuilding of inventories, exports and investment, while consumption recorded a strong slowdown. We estimate that in the fourth quarter, household consumption declined by 1.5-1.8% YoY while fixed investment increased by 5.1-5.3% YoY. The consumption result should be considered disappointing and confirms that inflation is a serious problem, weighing on real disposable income and spending. In contrast, the increase in investment is a positive surprise. According to our estimates, in the last quarter of 2022, the change in inventories still had a significant impact in terms of generating economic growth (contribution of 1.5pp), although less than in the third quarter (contribution of 2.2pp). In turn, foreign trade made a positive 0.9pp contribution to GDP growth, compared to 0.6pp in the previous quarter.  Read next: Glovo Planned To Lay Off 250 Workers Worldwide, The Middle East Is Already Suffering From A Water Shortage| FXMAG.COM Despite the war in Ukraine, last year was successful for the Polish economy, which continued its post-pandemic recovery. Supporting the boom were improvements in supply chains and the influx of refugees from Ukraine. Industry (value-added growth of 7%) and exports performed well in such an environment. At the same time, the economic crisis and high inflation translated into a slowdown over the course of the year. Growth in services production slowed down, which is associated with strong price increases. We expect GDP growth of 1% YoY in 2023, higher than the consensus. Favourable weather conditions and improved infrastructure have translated into the strong filling of gas storage facilities in Europe. As a result, pessimistic forecasts for the European economy are unlikely to materialise, which improves the outlook for GDP growth in Poland and supports our expectations. However, the beginning of 2023 will be difficult. We expect first quarter GDP to decline on an annualised basis, with the number weighed down by the high base from the same period last year, when the economy grew by 4.3% quarter-on-quarter (seasonally adjusted) and 8.6% YoY. The economic situation should improve in the second half of the year. Unless Europe encounters problems securing energy sources for next winter season (2023/24), we expect economic growth of about 1% this year. This should be accompanied by a rapid decline in CPI, but with persistently high core inflation, which will not allow interest rate cuts before the end of this year. Poor consumption in the fourth quarter still supports a dovish MPC stance. Read this article on THINK TagsPoland GDP Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The euro is in positive territory on Monday. EUR/USD is trading at 1.0907 in the European session, up 0.36%. It was a quiet week for the euro, which continues to hug the 1.09 line. I expect to see stronger volatility this week, as the eurozone releases GDP and inflation data, followed by the ECB rate announcement on Thursday. German GDP declines in Q4 Germany’s economy posted a rare decline in the fourth quarter. GDP came in at -0.2% q/q, down from 0.4% in Q3 and shy of the forecast of zero. On an annualized basis, GDP slowed to 1.1%, down from the Q3 read of 1.3%, which was also the forecast. The markets are braced for more bad news out of the eurozone on Tuesday. German retail sales for November are expected to drop by 4.3% y/y, after a decline of 5.9% in November. Eurozone GDP is expected to slow to 1.8% y/y in Q4, compared to 2.3% in Q3. The ECB will be keeping a close eye on this week’s GDP and inflation data, ahead of a key rate decision on Thursday. The central bank has adopted a hawkish stance but is still playing catch-up with inflation, which is currently at 9.2%. The markets are expecting 50-basis points at the upcoming and March rate meetings, but there is uncertainty as to what happens after that. The ECB would love to ease up on rates, but the paramount consideration is curbing high inflation. The cash rate stands at 2.50%, and the markets are forecasting a terminal rate in the range of 3.25%-3.75%, meaning that there is plenty of life left in the current rate-tightening cycle.   EUR/USD Technical EUR/USD is testing support at 1.0907. Below, there is support at 1.0837 1.0958 and 1.1028 are the next resistance lines This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Forward-looking data suggest the economy will contract in the current quarter. The Bank of Korea will pause its tightening policy from February.  Source: Shutterstock -2.9% Industrial Production % MoM, sa Lower than expected Production activity declined while retail sales rebounded temporarily in December Industrial production dropped more than expected -2.9% MoM sa (vs 0.6% November, -0.2% market consensus) in December. Semiconductor (4.9%) and basic material (3.1%) products rose, but motor vehicles (-9.5%), and electronic components (-13.1%) fell even more. The inventory/shipment ratio edged down to 126 in December from 127.4 in November, but it remained at an elevated level, which is not favourable to the inventory cycle this quarter.  Also, we believe there is a supply mismatch in some industries. For example, in the case of automobiles, inventories for engines and auto parts continued to grow, while those for auto bodies declined significantly. Supply mismatch in auto sector Source: CEIC   Meanwhile, retail sales rebounded 1.4% in December, boosted by several one-off factors. Firstly, weather-related product sales rose as severe weather conditions continued. Secondly, there were larger-than-usual year-end sales promotions. And lastly, there was a technical payback from the early November crowd-crush accident. We believe that household purchasing power continues to weaken thanks to higher utility fees and a rising debt service burden. As a result, we expect retail sales to decline again in January. Retail sales rebounded temporarily in December Source: CEIC Forward-looking data point to weak growth in the current quarter Forward-looking data is more important to gauge this quarter’s growth. The cyclical leading index fell 0.5 points, recording six consecutive monthly declines. Both machinery and construction orders fell by –23.0% and -3.0%, respectively. Both are highly volatile in monthly comparisons, but in 3-month sequential terms, data show both intensifying their contractions in December.  Today’s data support our view that 1Q23 GDP will also contract (-0.2%QoQ sa), following the contraction in the fourth quarter of last year (-0.4%). China's reopening is unlikely to have much positive impact on Korea's economy in the first half of the year Forward-looking data suggest that Korea's growth momentum will soften further in the current quarter. At face value, China's reopening should be good news. But careful consideration of how this might affect Korea’s exports and services suggests caution is warranted. Both Japan and the Netherlands have decided not to provide chip-manufacturing equipment to China. Korean semiconductor companies have production lines in China, which cannot install top-notch equipment from the second half of the year, and this should adversely affect exports. As for services, it may take a bit longer for Korea to benefit from increased numbers of Chinese tourists entering the country as Korea now requires additional COVID-19 tests for Chinese tourists. These measures will eventually be lifted. But the initial reopening boost will be less than expected. BoK watch We maintain our view that the Bank of Korea will pause its rate hikes from February. We believe that the current quarter of growth is unlikely to improve, while inflation will slowly fall further over the next few months. We see no clear signs of improvement in exports while domestic economic activity continues to slow. Consumer price inflation in January will remain around the current level of 5.0% YoY (Market consensus 5.1%, ING forecast 4.9%) mainly due to hikes in gasoline and power prices, but the trend has clearly passed its peak. The Bank of Korea will monitor the cumulative impact of the earlier rate hikes from now on. If we are right about weak growth this quarter, coupled with weakening labour markets, tightening financial conditions, and slowing inflation, the Bank of Korea will probably consider a rate cut in the second half. Read this article on THINK TagsRetail sales Industrial Production Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

There are some important data to watch today: the Employment Cost Index in the US, GDP in the eurozone and CPI in France. We think the dollar can stay broadly supported into tomorrow’s FOMC, but the euro could outperform other G10 currencies on the back of rebounding inflation. In the Czech Republic, we will see the last numbers before Thursday's CNB meeting The dollar may stay broadly supported going into tomorrow's FOMC meeting USD: Some support going into the Fed meeting European data and global risk sentiment drove G10 FX dynamics yesterday. A weak start to the week for risk assets kept the dollar supported, especially during the US session, and signalled some market cautiousness ahead of multiple risk events: the FOMC tomorrow, ECB and Bank of England on Thursday, and US payrolls on Friday. Today, the last few pieces of US data before the Fed decision will be watched quite closely. Particular interest will be on the Employment Cost Index (ECI), which is expected to have eased from 1.2% to 1.1% in the fourth quarter. This is a key input in the Fed’s policy equation, and we could see investors shift between pro-hawkish/dovish positions ahead of the FOMC if the ECI surprises on either side. Our view for tomorrow is that the Fed still has an interest in hanging on to a hawkish rhetoric and pushing back against speculation of an early peak and – above all – rate hikes in 2023. The net result for the dollar may be positive. The US calendar also includes the Conference Board Consumer Confidence index – which may have rebounded in January – and the Dallas Fed Services index. We think the dollar can hold on to yesterday’s gains going into the FOMC meeting, and high-beta currencies could remain key underperformers in a risk-off environment. Volatility looks likely to pick up quite markedly during the remainder of the week. Francesco Pesole EUR: Inflation headaches before ECB meeting European rates markets had to deal with a surprising acceleration in Spanish inflation yesterday, which reinforced expectations of multiple 50bp hikes by the ECB. At the same time, the growth picture seems to have deteriorated, as Germany recorded negative growth in the fourth quarter. Eurozone-wide GDP figures will be released today, and are expected to show a 0.1% quarter-on-quarter contraction. However, it seems more likely that CPI figures out of France this morning will have a bigger impact on the euro. After all, a rebound in inflation is a more concerning development for the ECB than soft growth data which were heavily impacted by energy prices. In the section above, we discussed how the dollar may stay broadly supported going into the FOMC meeting. The euro, however, may show more resilience than other G10 peers (especially high-beta currencies) given the shift in the inflation narrative in the eurozone which can surely fuel ECB hawkish speculation. EUR/USD may hover around the 1.0850 handle until tomorrow’s FOMC.  Yesterday, we published our scenario analysis for this week’s ECB meeting: the recent hiccups in communication have heightened the risk that markets have lost some trust in President Christine Lagarde’s guidance. Investors may keep tracking data (EZ-wide CPI data are released tomorrow) more closely than they track Lagarde’s remarks, and the ECB meeting may not have a big impact on the euro after all. Our commodities team just revised their gas price forecasts, now expecting TTF to stay below 80 EUR/MWh throughout 2023. This is a bullish scenario for eurozone sentiment and the euro in the medium term. Francesco Pesole GBP: Standing by before 'super Thursday' There are no key data releases in the UK before Thursday’s Bank of England meeting. Markets are currently pricing in 46bp (our call is for 50bp) at this meeting and an additional 25bp in March. We expect a broadly neutral impact on the pound, and GBP/USD moves may be mostly dictated by the FOMC reaction. EUR/GBP may hold below 0.8800 until “super Thursday” (ECB and BoE meetings), although inflation figures in the eurozone mean the balance of risk is tilted to the upside for the pair. Francesco Pesole CEE: Czech economy pulled down again by automotive Today in the region we will see the first estimate of GDP for the fourth quarter of last year in the Czech Republic. We expect a 0.8% QoQ decline, below market expectations. This would confirm a shallow recession in the Czech economy. Looking ahead, the outlook for the first quarter of this year also does not look good despite better numbers across the region and from the eurozone. Yesterday, the Czech Republic's largest carmaker announced production cutbacks at some of its factories due to chip shortages. The news comes just a week after the country's third-largest manufacturer made the same announcement. This marks the beginning of difficult times for the industry, which is mainly driven by the automotive sector. The situation is dangerously reminiscent of the end of 2021 when chip shortages and automotive production curbs dragged the industry into its biggest slump since the Covid-19 lockdowns. This may also be a piece of the puzzle for the Czech National Bank (CNB) meeting this week, however we will have to wait a few months for proof in hard data. For the koruna, a weaker economic number could be a trigger to correct recent gains and return to 24.00 EUR/CZK. We also see interesting developments in Hungary following the downgrade of the country's sovereign rating. The weakening of the forint that we mentioned yesterday did not materialise and, on the contrary, the currency ended roughly unchanged at the end of the day. It confirmed that the strengthening of the forint is not short-lived and its strengths are of a more permanent nature. In the long term, we expect further strengthening. For now, we see yesterday's market reaction as a possible clearing of long positions while attracting new buyers and consolidating around 390 EUR/HUF. Frantisek Taborsky Read this article on THINK TagsFX Dollar Czech National Bank Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

French GDP grew by 0.1% in the fourth quarter, allowing the French economy to narrowly escape recession, at least for the time being. There are however few signs that the French economy will recover strongly in the coming months There are few signs of a dynamic recovery of the French economy in the coming months No winter recession in France French GDP grew by 0.1% quarter-on-quarter in the fourth quarter, a weaker figure than in the third quarter (+0.2%) but one that allows the French economy to escape recession, at least for the moment. Over the quarter, household consumption fell sharply (-0.9% compared to +0.5% in the third quarter), mainly due to a drop in food and energy consumption. However, this decline was offset by gross capital formation, which is slowing down but remains dynamic (+0.8% compared to +2.3% in the third quarter), and by a positive contribution from foreign trade, with exports falling less quickly than imports. On average in 2022, GDP increased by 2.6% (after +6.8% in 2021 and -7.9% in 2020). A resilient year, then, despite the major shock due to the war in Ukraine. But it should be understood that the growth of 2022 is above all the consequence of the strong progression at the end of 2021, the so-called carry-over effect. Expected quasi-stagnation in activity in 2023 Looking ahead, the data suggest that the French economic outlook remains uncertain, but far from dramatic. It doesn’t seem on the verge of recession. Nevertheless, escaping the recession does not mean rebounding strongly. Far from it. In fact, there are few signs of a dynamic recovery of the French economy in the coming months. The PMI indices indicate a deterioration in demand: new orders are falling and sales are declining. Household confidence is still at a historically low level and the French view the outlook in a very negative light. Moreover, inflation is expected to rise further in the first half of 2023, which implies that the evolution of real purchasing power will remain very low, dampening the dynamism of private consumption. Within companies, while stocks of finished products are high, new orders are falling sharply, meaning that the clearing of inventories could weigh on activity. In particular, while industrial production should continue to see supply difficulties ease, it is facing much weaker global demand and is still at risk of a renewed rise in global energy prices. The impact of the ECB's tighter monetary policy will begin to be felt in earnest in 2023, with rising rates likely to depress household and business investment. Finally, fiscal policy is expected to be less expansionary, which will be less supportive of economic growth. Ultimately, 2023 should be characterised by a quasi-stagnation of the French economy over all quarters of the year. A slight contraction of GDP in the first quarter of 2023 cannot be excluded. We expect GDP growth of 0.4% for the year 2023 as a whole. 2024 could see slightly better growth, thanks to a more pronounced fall in inflation, although the expansion will probably remain moderate. We expect 1.2% growth for 2024. To see a significant improvement in the outlook for the French economy in 2023, the fall in the price of gas on international markets and the reopening of China will not be enough. There needs to be a clear improvement in household and business confidence. Without this, stagnation remains the most likely scenario for 2023. Read this article on THINK TagsOutlook GDP France Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The bank lending survey shows tightening credit standards and lower demand for borrowing from both households and businesses. This confirms our view of a sluggish economy for most of 2023 and is a clear sign to the ECB that rate hikes are having a substantial impact already European Central Bank building in Frankfurt, Germany   The quarterly bank lending survey released last October indicated weak borrowing ahead and today's January release is flashing red. For the ECB, it shows that the most important channels for monetary transmission are working (it also raises the question of whether the ECB is not doing enough given the usual delay in monetary transmission to the economy). The survey indicates that both credit standards from banks are tightening and demand for loans is declining. Both of these moves indicate weaker borrowing ahead and therefore investment. Banks indicated that investment plans are having a negative impact on demand for business borrowing at the moment, while working capital needs still contribute positively as supply chain problems fade. For households, the ECB reported the sharpest decline in mortgage demand on record. The survey suggests that this is mainly because of higher interest rates, low confidence in the economy, and weakening housing market expectations. This confirms our view that the steady decline in house prices is set to continue at the start of the year. For the ECB, the decline in bank lending for December and the bank lending survey for January together indicate that we see transmission at work now, months ahead of its expected peak in the policy rate. For the doves on the governing council, this will be a key argument to keep further rate hikes limited from here on, while hawks will focus on stubbornly high core inflation. For Thursday we expect a 50 basis point hike. Read this article on THINK TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

A resilient eurozone economy managed to grow by 0.1% in the fourth quarter, but this likely masks a contraction in household spending. The worst scenarios for this winter have been avoided, but the economy remains sluggish   Despite the energy - and subsequent inflation - crisis, the eurozone economy once again defied recession in the fourth quarter, showing incredible resilience. But it was a narrow escape. Most economies are currently stagnating with near-zero growth. Germany and Italy, as big industrial economies, have seen slight contractions as they suffer more from the energy crisis while France and Spain have managed to eke out small growth rates. Ireland grew by a whopping 3.5% - the recent swings in Irish GDP are to a large degree driven by multinational accounting activity – which has added substantially to the small growth in eurozone GDP. In fact, eurozone growth would have fallen back to 0% if Ireland wasn’t included. While underlying data has not yet been published for eurozone GDP, data from the individual countries paints a picture of contracting domestic demand. The German statistical office mentioned this specifically, and France and Spain saw sharp contractions in household consumption. Imports have fallen significantly while exports held up pretty well, which means that net exports seem to have contributed positively to economic growth in the fourth quarter. When this is due to falling imports, it’s hardly a sign of strength. Read next: The Government Pension Fund Global Suffers Losses| FXMAG.COM We’ve argued before that the discussion about a recession has become semantics at this point. Growth has slowed to the point of stagnation. The worst scenarios have been avoided due to longer than expected pandemic reopening effects, extraordinarily warm weather which has eased the energy crisis substantially and more government support. Still, contracting domestic demand does show that after a period of strong post-pandemic spending, consumers are now adjusting their spending to the purchasing power loss they have incurred in 2022. Doubts about continued strong net export growth are also justified in a weak global environment, and investment is set to come under pressure from higher interest rates as borrowing data suggests. This means that an economy performing sluggishly, at best, is expected for early 2023 and a dip below zero cannot be ruled out for the first quarter. Read this article on THINK TagsGDP Eurozone

Unsurprisingly, domestic demand was the driver of this minor contraction. A short technical recession might ensue now, but a gradual recovery is expected to follow in the second quarter The small contraction in fourth quarter GDP might mark the start of a very short minor technical recession in Italy Minor contraction driven by domestic demand softness The Italian seasonally-adjusted GDP posted a minor 0.1% contraction in the fourth quarter of last year (from +0.5% in the third quarter), in line with our forecast, and a 1.7% increase in year-on-year terms. No detailed demand breakdown was disclosed, but the Italian National Institute of Statistics (Istat) indicated that the GDP contraction was the result of a positive contribution of net exports and a negative contribution of domestic demand (gross of inventories). The supply-side angle shows an increase in value added in services and a contraction in both agriculture and industry. The average 2002 GDP growth was 3.9% (compared to 6.6% in 2021). Lacking a detailed demand breakdown, we suspect that softer private consumption resulting from the fading out of the re-opening effect was the main drag on quarterly growth, while the support coming from net exports should be the result of a sharp contraction of imports rather than healthy exports. A short technical recession over the winter is likely, but the labour market will remain supportive The small contraction in fourth quarter GDP might mark the start of a very short minor technical recession, which we expect to end in the third quarter of this year. The first quarter of 2023 will likely see the economy still suffering the effects of the inflation wave on private consumption through the disposable income channel. However, as in 2022, a resilient labour market will likely act as an effective shock absorber for households, providing partial compensation. As December employment data have shown earlier today, the labour market is still solid, with a monthly employment gain and an increase in unemployment resulting in a stable unemployment rate of 7.8%, thanks to a decline in the pool of inactive workers. Interestingly, January business surveys signalled that hiring intentions are expected to remain in place over the next three months, both in industry and in services. On the investment front, continuous support should come from the European recovery fund effect. We thus anticipate another minor GDP contraction in the first quarter of 2023. Read next: The Government Pension Fund Global Suffers Losses| FXMAG.COM The recovery which will follow will likely be gradual All in all, today’s small negative reading should not be overemphasised. Whether it will be a technical recession or not, what the Italian economy is experiencing is a form of temporary stagnation. The exit speed will likely depend heavily on how fast the inflationary wave will recede. As we believe that the combination of energy inflation decline and core inflation stubbornness will yield a gradual fall in headline inflation, we expect the recovery to be very gradual as well. The carryover effect of 4Q22 GDP data on 2023 GDP growth is 0.4%. We forecast that the actual number will be slightly better than that at 0.7%. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

European markets struggled for direction yesterday, after German Q4 GDP showed a surprise contraction of -0.2% and core CPI in Spain rose to a record high of 7.5%, pushing yields across the bloc sharply higher. With the ECB due to meet later this week and expected to raise rates by 50bps, yesterday's weakness appears to have been driven by concern that the EU economy might not be as strong as thought, and inflation a lot stickier.   US markets also continued their own Jekyll and Hyde behaviour with the Nasdaq 100 posting its biggest one-day loss this year, as the strong rally of last week gave rise to a more tempered approach as the Federal Reserve gets set to kick off its two-day meeting later today.   Yesterday's surprise increase in Spanish core inflation for January to record highs also appears to have raised concerns that high prices might not come down as quickly as thought, and growth a lot slower, despite the recent sharp falls in energy prices. With Asia markets also sliding back this morning, markets here in Europe look set to open lower as we come to the end of what has been a strong month.   Later today we should get a better idea of whether the contraction in the German economy in Q4 was a localised issue, or symptomatic of more widespread economic weakness across the EU.   The French economy is expected to slow in Q4, down from 0.2% in Q3, to 0%, while the Italian economy is expected to contract by -0.2% in Q4. This is expected to translate into a similar weak performance for EU Q4 GDP which is forecast to show a contraction of -0.1%.   The UK economy is also expected to experience a weak quarter, however we won't know the actual numbers on that until next week, but recent lending data has already shown that consumers have already started to rein back on their spending, although we did see a bit of a pickup in November.   Read next: The Government Pension Fund Global Suffers Losses| FXMAG.COM   Net consumer credit in November more than doubled from 700k in October, to £1.5bn. This may well have been driven by a surge of holiday bookings judging by the recent November GDP numbers, which showed a strong performance from the travel sector. This resilience may well extend into December with an expectation of £1.1bn.   Mortgage approvals on the other hand, have slowed sharply since the summer months, and are expected to remain subdued in December, with expectations of a fall from 46.1k to 45k.   In the US the latest consumer confidence numbers for January are expected to see another gain to 109, after a surprise surge in December saw this indicator rise sharply to 108.3 from 101.40. This rise in consumer confidence is a little puzzling given that retail sales in the US for both November and December showed sharp declines.   One indicator that is likely to be of particular interest to the Federal Reserve as they convene their latest meeting today is the employment cost index for Q4 which is expected to slow from 1.1% from 1.2% in Q3. This is another key indicator for the Federal Reserve after last week saw core PCE fall to its lowest levels in over a year.  An upside miss on the ECI would be bad news for any sort of dovish expectations from tomorrow's decision.   EUR/USD – we saw another failed attempt to push above the 1.0900 area before slipping back again. The main resistance remains at the 1.0950 area which is 50% retracement of the move from the 2021 highs to last year's lows at 0.9536. A move through 1.0950 opens up a move towards 1.1110. Support remains back at the 1.0780 area.   GBP/USD – has continued to struggle above the 1.2400 area after last week's failure to move through the 1.2450 resistance area. We need to see a move through the 1.2450 area to target further gains towards 1.2600. A move below 1.2250 could see a move towards 1.2170.    EUR/GBP – the failure to make progress through the 0.8850 area last week has seen the euro slip back. Key support remains at the 50- and 100-day SMA which we earlier this month at the 0.8720/30 area. Below 0.8720 targets 0.8680.   USD/JPY – needs to break through the 131.00 area to target a move back towards 132.60. While below 131.00 the risk is for further declines towards the lows at 127.20. We have trend line support at the 129.00 area initially.   FTSE100 is expected to open 18 points lower at 7,767   DAX is expected to open 50 points lower at 15,076   CAC40 is expected to open 22 points lower at 7,060     Email: marketcomment@cmcmarkets.com Follow CMC Markets on Twitter: @cmcmarkets Follow Michael Hewson (Chief Market Analyst) on Twitter: @mhewson_CMC

Exports fell for a fourth straight month in January due to weak global demand for semiconductors and petrochemicals, with little hope for a meaningful improvement in Korea's trade performance in the first half of this year. Today's data supports our view that 1Q23 GDP will contract for a second consecutive quarter  Conditions for international trade remain very tough -16.6% Exports % YoY Lower than expected Exports fell 16.6% YoY in January Looking at the details of the export data just released, weak performances were even more broadly based and semiconductor exports deteriorated even further compared with the previous month. Among major export items, displays (-36%), steel (-25.9%), and petrochemicals (-25.0%) all declined while semiconductor exports fell the most (-44.5% vs -27.8% in December). On the other hand, vessels (86.3%), automobiles (21.9%) and batteries (9.9%) all rose in January. We believe that automobiles and E-vehicle-related exports continue to outperform, but the momentum will slow in the coming months as the US and Europe's demand will soften. By export destination, exports to China dropped the most, falling 31.4%YoY, while exports to the ASEAN region (-19.8%) and the US (-6.1%) also slid.  Trade deficit hit record high in January Source: CEIC The semiconductor downcycle will last at least another six months According to various industry reports, several major memory chipmakers including Hynix have cut their capex spending compared to last year and will focus on inventory management. But market leader, Samsung Electronics, announced that it will maintain its capital expenditure at the same pace as last year. This means that the large imbalance between supply and demand is unlikely to be corrected anytime soon and sector-wide inventory levels will continue to rise, resulting in further declines in unit memory chip prices. Memory prices have fallen more than 50% since their 2022 peak, and further unfavourable price effects look likely to weigh on Korean exports for a while longer. The market will eventually improve on the back of China's reopening and a recovery in mobile phone demand, but Korean chipmakers will face another geopolitical challenge from tightening US sanctions against tech exports to China. Thus, we expect the positive spill-over from the reopening of China to the Korean economy to be limited.  Growth outlook and BoK Watch Sluggish exports were one of the main reasons for the GDP contraction last quarter and we expect this to continue for several more months. Yesterday's industrial production data also suggest that domestic demand growth will remain sluggish in the current quarter. The manufacturing PMI edged up to 48.5 in January from 48.2 in December, but still remained below the neutral level. Thus we maintain our view that 1Q23 GDP will contract by 0.2% QoQ (seasonally adjusted rate). As external and domestic growth conditions worsen and utility prices rise, the main opposition party has urged the government to draw up a supplementary budget. However, we believe that the likelihood of this is still low at the moment. The government will expand energy subsidy programs for low-income households and ask local governments to refrain from raising public utility charges as much as possible. Meanwhile, the Bank of Korea will pause its tightening policy from February although it will maintain its hawkish stance for the time being.  Read this article on THINK TagsSouth Korea Korea trade Korea GDP Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Weak economic data ran to the rescue of the equity bulls on Tuesday. The S&P500 rallied almost 1.50%, while Nasdaq jumped more than 1.50%. The Federal Reserve (Fed) President Jerome Powell will be thrown to the spotlight today, to potentially shoot a couple of doves down to the ground. But there is always a hope that the falling price and wages inflation will get the Fed to the pivot point. US  The US dollar failed to consolidate and extend gains as the weaker economic data keeps strengthening the Fed doves’ hands. EUR/USD The EURUSD eased as low as 1.08 yesterday, but the pair found buyers on the back of a strong looking GDP data from the Eurozone. China Elsewhere, today’s PMI data from China, released by Caixin, were not as rosy as the one compiled by China Federation and released yesterday. Crude Oil And the barrel of American crude tipped a toe below the 50-DMA yesterday, as the API data revealed another big build in US inventories last week. The more official EIA data is due today, and the expectation is a 1 mio barrel decline, leaving room for further weakness in oil prices. Watch the full episode to find out more! 0:00 Intro 0:36 Equities extend gains on weak US data 2:01 GM, Spotify, Exxon Mobil & Snap posted mixed earnings 5:05 What does Powell think of weak data?! 8:04 Euro rebounds on stronger GDP read, but how strong was the read? 9:25 US crude tips a toe below 50-DMA on large inventory build Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #Fed #FOMC #meeting #Spotify #Snap #GM #Exxon #earnings #China #PMI #EUR #GDP #ECB #crude #oil #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH

Spanish tourism experienced a solid recovery last year although the number of visitors was still only 86% of pre-Covid levels. A further recovery will support Spanish growth in 2023 Tourists in Benidorm, Spain 71.6 million foreign tourists visited Spain in 2022, or 86% of pre-Covid levels Now that the Spanish statistics office, INE, has announced the remaining figures for December, we have a full picture of last year. In 2022, 71.6 million foreign tourists visited Spain, up 130% compared to 2021, but still 14% less than in the pre-Covid year 2019. Spanish international tourism experienced a strong recovery in the first half of the year but slowed from the summer. While the number of foreign visitors was already at 92% of its pre-Covid level in July, the gap remained intact in the second half of the year. High inflation and energy prices have put considerable pressure on the purchasing power of households in Europe, causing them to save on their travel budgets. In addition, the strict Covid restrictions in China and the loss of Russian tourists, who still accounted for 1.3 million visitors or 1.6% of the total in 2019, have also slowed down international tourism in Spain. The number of foreign visitors to Spain still considerably lags pre-Covid levels (in millions) Source: INE Domestic tourism already fully recovered from pandemic Domestic tourism recovered from the pandemic much faster than international tourism. In April, the number of overnight stays by residents had risen above pre-Covid levels. For all of 2022, the number of overnight stays by Spaniards was at the same level as in 2019. The effect of the cost-of-living crisis on domestic tourism was probably mixed. On the one hand, domestic tourism probably received a boost because many Spaniards opted for a domestic holiday this year instead of a trip abroad to save money. On the other hand, many families have likely cut back on their travel budgets, which has likely slowed domestic tourism in 2022. Also, the uncertainty associated with the pandemic at the beginning of last year probably caused more families to decide to stay closer to home. The number of overnight stays by Spanish residents Source: INE A further recovery in international tourism will contribute positively to Spanish growth this year Tourism is an important economic sector in Spain, contributing 14% to total GDP in 2019, according to the World Travel and Tourism Council. Sustained growth in the number of international visitors would be one of the key elements supporting Spanish GDP this year. We expect the number of international visitors to grow by approximately 10% in 2023. There is still great recovery potential, especially in the first half of the year, as the sector was just starting to emerge from the doldrums during the same period last year. In addition, there are also some early signs that the Chinese are keen to travel again. Once the health situation in the country normalises and the remaining travel restrictions are lifted, a growing number of Chinese visitors will boost Spanish tourism. We expect the Spanish economy to grow 1.2% this year, an upward revision thanks to a better-than-expected fourth quarter of 2022. Read this article on THINK TagsTourism Spain GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Next week’s calendar features inflation readings from Australia, India, the Philippines and China, plus Indonesia’s growth performance and trade data from Taiwan Source: Shutterstock Has inflation peaked in Australia? On 7 February, the Reserve Bank of Australia (RBA) is expected to hike rates by 25bp. Some months ago, when the RBA adopted the smaller 25bp hike approach, it became obvious that the central bank was not operating on a data-dependent policy. As it got closer to the peak in rates, it would simply proceed at a slower pace to avoid, or at least limit, the risk of overtightening. Considering the much higher-than-expected inflation readings over the past two months, we have increased our peak RBA cash rate forecast to 4.1% from 3.6%, assuming that there are two further months of 25bp hikes ahead. We see a slight softening of the labour and housing markets, but this is not likely to be decisive for future rate decisions There will be a subsequent statement on monetary policy on 10 February and this will likely provide more clarity on direction. India expected to pause hikes We can expect to see further central bank action from the Reserve Bank of India (RBI) on 8 February, and the outcome is much less certain than the RBA. The current repo rate is at 6.25%, which is 55bp higher than the prevailing rate of inflation, which has since fallen back into the top end of RBI’s 2-6% tolerance range. Our contention has been that the RBI is at or close to the peak, and we believe that the RBI will put a pause on the hikes to give growth a chance. Philippine inflation to stay elevated as supply shortages persist Philippine inflation is expected to dip to 7.8% year-on-year in January, down slightly from 8.1% in the previous month. However, we expect inflation to remain at elevated levels as supply shortages persist. Low domestic production resulted in surging prices for basic food commodities, Meanwhile, still-elevate global energy prices have resulted in high utility costs and rising gasoline prices. The Bangko Sentral ng Pilipinas (BSP) is expected to retain its hawkish stance for the time being although Governor Felipe Medalla has hinted at a possible reversal later in the year. Read next: Resumption Of Cooperation Between Airbus And Qatar Airways| FXMAG.COM Price pressures expected to slow in China China’s January CPI inflation should rise faster given the post-Covid lockdown reopening and extended holiday. Our estimate is 2.4%YoY.  Despite the acceleration, it’s too early to say whether this is a trend and is still below the warning level of 3%. Inflation should be slower in February after the holiday. PPI on the other hand should stay at a slight year-on-year contraction level due to the combination of lower commodity prices and a high base effect. Construction activities have yet to pick up, leading to lower metal prices. We expect construction activities to start to recover after winter which should give some support to PPI inflation. Headwinds in Taiwan's semiconductor industry Taiwan’s trade data should show a dire picture as the western market has placed fewer orders on semiconductor chips while the Mainland China market has yet to fully recover. We expect a contraction for both exports and imports of around 20%YoY.   This might lead to more uncertainty about the projected central bank’s hike in the first quarter of the year. Taiwan’s central bank should consider opting not to follow the Fed or hike at a slower pace due to the headwinds in the semiconductor industry. Other data reports: PBoC's decision on RRR, reserves and Indonesia's GDP report We do not expect the People's Bank of China (PBoC) to change the interest rate or RRR this year. The main monetary policy should be through a re-lending programme, which is more focused and helpful for economic recovery. Meanwhile, China is going to release credit data (from 9-15 February) and we expect a jump in January despite being the month of the Chinese New Year. New yuan loans will be the key engine of credit growth in the first month of the year. More credit growth from the debt market should follow during the first quarter. FX reserves should rise as indicated by the strengthening of the yuan which implies capital inflows into China. Further capital inflows are possible, especially portfolio inflows. But due to uncertain geographic tension, multinational companies might defer direct investments into China. Lastly, Indonesia reports fourth-quarter GDP and we expect growth to hit 4.9%YoY, taking 2022 full-year growth to 5.2%. Softer commodity prices weighed on both export performance and industrial output, however solid domestic demand was able to offset the downturn.     Key events in Asia next week Source: Refinitiv, ING Read this article on THINK TagsEmerging Markets Asia week ahead Asia Pacific Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

French industrial production continued to grow in December but still hasn't returned to its pre-pandemic level. While the shock of 2022 has yet to be fully digested by French companies, the outlook for 2023 remains moderate The French labour minister, Olivier Dussopt. being shown round a factory in southern France last month Increase in industrial production French industrial production increased by 1.1% over one month in December 2022, after +2% in November, thanks largely to a rebound in electricity production. Manufacturing output rose by 0.3% Month-on-Month in December, after +2.4% in November. The rebound was driven primarily by transport equipment manufacturing, which continues to recover after months of supply chain disruption. However, transport equipment production is still 14% below its pre-pandemic level. In December, coking and refining also grew rapidly, continuing its recovery from the October strikes which saw output fall by 47% over a month. The manufacture of capital goods fell by 3.3% in December, and the production of foodstuffs fell by 1.7%. Over the year, French manufacturing production increased by 3.6%. This is faster than GDP (+2.6% in 2022). Nevertheless, we still haven't fully recovered from the disruption of 2020 and 2021. At the end of 2022, French manufacturing output was still slightly below its pre-pandemic level, while GDP was 1.2% higher. It is also worth noting that, according to detailed GDP data published this week by INSEE, the value added of the manufacturing sector fell by 0.5% in the fourth quarter of 2022, despite the increase in production over the same period.  Read next: Starbucks Revenues Are High Despite High Costs| FXMAG.COM 2023 expected to be a minor year What can we expect in 2023? Thanks to supply chains easing, the production of transport equipment should continue to catch up and that should boost the whole of French manufacturing production. On top of that, since the beginning of the year, optimism seems to have returned thanks to the fall in energy prices on the international markets and the reopening of China, leading to upward revisions of the growth outlook. But beware of over-optimism. The shock of 2022 has yet to be fully digested by French companies. In a recent study that takes into account the types of contracts existing in France, INSEE estimates that most of the increase in electricity bills for companies has yet to take place. While bills rose by an average of 30% in 2022 for companies in the agricultural and industrial sectors, a rise of 92% is expected in 2023. As the INSEE study is based on data collected in November before the plunge in international energy prices, the rise in bills for 2023 may be overestimated. Nevertheless, there is little doubt that business energy bills will rise more in 2023 than in 2022 in France, despite the fall in spot prices on the markets. This is likely to hamper industrial production. In addition, the global economic slowdown, particularly in Europe and the United States, and the rise in interest rates, which increases the cost of financing for companies, are also likely to weigh on the industrial outlook in 2023. So, the contribution of industry to growth is likely to be subdued at best.  We expect GDP to grow by 0.4% in 2023, after +2.6% in 2022. Read this article on THINK TagsIndustrial production GDP France Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Give us a minute, and our economists will give you some answers to the global economy's biggest questions, notably around energy and China's reopening. And take a look at our three scenarios for the world as February begins In this article How far could gas prices rise from here, and what would be the major cause? Is Europe still heading for recession? If gas prices rise, have governments done enough to shield consumers/businesses in Europe? Is the end of zero-Covid in China a gamechanger? Is inflation really falling, and have markets been too quick to price in cuts? Can the US economy avoid recession? Can the recovery in risk assets continue?   Three scenarios for the global economy ING   ING   ING How far could gas prices rise from here, and what would be the major cause? We currently expect that European gas prices will average EUR 70/MWh over 2023, peaking in the fourth quarter with an average of EUR 80/MWh. However, clearly there are significant upside risks to this view. If remaining Russian gas flows to the EU were to come to a halt and if we were to see stronger than expected LNG demand from China this year, this would tighten up the European market significantly. Under this scenario, we would need to see stronger-than-expected demand destruction to keep the market in balance. As a result, prices would need to trade higher, potentially up towards EUR 150/MWh going into the '23/24 winter. The European Commission’s price cap of EUR180/MWh for TTF should provide a ceiling to the market, at least for exchange prices within the EU. Is Europe still heading for recession? Lower energy prices and high levels of national gas reserves as a result of the warm weather and lower energy consumption have helped the eurozone economy to avoid an energy crisis this winter. Fiscal stimulus has also supported the economy and prevented the eurozone from falling into a severe recession. However, the eurozone economy is not out of the woods yet. Industrial orders have weakened and once the post-pandemic boost is behind us, growth in the services sector could soften. With (core) inflation remaining stubbornly high and the full impact of ECB rate hikes still materialising (with activity in the construction sector particularly vulnerable), the eurozone is facing a longer quasi-stagnation. The worst-case scenario has been avoided for now but this doesn’t automatically lead to a strong recovery. If gas prices rise, have governments done enough to shield consumers/businesses in Europe? It took a while but at the end of last year, fiscal support measures in most eurozone countries had reached levels seen during the pandemic. For the eurozone as a whole, the announced fiscal stimulus amounts to around 5% of GDP. The stimulus packages are largely aimed at supporting household purchasing power but also at keeping companies’ energy costs at bay. However, if energy prices remain at current levels, the full amount reserved for energy price caps will not have to be used up. While these packages offer significant relief in the short run, they will not be able to shield consumers and businesses against structurally higher energy costs. Government expenditures in the eurozone already amount to around 50% of GDP and with the weighted eurozone government budget at 4.5% of GDP, any room to scale up deficit-financed stimulus, which is exclusively aimed at supporting consumption, looks limited. Is the end of zero-Covid in China a gamechanger? The surprise reopening of the Chinese economy will certainly boost demand, and we have revised up our GDP forecasts accordingly. What is still unclear is how much and when the reopening will boost domestic spending within China, especially on services. Household balances are swollen after prolonged inactivity, so some "revenge" spending seems plausible. How important these balance sheet effects are for spending within China is still being debated, with unemployment still high and wage growth still subdued. Of greater global relevance will be how strongly industry recovers, as this will dictate the strength of the recovery in demand for commodities, including energy. Our current thinking is that manufacturing recovers more slowly than domestic spending on services, and this should not result in a substantial boost to global commodities prices, though some upward price pressure is probable. With the economy just emerging from the Lunar New Year, and data clarity very low right now, this "goldilocks" view is offered with fairly low conviction. Is inflation really falling, and have markets been too quick to price in cuts? Headline inflation rates across the developed world should fall this year as the sharp rises in food, fuel and goods prices of late 2021-mid 2022 are unlikely to be repeated. Admittedly, of these three categories, food prices have probably the biggest potential to rise again significantly this year. With commodity prices – including food indices – having fallen in many cases, there is a case for a sharp reduction in goods-related inflation this year, and in some categories, outright price falls. This story is likely to be more aggressive in the US, where month-on-month increases in core CPI and PCE deflator readings have slowed from 0.5-0.6% in the middle of last year, to 0.2-0.3% more recently. That's still above the 0.17% MoM average required to take the year-on-year rate to 2%, but we're getting close. Rents are topping out, vehicle prices are falling and there is growing evidence that corporate pricing power is waning with businesses thinking more defensively as recession fears mount. We continue to forecast core inflation measures getting down to 2% by the end of 2023. In Europe, the story is likely to be more gradual. Core inflation is yet to peak, and the lagged impact of higher energy prices is continuing to put pressure on services pricing. The strong prevalence of collective bargaining in many European countries also suggests wage pressures will continue to feed through, too, and ongoing fiscal stimulus and government intervention could lengthen the inflationary pressure. The fear is that supply-side inflation could morph into demand-side inflation. The divergence between the EU and the US in terms of inflation suggests that markets are right to be pricing rate cuts from the Federal Reserve later this year, while the easing priced in from the ECB in 2024 looks premature. Can the US economy avoid recession? Possibly, but we need something to turn around quickly. We have a housing market correction coupled with six consecutive monthly falls in residential construction, three month-on-month drops in industrial production and two consecutive 1%+MoM falls in retail sales, which hint at a broadening slowdown. Meanwhile, the labour market is showing tentative signs of cooling after five consecutive months of decline in temporary help, which typically leads to broader labour market trends. With CEO confidence at the lowest level since the global financial crisis, implying a growing proportion of businesses adopting a more defensive stance, the risks are mounting that there will be a recession. However, strong household balance sheets and a robust-looking jobs market suggest it will be relatively short and shallow, assuming inflation falls as we expect and the Fed is able to offer stimulus later this year. Can the recovery in risk assets continue? It has been a strong start to the year for risk assets, underpinned by robust inflows. Equity markets are up as much as 9% in Europe and dedicated bond funds are up anywhere between 2-4%. But risk assets will struggle to post further near-term gains should our view for some tactical upward pressure on market rates bear fruit. It’s a non-consensus call though, and even if market rates were to fall it’s more likely that the market reads this as a measure of underlying angst, which can cause issues for risk assets, via an elevation in perceived default risk ahead. The strong rally in credit markets has lasted for over three months before which credit was pricing in a significant recession. The value that was evident then has evaporated. Nonetheless, with persistent inflows to the sector remaining a dominant theme, we remain constructive in the longer term and further returns in the sector will be a function of yield and carry, rather than spread tightening. In FX, growing headwinds to risk assets would provide some temporary support to the dollar and help cement a 1.05-1.10 EUR/USD trading range for the rest of the quarter. Later in the year, however, 1.15 levels are possible as the conviction builds over a Fed easing cycle. TagsEconomy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The UK is expected to be the only major industrialized country whose economy will contract this year. GDP forecast After UK economic output QoQ declined by 0.3% in Q3, many economists expected a similar contraction in Q4. The decline in the third quarter of last year was, according to the Office for National Statistics, partly due to an extra day off in September 2022 for the state funeral of Her Majesty Queen Elizabeth II as some businesses were closed or operating differently that day. The pause in economic activity on September 19, the day of the funeral, contributed to a monthly fall in GDP of 0.8% in September. This was followed by a rebound in October when the UK economy grew by 0.5% month on month. The economy grew a further 0.1% m/m in November, beating expectations of a 0.1% decline as the football world cup in Qatar boosted the UK services sector which grew by 0.2% compared to October. The customer services sector, which includes pubs and other food outlets, recorded an increase of 0.4%. Given the positive GDP growth in October and November and the fact that the World Cup lasted until December 18, it is possible that the UK narrowly avoided a decline in GDP in the fourth quarter, keeping the country from falling into recession. Source: investing.com Read next: Domination Of Fast Food Restaurants - McDonaldization| FXMAG.COM When comparing the 2022 quarter to the 2021 quarter, the UK economy is estimated to contract from 1.9% to 0.4% in the fourth quarter. GDP YoY Chart Source: investing.com UK in recession? According to the Office for Budget Responsibility, the UK is already in recession. Moreover, manufacturing fell by 0.2%, suggesting that while the fourth quarter as a whole may now show modest growth, the outlook for the future remains challenging, especially given that a reduction in service consumption is expected as the cost of living crisis intensifies this year. The trajectory of the central bank's aggressive monetary policy tightening appears to hold in the short term as inflation continued to hit double digits in November, albeit declining slightly from its 41-year high in October. Combined with the cost of living crisis caused by soaring food and energy prices, widening industrial action and unprecedented pressure on the nation's health service, consumers' purchasing power is unlikely to survive beyond the Christmas treat. The increased cost of credit is likely to put further downward pressure on activity. The Bank of England predicts that the British economy will experience at least four quarters of recession. The bank now predicts that the economy will contract by 1% from 3% and that inflation will fall back to 8% in June before dropping to 3% at the end of the year. The forecast comes as interest rates were raised to 4% from 3.5%, the highest level in more than 14 years. On Thursday, the Bank hinted that interest rates may be approaching a peak, indicating that it will only raise them if it sees signs that inflation will remain high. Bank governor Andrew Bailey said inflation appeared to be coming down but warned that there were still "big risks" that could still affect the economy. Higher interest rates are designed to encourage people to save more and spend less, helping to stop prices from rising as rapidly. Thursday's increase in the cost of credit is the tenth in a row and will add pressure on many households already struggling with the cost of living. The impact will be felt by borrowers through higher mortgage and credit costs, although this should also mean better returns for savers. Source: investing.com

The significant fall in natural gas prices has probably sheltered the eurozone from a winter recession, though there are still some headwinds that will keep growth subdued in 2023. Sticky core inflation is likely to keep the European Central Bank in tightening mode in the first half of the year In this article Sentiment is improving Not all headwinds have disappeared, however Inflation problems not over yet More monetary tightening to come   Warmer weather in Europe has helped offset big energy price rises. Pictured: an art installation on the Champs-Élysées in Paris Sentiment is improving Looking at recent economic sentiment indicators and the stock market rally in Europe, it looks as if the projected winter recession is not happening after all. Eurozone GDP surprisingly grew by 0.1% in the fourth quarter of 2022. Meanwhile, the composite PMI has been creeping up since November to reach 50.2 in January, a level that can no longer be associated with an economic contraction. At the same time, consumer confidence rose for the fourth consecutive month after having reached a historic low in September. Much of the improvement in sentiment is, of course, attributable to the significant fall in natural gas prices. With inventories still close to record highs on the back of the relatively mild winter, natural gas prices have nose-dived and are back at pre-war levels. While we don’t believe that they will remain so low, they probably won’t return to the growth-choking levels that we saw in the autumn of 2022. Another tailwind is the opening up of the Chinese economy, which is likely to support eurozone exports in the coming quarters, although this might be partially compensated by a weaker US economy. Not all headwinds have disappeared, however So, no worries then? Not so fast. While consumption is less depressed, it is far from strong. Because of weak demand, there is an inventory overhang in many sectors that might weigh on production in the short run. The ongoing ECB tightening cycle is wreaking havoc on the real estate market, and construction is also likely to feel the pain. The signs are already apparent in the weak credit growth figures in December and the downbeat bank lending survey, while house prices have started to fall in a number of member states. While the current growth deceleration may lead to barely any weakening in the (tight) labour market, the corollary is that the subsequent upturn will not benefit from rapidly growing employment. We also think that fiscal policy will become tighter in the wake of the still-high budget deficits. The bottom line is that we are revising our growth forecast upwards to 0.6% for this year, but for 2024 we are sticking to the 1.1% growth projection. Read next: Difficult Decision Ahead Of The RBA, The Market Expects A 25bp Rate Hike| FXMAG.COM Higher interest rates will weigh on the housing market and construction sector Refinitiv Datastream Inflation problems not over yet HICP headline inflation fell in January to 8.5% on the back of the lower energy prices. However, core inflation remained stuck at 5.2%. Looking at the business surveys, intentions to raise prices in the coming months remain high. You might even say that less adverse economic circumstances contribute positively to businesses' pricing power, especially in the services sector. We now expect average headline inflation of 5.7% in 2023, while core inflation is projected to average 4.6% over the year. A return to the ECB’s 2% inflation objective will probably have to wait until the fourth quarter of 2024. Selling price expectations remain high Refinitiv Datastream More monetary tightening to come A 50 basis point rate hike both in February and March now looks like a done deal. The question is how much more tightening the ECB will add after that. While we anticipated a final 25bp rate hike in May, we must admit that the probability of an additional 25bp tightening is increasing by the day. At the same time the bank might also decide to increase the amount of maturing bonds that will no longer be reinvested in the second half of the year. As for a first rate cut, we probably will have to wait until the end of 2024 at the earliest. TagsInflation GDP Eurozone ECB 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

Next week’s calendar features inflation readings from Australia, India, the Philippines and China, plus Indonesia’s growth performance and trade data from Taiwan In this article Has inflation peaked in Australia? India expected to pause hikes Philippine inflation to stay elevated as supply shortages persist Price pressures expected to slow in China Headwinds in Taiwan’s semiconductor industry Other data reports: PBoC’s decision on RRR, reserves and Indonesia’s GDP report   Shutterstock   Has inflation peaked in Australia? On 7 February, the Reserve Bank of Australia (RBA) is expected to hike rates by 25bp. Some months ago, when the RBA adopted the smaller 25bp hike approach, it became obvious that the central bank was not operating on a data-dependent policy. As it got closer to the peak in rates, it would simply proceed at a slower pace to avoid, or at least limit, the risk of overtightening. Considering the much higher-than-expected inflation readings over the past two months, we have increased our peak RBA cash rate forecast to 4.1% from 3.6%, assuming that there are two further months of 25bp hikes ahead. We see a slight softening of the labour and housing markets, but this is not likely to be decisive for future rate decisions. There will be a subsequent statement on monetary policy on 10 February and this will likely provide more clarity on direction. India expected to pause hikes We can expect to see further central bank action from the Reserve Bank of India (RBI) on 8 February, and the outcome is much less certain than the RBA. The current repo rate is at 6.25%, which is 55bp higher than the prevailing rate of inflation, which has since fallen back into the top end of RBI’s 2-6% tolerance range. Our contention has been that the RBI is at or close to the peak, and we believe that the RBI will put a pause on the hikes to give growth a chance. Philippine inflation to stay elevated as supply shortages persist Philippine inflation is expected to dip to 7.8% year-on-year in January, down slightly from 8.1% in the previous month. However, we expect inflation to remain at elevated levels as supply shortages persist. Low domestic production resulted in surging prices for basic food commodities, Meanwhile, still-elevate global energy prices have resulted in high utility costs and rising gasoline prices. The Bangko Sentral ng Pilipinas (BSP) is expected to retain its hawkish stance for the time being although Governor Felipe Medalla has hinted at a possible reversal later in the year. Price pressures expected to slow in China China’s January CPI inflation should rise faster given the post-Covid lockdown reopening and extended holiday. Our estimate is 2.4%YoY.  Despite the acceleration, it’s too early to say whether this is a trend and is still below the warning level of 3%. Inflation should be slower in February after the holiday. PPI on the other hand should stay at a slight year-on-year contraction level due to the combination of lower commodity prices and a high base effect. Construction activities have yet to pick up, leading to lower metal prices. We expect construction activities to start to recover after winter which should give some support to PPI inflation. Headwinds in Taiwan’s semiconductor industry Taiwan’s trade data should show a dire picture as the western market has placed fewer orders on semiconductor chips while the Mainland China market has yet to fully recover. We expect a contraction for both exports and imports of around 20%YoY.   This might lead to more uncertainty about the projected central bank’s hike in the first quarter of the year. Taiwan’s central bank should consider opting not to follow the Fed or hike at a slower pace due to the headwinds in the semiconductor industry. Other data reports: PBoC’s decision on RRR, reserves and Indonesia’s GDP report We do not expect the People's Bank of China (PBoC) to change the interest rate or RRR this year. The main monetary policy should be through a re-lending programme, which is more focused and helpful for economic recovery. Meanwhile, China is going to release credit data (from 9-15 February) and we expect a jump in January despite being the month of the Chinese New Year. New yuan loans will be the key engine of credit growth in the first month of the year. More credit growth from the debt market should follow during the first quarter. FX reserves should rise as indicated by the strengthening of the yuan which implies capital inflows into China. Further capital inflows are possible, especially portfolio inflows. But due to uncertain geographic tension, multinational companies might defer direct investments into China. Lastly, Indonesia reports fourth-quarter GDP and we expect growth to hit 4.9%YoY, taking 2022 full-year growth to 5.2%. Softer commodity prices weighed on both export performance and industrial output, however solid domestic demand was able to offset the downturn.     Key events in Asia next week Refinitiv, ING TagsEmerging Markets Asia week ahead Asia Pacific   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

Lower gas prices should herald a fall in consumer energy bills by the summer. A recession is still the base case, but the reduced squeeze on household incomes suggests the peak-to-trough fall in GDP could now be less than 1% In this article Lower gas prices are good news for UK consumers The UK doesn't look like it will be a notable outlier on GDP   The British Prime Minister, Rishi Sunak, is facing major economic headwinds Lower gas prices are good news for UK consumers Lower gas prices are as much of a boon for the UK as they are for the rest of Europe. It’s true that Britain has considerably less gas storage than its peers, making it more vulnerable on days of low temperatures and wind. But in general, lower prices point to lower consumer bills – and that means the hit to GDP this year is likely to be less than feared. April’s planned increase in unit prices can probably be cancelled, and in fact, the average annual household bill is likely to fall from £2,500 under the government guarantee, to £2,000 over the summer. Such a move would shave roughly 1 percentage point off headline inflation later this year and means it would end the year only modestly above the Bank of England’s 2% target. Admittedly, business support is still set to become less generous, though with wholesale gas prices so much lower, this looks less consequential than it once did. The average annual household energy bill should fall by the summer Macrobond, ING calculations The UK doesn't look like it will be a notable outlier on GDP With the hit to household incomes diminished, we now think the peak-to-trough fall in UK GDP is likely to be less than 1%. Most of the hit is likely to fall in the first quarter. But while this still places the UK towards the bottom of the pack on growth (again), we think it’s an exaggeration to say it will be a notable outlier. For instance, while higher mortgage rates are likely to weigh on 2023 growth, the UK doesn’t look any more exposed than much of Europe to a house price correction. Unlike somewhere like Sweden, which has so far seen a 15% fall in house prices, the UK has a very low share of variable rate mortgages and ranks in the middle-of-the-pack on household indebtedness, as well as on increases in price-to-income ratios over recent years. The situation is trickier for businesses, particularly smaller corporates where floating rate lending makes up 70% of outstanding debt. Survey data suggests that’s a particular issue in consumer services and real estate. The latter, combined with weaker homebuyer demand, unsurprisingly points to a fall in construction this year.  For now, the Bank of England is more focused on persistently strong wage growth and service-sector inflation. While it looks like we’re close to the top of this tightening cycle, we think the UK’s somewhat unique combination of structural labour shortages and exposure to Europe’s energy crisis points to somewhat sticky core inflation. That suggests the UK is likely to be slower than the US Federal Reserve to cut rates, and we don't expect policy easing before next Easter. TagsUK fiscal policy 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

January and February will be a moment of truth for Central and Eastern Europe and confirmation that the region has its own inflation story, more persistent than the global narrative. The region's economic picture is generally better than expected, but this also means stronger inflationary pressures and a problem for central banks to cut rates soon In this article Poland: Resilient economy but persistent core CPI remains a problem Czech Republic: Recession confirmed Hungary: A glimpse of light at the end of the tunnel Romania: Strong demand in the economy but also in markets   The Polish Prime Minister, Mateusz Morawiecki Poland: Resilient economy but persistent core CPI remains a problem The Polish economy proved to be relatively resilient to the shocks of war, energy and aggressive rate hikes, both at home and abroad last year. In 2023 we stick to our above-consensus GDP forecast of 1%. Lower gas prices and China reopening support the eurozone and our GDP expectations for Poland. Last year's fourth-quarter GDP backdrop was disinflationary, but the labour market was still tight. According to the National Bank of Poland Beige Book, the percentage of companies planning wage hikes grew to an all-time high of 62.3% due to a tight labour market and a countercyclical hike of the minimum wage by 19.1%. We expect CPI to rise to 18.1% in January and peak at 20% YoY in February. In the following months, CPI should drop by half to about 10% in December 2023. But the problem is the persistence of core inflation. We are not expecting rate cuts in 2023 against quite aggressive market pricing. The government covered more than 50% of borrowing needs, but given the strong sentiment in the Polish government bond (POLGBs) market, it plans for heavier supply in February. Together with the approaching European Court of Justice ruling on 16 February, both of these factors call for tactical profit taking on the POLGBs market. The ruling of the ECJ is the second step in the Swiss franc mortgage saga. The ECJ is expected to judge whether banks can charge clients for the cost of capital, even when CHF mortgages are terminated. Should the ECJ ruling turn negative, local banks may be forced to significantly raise provisions, which should hinder their demand for POLGBs. This is an important systemic risk which needs to be tackled by policymakers. This uncertainty explains the underperformance of the zloty vs CEE FX recently and should also affect POLGBs. Czech Republic: Recession confirmed The flash GDP estimate confirmed the Czech economy entered recession in the second half of 2022. The Czech economy declined by -0.3% Quarter-on-Quarter, mainly due to a reduction in private spending. The good news is that the decline remained still relatively shallow compared to market expectations. The economic contraction has not been mirrored in a significant deterioration of the labour market yet. However, key local car producers have already announced they are planning to reduce their production markedly in the coming weeks due to problems with component supplies. Given the importance of the automotive sector to overall economic performance, it seems the pace of economic recovery will be postponed. We expect inflation is likely to exceed 17% YoY in January, reflecting the increase in regulated prices and food prices. On the monetary policy side, there is no change in our view that the central bank will keep interest rates the same in February. Czech National Bank officials mostly assume that ongoing strong inflation is largely attributable to supply-side effects and should fade during the year, while the current level of rates at 7% is sufficient to tame domestic demand-pull inflationary pressures, together with a decline in consumer spending. Depending on inflation and the performance of the economy, we see the possibility of reopening the discussion on rate cuts in the middle of the year. The Czech koruna strengthened further, which is mostly attributable to the decline in gas prices. Previous interventions by the CNB cooled market pressure on the koruna. We expect a soft correction of the currency to slightly weaker levels and volatility isn't expected to be too much of a problem.  Hungary: A glimpse of light at the end of the tunnel This year could not have started better for a small open economy with a high dependency on energy imports like Hungary. After a rough year, the Hungarian economy is facing a non-negligible tailwind thanks to the improving external outlook on China’s turnaround and the resilience of the eurozone. Internally, the biggest positive surprise is the local labour market, where companies are still trying to retain workers. However, the strength of the labour market is a double-edged sword. It leads us to revise this year’s GDP growth up to 0.7% on average but poses a significant red flag from an inflationary perspective. Wage-push inflation is a real threat now. And though we see the headline inflation peaking somewhat below 26% in January-February, the deceleration will be slow and gradual. This possible tenacity of price increases makes us forecast an 18.5% average inflation rate in 2023. Against this backdrop and seeing the outcome of the January rate-setting meeting, we think that the monetary policy will exercise more patience than other central banks. We see the National Bank of Hungary starting its policy pivot only during the second quarter, gradually reducing the rates of the temporary, targeted tools. Our tighter-for-longer call will be complemented by more conscious fiscal spending this year. Tight fiscal and monetary policy alongside an ongoing significant voluntary energy consumption reduction will help to reduce the current account deficit. We also expect tensions to ease between the European Commission and the government as the latter will meet more milestones, translating into the flow of more EU funds. Against this backdrop, it is easy to understand why we stick to our general bullish view regarding Hungarian assets. Romania: Strong demand in the economy but also in markets The high-frequency data available to date suggest a rather resilient GDP growth in the fourth quarter of 2022, consistent with our current estimate of around 1.0% quarterly advance. This would take the full 2022 GDP to +5.0%, arguably one of the best outcomes one could have hoped for. Much in line with external developments, there are early signs of an accelerated cooling in the economy in January, with the Economic Sentiment Index falling for the third consecutive month, particularly on the back of lower demand in the service sector. On the monetary policy front, the National Bank of Romania is likely done with rate hikes for the rest of the year. While not yet clearly visible, a consolidation of the downward inflationary trend should be more obvious starting in March, when we expect the headline CPI to flirt with 14.0% (from the peak of 16.8% in November). As for actual market rates, they remain somewhat decoupled from the 7.00% policy rate, being heavily influenced by the liquidity conditions in the money market. Speaking of liquidity, January has been an outstanding month for the Ministry of Finance, which managed to issue almost RON20bn in the local bond market, thus absorbing a large chunk of the surplus liquidity created in November-December. We still think that a return to a liquidity deficit situation is unlikely, but smaller surpluses (say below RON5bn monthly) could become more usual. 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

GDP growth in the fourth quarter of last year beat market expectations, but signs point to a slowdown in 2023 Jakarta, the capital of Indonesia 5%YoY 4Q 2022 GDP growth   Higher than expected Fourth quarter GDP growth beats consensus Economic activity rose 5% year-on-year in the fourth quarter of 2022, up 0.4% from the previous quarter and better than the market consensus of a 4.9%YoY gain. The better-than-expected growth performance takes full-year growth to 5.3%YoY. Solid household spending (4.5%YoY) offset a contraction in government spending (-4.8%YoY) as well as compensating for slower capital formation (3.3%YoY vs 6.5% previous) and a narrowing trade surplus. Indonesia’s export and manufacturing sectors benefited from rising commodity prices in early 2022 but this key support has now faded. Exports, mining/quarrying and manufacturing all managed to eke out gains in the fourth quarter but at a more measured pace compared to the previous quarter.  We can expect exports and the manufacturing sector to face headwinds in 2023 with the economy needing to rely more heavily on household consumption for growth. Household spending proved resilient in 2022 but stubbornly high inflation (January inflation at 5.3%YoY) could weigh on consumption at least in the first half of 2023. Fourth quarter GDP surprises on the upside but 2023 brings fresh challenges to growth outlook Source: Badan Pusat Statistik Bank Indonesia shifting its stance? Bank Indonesia (BI) has been busy over the past few months, lifting its policy rate from 3.5% to 5.75% to deal with above-target inflation. BI Governor Perry Warjiyo however recently hinted that the current policy rate hike cycle could be coming to an end soon. BI will likely consider reversing its current stance to dovish should inflation continue to soften amid slowing growth momentum.  If inflation continues to edge lower, we could see BI pause policy rates as early as the first quarter of the year to shift focus back to growth support amid the global economic slowdown.    Read this article on THINK TagsIndonesian CPI Indonesia GDP Bank Indonesia Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Summary:  This week, markets will be digesting the slew of central bank meetings from last week, along with the bumper jobs report, as more Fed speakers including Chair Powell take stage. The Reserve Bank of Australia may likely stay in the chorus and hike rates by 25bps as well, but focus will be on guidance. Bank of Japan’s nominees for the new chief will likely continue to send market jitters, while UK GDP is expected to dodge a recession. China’s inflation and credit data may throw further light on the economic momentum, but US-China tensions will also be on watch. Earnings calendar stays in full force with reports due from Disney, PepsiCo, Toyota as well as Adani Green. Powell’s speech, more Fed speakers on watch as the US dollar jumps After a hotter-than-expected US jobs report on Friday, equities and the VIX index, and the US dollar are on notice. Fed Chair Powell and several Fed speakers are due to speak this week and they could disagree with the Fed’s dovish tilt last week, which could spark a reversal of the risk-off rally we have seen since the start of the year. Powell will be speaking in Washington on Tuesday (1am SGT on Wednesday for Asia), followed by Barr, Williams, Cook, Kashkaru, Waller and Harker over the course of the week. Flight to safety could take the US dollar higher, and shave down broad indices. USD is also likely to find some support this week amid the rising US-China tensions after a suspected Chinese spy balloon was shot down over the weekend. RBA meeting ahead, putting AUDUSD and EURAUD on watch for a potential whipsaw The Melbourne Institute Inflation gauge for Australia rose more than expected MoM & YoY, while Australian retail sales beat expectations. These indicators, coupled with building approvals seeing one of their biggest jumps in a decade, gives the RBA power to keep hiking rates. The RBA is expected to hike by 25bp on Tuesday, with the market pricing in another 25bp hike. However there is a small chance the RBA could keep hiking before pausing in July. The jury is still out. We are watching the AUDUSD and the EURAUD with the AUD having nose-diving as commodity prices fell from their highs, while the USD gathers strength. While the ECB hiked by 50bps last week. However, there is a risk the RBA could be aggressive in its commentary (more than prior meetings), which may perhaps trigger an AUD knee-jerk rally up. For more on FX, click here. Bank of Japan’s nominee submissions and expectations for a policy pivot Monday morning reports from Nikkei that the government has approached Bank of Japan Deputy Governor Masayoshi Amamiya as a possible successor to central bank chief Haruhiko Kuroda sent jitters. The week was supposed to bring possible BOJ chief nominations, as the nominees list has to be presented to parliament on February 10. However, FM Suzuki refused to confirm Amamiya’s nomination. Amamiya has helped Kuroda since 2013 on monetary policies, and is considered the most dovish among the contenders, which is thrashing hopes that BOJ policy normalization could progress under the new chief. As more names are likely floated this week, there will potentially be some volatility in the Japanese yen and equities, with markets continuing to weigh up the possibility of a shift in Bank of Japan’s yield-curve control policy. German inflation on watch; Riksbank rate hike; UK GDP may confirm a delay in recession After a technical delay last week, Germany’s inflation prints for January will be due this week. Spain and France printed higher-than-expected CPI for the month, while the region-wide printed was softer last week. This suggests Germany’s inflation likely eased due to energy price increases being more subdued than previously expected. Meanwhile, adjustments in the CPI basket could also likely result in a softer print. Riksbank meeting next week is also likely to bring a 50bps rate hike, after a similar-sized hike by the Fed, ECB and Bank of England last week. While inflation still remains entrenched, the Governor has recently hinted at financial stability risks, limiting the scope of another 75bps rate increase this month. Lastly, the key in UK will be the preliminary GDP report for the fourth quarter which is likely to dodge a recession. Bloomberg consensus expect GDP growth to be flat QoQ in Q4 after a negative 0.3% QoQ print in the third quarter, underpinned by a strong labor market and fiscal easing. However, it is still hard to conclude that UK could avoid a recession, but only likely suggest a potential delay. If growth comes in weaker than expected, pressure on sterling could start to mount. China’s new loans expected to rise as banks frontloading lending Chinese banks typically deploy proportionally a larger part of their annual loan targets at the beginning of the year. According to Bloomberg’s survey, economists are forecasting new RMB loans jumped to RMB 4,200 billion in January from RMB 1,400 in December which represent around 11% Y/Y growth in outstanding RMB loans, marginally below the 11.1% in December. While mortgage lending likely remained slow, corporate and government bond issuance increased in January. As corporate lending and bond insurance picked up, new aggregate financing is expected to rise to RMB 5,400 billion in January from RMB 1,310 billion in December, but the implied 9.3% Y/Y growth in total outstanding aggregate financing was below the 9.6% in December. China inflation is expected to inch up China’s Inflation may have accelerated as the headline CPI is forecasted to bounce to 2.2% Y/Y in January from 1.8% in December. A surge in in-person service consumption after the reopening may have underpinned some price increases but the upward pressure on the general level of inflation has remained moderate. Rises in vegetable and fruit prices were likely damped by a decline in pork prices. The decline in producer prices is expected to narrow to -0.4% in January from -0.7% in December as industrial metal prices bounced offsetting a decline in coal prices. This week’s earnings focus: Walt Disney, Siemens, and Toyota The Q4 earnings season is not over yet with 243 companies in the S&P 500 Index having reported earnings. This week’s earnings calendar will provide plenty of information for investors to chew on. The list below highlights the absolute most important earnings to watch and out of those the three most key earnings are from Walt Disney, Siemens, and Toyota. The entertainment giant Disney is expected to report revenue growth of 7% y/y and EPS of $0.76 up 21% y/y and a lot of focus will be on Nelson Peltz, the activist investor that has gone into the company, and his quest for higher streaming profitability and potentially changing the asset portfolio of Disney. Siemens, one of Europe’s largest industrial companies, is expected to show revenue growth of 11% y/y and unchanged operating income compared to a year ago as cost pressures remain a key challenge for Siemens. Last quarter the order book and net new orders looked healthy, so the question is whether this will flow through into the outlook for 2023. Toyota is expected to report revenue growth of 19% y/y as demand for cars have come back, but the real interesting focus point on Toyota is further details on the new CEO’s aggressive move towards offering many more fully electric vehicles rather than hybrids. Toyota has recently indicated that they have made errors in their technology bet and looking to aggressively invest in battery EVs. Toyota, Honda and Volvo company earnings are on watch and could disappoint like Ford A bevy of EV and motor companies report this week including Toyota Motor, Honda Motor and Volvo Car. We think there could be a risk they report weaker than expected results, similar to Ford; which sent Ford shares 8% lower on Friday. Ford is struggling to make money on its EV business and blamed supply shortages. Metal commodities are a large contributor to car manufacturers costs. And we’ve seen components of EVs rise significantly in price, amid limited supply vs the expectation China will increase demand.  For example consider the average EV needs about 83 kilos of copper- and its price is up 26%, 250 kilos of aluminium are needed - and its price is up 20% from its low. These are some headwinds EV makers are facing, in a market where consumer demand is restricted amid rising interest rates. Australian reporting season ramps up; banks and property groups results are on watch Financial results kick off with Suncorp reporting 8th Feb- this could be a good indication of what we can expect from big banks such as CBA that reports next week. Data last year showed loan growth in regional banks grew slightly more than the big four banks, so we could see earnings surprises in Suncorp and Bank of Queensland. The market expects 25% earnings growth from Suncorp, and flat growth from CBA next week. The Telco giant, Telstra reports on Tuesday, with a flood of property groups reporting such as Centuria on Tuesday, BWP Trust – the Bunnings landlord, as well as Dexus on Wednesday, followed by Mirvac and Charter Hall Long WALE REIT reporting Thursday. For defensive plays; the plastics giant Amcor reports Tuesday. While interest rate sensitive Australian Tech companies, which are not traded very much at Saxo; start to report this week with Megaport reporting Thursday, and real estate-tech business REA on Friday. Adani Group companies start to report earnings this week After over $100 billion in losses over the last two weeks, focus will remain with the Adani Group stocks this week in India as some of the companies start to report earnings. Adani Green Energy reports earnings this week, and investors will be looking out for comments on corporate governance, response to Hindenburg’s fraud allegations as well as the company’s financial position and debt trajectory. Adani Green is one of the most highly indebted companies in the group, and a big player for India’s net zero ambitions. Macro data on watch this week: Monday 6 February New Zealand, Malaysia Market Holiday Australia Retail Trade (Q4) Germany Industrial Orders (Dec) Germany Consumer Goods (Dec) Eurozone S&P Global Construction PMI (Jan) Germany S&P Global Construction PMI (Jan) Eurozone Sentix Index (Feb) United Kingdom S&P Global/CIPS Construction PMI (Jan) Eurozone Retail Sales (Dec) Germany CPI (Jan, prelim) Indonesia GDP (Q4) Tuesday 7 February Japan All Household Spending (Dec) Australia Trade Balance (Dec) Australia RBA Cash Rate (Feb) Malaysia Industrial Output (Dec) Germany Industrial Output (Dec) United Kingdom Halifax House Prices (Jan) Taiwan Trade (Jan) United States International Trade (Dec) Canada Trade Balance (Dec) Wednesday 8 February Japan Current Account Balance (Dec) India Repo and Reverse Repo Rate United States Wholesale Inventories (Dec) Thursday 9 February Taiwan CPI (Jan) United States Initial Jobless Claims Friday 10 February Australia RBA Monetary Policy Statement (Feb) China (Mainland) CPI and PPI (Jan) United Kingdom monthly GDP, incl. Manufacturing, Services and Construction Output (Dec) United Kingdom GDP (Q4, prelim) United Kingdom Goods Trade Balance (Dec) Canada Unemployment Rate (Jan) United States UoM Sentiment (Feb, prelim) Taiwan GDP (Q4, revised) India CPI Inflation (Jan) China (Mainland) M2, New Yuan Loans, Loan Growth (Jan) Earnings on watch this week: Monday: Activision Blizzard, IDEXX Laboratories Tuesday: Carlsberg, BNP Paribas, Siemens Energy, SoftBank Group, Nintendo, BP, Linde, Vertex Pharmaceuticals, KKR & Co, Fortinet, DuPont, Illumina, Enphase Energy Wednesday: A.P. Moller – Maersk, Vestas Wind Systems, TotalEnergies, Societe Generale, Deutsche Boerse, Adyen, Equinor, Yara International, Walt Disney, CVS Health, Uber Technologies Thursday: KBC Group, Brookfield, Thomson Reuters, L’Oreal, Vinci, Credit Agricole, Siemens, Toyota Motor, NTT, Honda Motor, AstraZeneca, Unilever, British American Tobacco, ArcelorMittal, DNB Bank, Volvo Car, Zurich Insurance Group, Credit Suisse, AbbVie, PepsiCo, Philip Morris, PayPal, Cloudflare Friday: Enbridge, Constellation Software Source: Saxo Spotlight: What’s on the radar for investors & traders this week? Powell’s speech, RBA meeting; Bank of Japan’s nominee submissions; UK GDP; and more earnings from Disney, Toyota, PepsiCo, Adani Green | Saxo Group (home.saxo)

After the fuel price cap was lifted in early December, fuel consumption dropped by 18.4% month-on-month. However, record-high inflation dragged down overall consumption similarly -3.9% Volume of retail sales (YoY, wda) ING forecast -4.4% / Consensus 0.2% / Previous 0.6% Worse than expected   The extremely poor performance of December’s retail sales data caught most economists off-guard as the volume of retail sales contracted by 3.9% year-on-year. The last time we saw such a large YoY decline was in February 2021 when the entire country was under a full-scale lockdown. What’s more, this decline was the result of a 1.0% monthly fall in the volume of retail sales. In our opinion, such a weak fourth quarter performance in retail sales will take its toll on last year’s fourth quarter GDP data as well. Diving deeper into the details we can see structural issues, even if we factor out the fuel retailing component, which was largely expected to decline. On a yearly basis, food retailing declined by 8.3%, but even on a monthly basis, it only grew by 0.1% during the holiday season, which means that the largest component in retail sales virtually stagnated. Overall, this reflects the new reality that consumers had to adapt to higher food prices as food inflation in December accelerated to 44.8% YoY. Breakdown of retail sales (% YoY, wda) Source: HCSO, ING   Non-food retailing posted a 0.4% drop on a yearly basis, despite a 1% month-on-month increase, with sub-sectors displaying heterogenous monthly dynamics. In this regard, the biggest surprise came from the second-hand goods shops, where the monthly turnover increased by 31.1% in volume. In our view, this is another by-product of the extremely high inflationary pressure as consumers are shifting to buying second-hand goods with record haste. This realisation comes amid the Christmas shopping spree, which by previous standards should have boosted the volume of sales in clothing, manufactured and home furnishing goods but in fact, these items all showed declining demand. With stagnating food retailing and declining non-food turnover, the last component further dragged down the headline number. Fuel retailing posted an 18.4% MoM decline. At first glance, the 1.3% growth on a yearly basis can be misleading concerning the current state of fuel retailing, thus we believe that the enormous monthly decline better reflects the current picture - which is very bleak. The Hungarian government lifted the fuel price cap in early December which resulted in a drastic drop in the volume of fuel retailing as drivers adapted to market fuel prices. Retail sales volume in detail (2015 = 100%) Source: HCSO, ING  Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM With December’s negative retail sales reading, we do not expect any positive surprise regarding last year’s fourth-quarter GDP data, which will be released next week. In our view, the quarter-on-quarter contraction in the last quarter will officially mean that the Hungarian economy has been in a technical recession since the second half of last year. Going forward, we see further deterioration in retail sales data at least until March, as real wage growth continues to drop. With food prices remaining at highly elevated levels, we expect further stagnation in the food retailing sub-component, while consumers will continue to adjust to market fuel prices. In this regard, we expect further additional drops in fuel retailing on an annual-based comparison, while sub-components in non-food retailing should continue to deliver mixed signals as consumers are continuously optimising and shifting preferences to keep up with record inflation. Read this article on THINK TagsRetail sales Hungary Households GDP Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Retail sales accelerated by 3.8% in December, taking the quarterly advance to 3.8% and full-year 2022 to 5.1%. The data supports our call for a robust fourth quarter GDP reading, but also for a visible slowdown in the first quarter   After a somewhat weak third quarter, retail sales accelerated in the fourth quarter of 2022, expanding by 0.8% versus the previous three months. In the third quarter, retail sales contracted by 0.8% from the second. In annual terms, December 2022 was only the third month of 2022 to witness an acceleration, as sales increased by 3.8% compared to December 2021. The robust headline number for December is supported by a relatively good structure as well, with non-food sales increasing by 6.6% and fuel by an impressive 13.6%, likely on the back of somewhat lower car fuel prices. Food sales remain less cycle-sensitive and dropped by 1.3% in December. Retail sales (YoY%) and components (ppt) Source: NSI, ING   With the picture for 2022 now complete, we can safely state the obvious, namely that consumer spending was remarkably resilient throughout the year. The very gradual slowdown compared to 2021 looks more like a return to a normal cruising speed than something that might raise an eyebrow. As resilient as it might be, however, most signs point towards a slower start to the year for consumption. Facing sharply higher interest rates and deteriorating risk sentiment, the stock of consumer loans advanced by only 4.1% in 2022 with the actual new production of loans being mostly negative throughout the year. Moreover, while in 2022 retail sales might have still benefited from post-pandemic pent-up demand, it looks highly unlikely that there is any more of that into 2023. Consumer lending turning less supportive Source: NSI,NBR,ING  Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM Somewhat balancing the consumption story, wage dynamics remained reasonably sound in 2022, with the average nominal net wage advancing by around 12.0% (December data is not out yet). This is below, but dare we say not that far from the 13.8% average inflation rate. Looking forward to 2023, there is a reasonable chance for the wage advances to recover the lost ground and exceed the average inflation rate. Overall, it is obvious that the destruction of purchasing power has not been of a great magnitude, and this should act as a backstop for private consumption in the short- to medium-term.   Retail sales following real wages Source: NSI, ING   All considered, the consumption story will likely remain in positive territory in 2023, though a growth slowdown to very low single digits looks most probable. With the fourth quarter sales picture complete, we remain of the opinion that the GDP advance has probably been quite robust in the fourth quarter. We maintain our estimate for a 1.0% quarterly expansion. This should take full 2022 GDP growth to around 5.0% and provide a strong carryover effect into 2023 which we maintain at 2.5%. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Without even an indication that a correction was about to start, the GBP/USD currency pair resumed its downward trend on Monday, which started after last week. As market participants might not have enough time to thoroughly process the outcomes of the Fed and BA meetings, as well as Friday's nonfarm payrolls and unemployment in the United States, we forewarned yesterday that the inertia movement could continue on Monday. That is exactly what happened, but because the overall decline in quotes is already above 300 points, the pair should at least begin to move upward. Even the Heiken Ashi indicator, which often responds the quickest to the start of a correction, has not yet come up at this time. The "double top" is still forming, thus the quotes should eventually decline to their previous local minimum (that is, below the level of 1.1841). As we have stated, we are anticipating both the decline of the British and the European currencies. The market has already fully determined how the Fed and BA rates diverge. In 2023, the British pound might still expand, but this will need new, strong fundamental reasons or factors. The British pound had to adjust downward after increasing by 2,100 points during the previous three months; this should be kept in mind. There was a downward trend developing everywhere you turned. Even though we've been waiting for it previously, it's better now than never. We think that the Bank of England's expected decision to cut down the pace of further tightening of monetary policy at its upcoming meeting may be the main cause of the British pound's decline in the coming weeks. It is unlikely that the regulator can afford to keep raising the rate by 0.5% per meeting given that the BA rate has already gone to 4%. It can increase to 6% at this rate, which is probably not what BA has in mind. In actuality, the UK economy is most susceptible to tighter monetary policy. Andrew Bailey predicts that the recession will persist for at least five quarters. The losses will be roughly 1% of GDP over this time, but if the rate keeps increasing at its current rate, the economic drop might be significantly greater. We believe the regulator is trying to prevent this. To reduce inflation, he will therefore rely on additional factors in addition to his tightening agenda. The UK GDP figure is significant, but it won't support the pound. There will only be one significant report this week: the UK GDP for the fourth quarter, as we have already stated. Experts predict that the indicator, which dropped by 0.3% in the previous quarter, may now rise by 0.1%. A 0.1% increase, however, will undoubtedly demonstrate that the British economy is on the verge of recession and that it is still strong enough to support the pound sterling. Trading still repels the market when it comes to making trading judgments. Recall that a similar situation occurred last year when the euro and the pound were declining as a result of geopolitical events and the Fed's rapid rate hike. The pound has been increasing over the past four to five months due to a strong probability of a reduction in the Fed's pace of tightening policy. Now, a new cycle of long-term depreciation may start due to the possibility that the BA may also slow down its pace to a minimum step. And the GDP report won't make the slightest difference. Currently, inflation is the only report that is truly significant. However, even this doesn't matter much in the UK scenario because the indicator essentially stays the same. If the connection "lower inflation - an increased likelihood of a pause in rate hikes" holds true for other central banks, it does not for the Bank of England because inflation does not decline and the regulator cannot raise rates indefinitely. As a result, for the time being, we think that the pound will keep falling since it lacks growth drivers. The pair confidently consolidated below the crucial level on the 24-hour TF, which is also a strong sell signal. The Senkou Span B line, which at this time runs about the 18th level, is the lowest point to which the quotes can now descend. Read next: USD/JPY Pair Is Trading Above 132.00, The Aussie Pair Is Near 0.6900| FXMAG.COM Over the previous five trading days, the GBP/USD pair has averaged 136 points of volatility. This figure is "high" for the dollar/pound exchange rate. Thus, on Tuesday, February 7, we anticipate movement that is contained inside the channel and is constrained by levels 1.1907 and 1.2180. The Heiken Ashi indicator's upward turn indicates the start of an upward correction. Nearest levels of support S1 – 1.2024 S2 – 1.1963 S3 – 1.1902 Nearest levels of resistance R1 – 1.2085 R2 – 1.2146 R3 – 1.2207 Trading Suggestions: In the 4-hour timeframe, the GBP/USD pair is still falling sharply. So long as the Heiken Ashi signal does not turn up, it is now possible to hold short positions with targets of 1.1963 and 1.1907. If the price is fixed above the moving average line, long positions can be initiated with targets of 1.2268 and 1.2329. Explanations for the illustrations: Channels for linear regression - allow us to identify the present trend. The trend is now strong if they are both moving in the same direction. Moving average line (settings 20.0, smoothed): This indicator identifies the current short-term trend and the trading direction. Murray levels serve as the starting point for adjustments and movements. Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day. A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.   Relevance up to 05:00 2023-02-08 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/334323

A terrible industrial production report confirms the economy's sudden and hard halt in December.   German industrial production decreased by 3.1% month-on-month in December, from +0.4% MoM in November. On the year, industrial production was down by almost 4%. Production in the energy-intensive sectors plummeted by 6.1% MoM and is now down by almost 20% compared with December last year. While production in the energy sector decreased by 2.3% MoM, activity in the construction sector fell by 8% MoM. This is a simply horrible report. Industrial pain is real Today's industrial production data brings back the old question of whether the glass is half full or half empty. To some, the current stagnation means that German industry is holding up better than feared. To others, it is only filled order books at the start of the war in Ukraine and the pandemic backlog of orders that have prevented more severe damage to industrial production. In any case, industrial production is currently almost 8% below its pre-pandemic level and the sharp drop in production in energy-intensive sectors illustrates how much the energy crisis is hurting industry. The former growth engine of the German economy is stuttering and no improvement is in sight. Despite the recent return of optimism as illustrated by improving sentiment indicators, the sharp drop in new orders, the inventory build-up in recent months and the lagged impact of high energy prices all still bode ill for the short-term outlook. Read next: Adani Group Company's Crisis Is Gaining Momentum, Finland Is The Happiest Country| FXMAG.COM Today’s industrial production was the last hard data for the month of December. It is a month to forget. Retail sales, exports and imports all fell sharply. Either this data will be strongly revised upwards in the coming months or the German economy entered hibernation in December. Despite the latest optimism reflected in improving sentiment indicators, this economic hibernation is unlikely to end any time soon. Read this article on THINK TagsIndustrial propduction Germany GDP Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

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)

Western Asset: US domestic spending growth slowed sharply in 2022, in line with the Fed’s wishes. We don’t expect domestic demand to rebound, so we expect even slower overall growth in 2023 than was seen last year. The first estimate of 4Q22 real GDP from the US Bureau of Economic Analysis (BEA) came in today at an annualized rate of 2.9%. This was above the market consensus at 2.0% and further above our own guesstimate of 0.8%. Inflation as per the price index for GDP came in at 3.5% annualized, so that nominal GDP was reported to have grown at a 6.5% annualized rate in 4Q. While GDP was above forecast, the details were actually decidedly weaker than expected. Thus, real consumer spending grew at only a 2.1% rate, versus expectations of 2.9%, and consumer spending on goods was essentially unchanged, while spending on services was below expectations, up “only” 2.6%. Real business investment in equipment declined substantially (down at a -3.7% rate), so that only continued growth in research and development kept capital spending rising. Residential construction dropped very sharply. The GDP growth surprise in 4Q was driven by inventories and foreign trade. For foreign trade, while real exports declined, real imports declined even more. Thanks to trade and inventories, BEA data show goods-sector GDP (output of manufacturing and mining) growing at a 6.6% per year rate in 4Q. In contrast, Federal Reserve (Fed) data show industrial output for these sectors declining at a -2.7% annualized rate. We should point out that such discrepancies—as between the GDP and industrial data—are pretty common. Industrial output did not show the 1H22 declines indicated by the GDP data, and neither did it show the robust gains indicated by GDP data in 2H22. Exhibit 1: Real GDP and Major Features   Source: Bureau of Economic Analysis, as of 31 Dec 22.   For all of 2022, the relevant statistics are reported in the chart. Real GDP grew 1.0% from 4Q21 to 4Q22. Real final sales are GDP less inventory investment, and this measure grew 1.3% over the four quarters of 2022. Domestic demand is the sum of domestic spending by consumers, businesses and government. It grew 0.9% for all of 2022 and at only a 0.3% rate in 4Q. Clearly, US domestic spending growth slowed sharply in 2022, in line with the Fed’s wishes. It is doubtful that imports can continue to decline or that inventories will continue to grow such that they sustain reported GDP growth at recent rates. We don’t expect domestic demand to rebound, so we expect even slower overall growth in 2023 than was seen last year. Definitions: Real gross domestic product (GDP) is a nation's total output of goods and services in constant dollar, or inflation-adjusted terms. Nominal GDP has not been adjusted for inflation. GDP inflation is the rate of inflation generated by GDP growth. WHAT ARE THE RISKS? Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors. U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

Our central US outlook scenario is that of recession but a moderate one, so that we expect neither spiraling inflation nor a hard landing. The US economy is likely to be neither hot enough to induce an ultra-aggressive Fed response— what many refer to as a Volcker moment—that might crash the economy into significant recession, nor cold enough to severely impact the rest of the world’s growth. Economic activity is decelerating. Are we headed for a recession? The US economy has shown relative strength compared to other major economies over the past couple of years, but it is now decelerating. Negative GDP growth prints in the first and second quarters of 2022 were related to idiosyncratic factors, with temporary drags from inventories and trade. GDP decreased in the first half of 2022 as a result, but it rose again in the third quarter by enough to offset that decline. Despite that recent gain, the US economy is clearly decelerating as positive effects from the post-COVID reopening dissipate. The lagged effect of interest-rate increases should also have a dampening effect on economic activity. Various Measures of US Domestic Demand are Decelerating Exhibit 4: GDP, Final Sales to Domestic Purchasers, Final Sales to Private Domestic Purchasers, % Quarter-On-Quarter (Q/Q) Seasonally Adjusted Annual Rate (SAAR) February 2010–August 2022 Q/Q SAAR 10 0 2 4 6 8-2-4-6-8-10 Feb-10 Feb-12 GDP Mar-14 Apr-16 Final Sales to Domestic Purchasers Final Sales to Private Domestic Purchasers May-18 Jun-20 Aug22 Sources: U.S. Bureau of Economic Analysts (BEA), National Bureau of Economic Research (NBER). Several measures of domestic demand and activity are showing a clear deceleration (see Exhibit 4). While GDP growth was 1.9% in the third quarter of 2022 compared with the same quarter of the prior year, basically matching the second quarter’s reading, final sales to domestic purchasers eased marginally to 1.2% from 1.3% and final sales to private domestic purchasers slowed to 1.6% from 1.8%. Other key economic indicators are also showing a controlled slowdown. For example, the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) decreased to 48.4—below the 50 break-even level—in December from 56.1 in May, while the ISM Services PMI slowed to 49.6 in December from 58.3 in March. Interest rates are starting to have some impact too. An example of this is the housing market, in which the rise in mortgage rates that has been seen during the Fed hiking cycle has resulted in housing construction turning downward (see Exhibit 5). Housing Has Reacted to Higher Interest Rates Exhibit 5: Housing Starts and Permits, SAAR January 2000–November 2022 MN SAAR 2.5 2.0 1.5 1.0 0.5 0 Jan-00 Nov-02 Sep-05 Jul-08 May-11 Mar-14 Jan-17 Nov-19 Nov22 Starts Permits Source: US Census Bureau. Overall, we therefore believe the US is likely entering a recession, though we expect it to be moderate. A moderate recession—and, in this case, one with still relatively high but decelerating inflation—would allow the Fed to first pause and then slowly ease interest rates in due course, gradually removing this driver of USD strength from the picture. Moderate or deep recession—what matters? A key factor mitigating against a deep US recession is the still-robust labor market, which remains at historically tight levels (Exhibit 6). The strength in the labor market has driven an acceleration in nominal wage growth (Exhibit 7). The combination of a resilient job market and rising wages supports labor income and, thus, overall household consumption. Consequently, while we anticipate the labor market to weaken, we expect its resilience to provide a base for stability in consumer spending, rather than the kind of steep contraction that might be associated with a deeper recession, such as that evidenced during the 2008 global financial crisis. We also do not currently see the kind of large macro imbalances that would require corrections of the types traditionally associated with deeper recessions. At present, the biggest risk to economic activity would thus likely come from the Fed needing to overtighten to bring inflation under control, rather than from imbalances in the real sector (such as excessive inventories or over-investment in real assets) or in the financial sector (such as elevated household or corporate leverage). Inventories are low in some sectors and only rebuilding at a slow pace (Exhibit 8). Elevated housing prices have not driven a boom in residential construction (Exhibit 9 on the next page); if anything, there is still an under-supply of housing. Household balance sheets are relatively healthy, and household credit balances have been increasingly held by high FICO score households. One area of risk is the still-elevated level of home prices relative to rents (the housing market analogy of the equity price-to-earnings ratio) (Exhibit 10 on the next page). However, it appears that mortgages are in the hands of those with stronger balance sheets (Exhibit 11), and the importance of housing construction to economic growth is also much lower than what it was before and during the global financial crisis. The shadow banking system is not as large as it used to be (Exhibit 12), and asset prices have already experienced significant corrections. However, we recognize that there are risks in the financial markets from “unknown unknowns,” especially given the rising rate cycle This article is part of the report

GBP/JPY clings to mild losses following UK data dump. Preliminary readings of UK Q4 GDP matches 0.0% market forecasts. Yield curve inversion renews recession woes but BoJ talks defend pair buyers. Concerns surrounding the next BoJ leadership, economic slowdown fears are the key to follow for fresh impulse. GBP/JPY stays sidelined near 159.30-20, paying little heed to the UK’s fourth quarter (Q4) Gross Domestic Product (GDP) during early Friday. In doing so, the cross-currency pair portrays the market’s indecision amid mixed signals and cautious mood ahead of the key US inflation precursors. That said, the first readings of the UK Q4 GDP match forecasts on QoQ and YoY figures while declining more for December month. However, the improvement in Industrial Production and Manufacturing Production seemed to have probed the pair buyers. Also read: Breaking: UK Preliminary GDP stagnates in Q4 2022, as expected Earlier in the day, various Bank of Japan (BoJ) officials tried pushing back the hawkish expectations for the Japanese central bank and put a floor under the GBP/JPY price. Recently, Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya said that (It is) appropriate to maintain the current ultra-loose monetary policy. Before that, BoJ Governor Haruhiko Kuroda said, “The benefits of easing outweigh the costs of side effects.” On the contrary, a pullback in the Treasury bond yields after renewing the recession fears seems to weigh on the GBP/JPY price. That said, the widest negative difference between the US 10-year and 2-year Treasury bond yields since 1980 amplified the recession woes the previous day. The yield curve inversion remains around the same level as both these key bond yields stay depressed near 3.66% and 4.48% respectively by the press time. Read next: USD/JPY Is Below 131.00 Again, The Aussie Is Close To 0.70$| FXMAG.COM Looking forward, the cautious mood ahead of the next BoJ leadership announcements, up for publishing on Monday, could restrict the GBP/JPY moves. However, the fears of recession and a retreat in yield may weigh on the prices amid downbeat UK concerns, including Brexit and workers’ strikes. Technical analysis A daily closing beyond the previous resistance line from January 27, now support around 158.70, keeps the GBP/JPY buyers directed towards the 50-DMA hurdle surrounding 161.20.    

A poor December GDP figure makes a first-quarter contraction in output look fairly inevitable. But these figures are undoubtedly noisy, and that means the Bank of England will be much more focused on wage and price data due next week Source: Shutterstock Recession dodged - just about The UK economy flatlined in the fourth quarter, though in truth it’s a quarter where the underlying picture was particularly noisy. Indeed, December’s 0.5% contraction in monthly GDP, which was worse than expected, can be largely blamed on either strikes (visible most clearly in transport and health, both of which shrank by close to 3% on the month) or, more bizarrely, a lack of Premier League football games in December due to the World Cup. That was enough to drive the recreation/entertainment category down almost 8%, though admittedly this is a volatile series. In short, following a couple of months of distortion surrounding the Queen’s funeral last September, it’s hard to discern the true underlying trend in the economy from this data. The reality is probably a very gradual deterioration in activity levels. The fact that the fourth quarter’s weakness was heavily concentrated in December means the starting point for the first quarter is pretty low, and means we’ll almost certainly get a contraction in the first quarter – even if activity effectively stagnates. Following this data, we’re pencilling in a 0.3-0.4% decline in GDP over that period, and this will probably be followed by a very modest hit in the second quarter too. Read next: Twitter Co-Founder Jack Dorsey Comments New Twitter's Owner| FXMAG.COM Recession is still narrowly the base case for the first half of this year That suggests recession, or at least a technical one, remains the base case, especially if we include the contraction in the third quarter of last year. But this looks like it is going to be very mild by historical standards, helped of course by the collapse in wholesale gas prices. We think the UK government will most likely scrap the planned increase in household energy prices in April, and current wholesale gas/electricity costs suggest the average annual bill will have fallen by 15-20% by the summer from current levels. That should help the economy avoid a deeper output hit through the spring/summer. What does all of this mean for the Bank of England? Honestly, probably not a great deal. The noisy picture presented by the GDP figures just means that policymakers will put more emphasis on the wage and price data we’ll get next week. Read more on what we think officials are looking for here. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Western Asset: Markets have started to anticipate that the Fed may cut rates in the not too distant future. But, this is in contrast to the Fed’s latest projections reiterated today that rate cuts are unlikely in 2023. Today the US Federal Reserve (Fed) increased its policy rate by 0.25%, as pretty much everybody expected it would. The post-meeting statement contained only small modifications. Fed Chair Jerome Powell reiterated many of the comments that have characterized his recent communications. “Inflation remains too high” and “The Fed is strongly committed to returning inflation to our two percent objective,” Powell said. Last year many feared the Fed was behind the inflation curve, as it responded slowly to above-target inflation. The environment has since shifted. The Fed may once again be behind, but now in the opposite direction. Chair Powell’s comments today did not fully acknowledge the change in economic data, nor did he convincingly explain why the Fed has a divergent view from the market regarding the path for interest rates. The Fed may now be behind the disinflation curve. Economic Data A number of recent data points could have been used to justify the Fed pausing its hiking cycle today, rather than continuing with rate increases at future meetings. First and perhaps most importantly, consumer price inflation is moderating. Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, showed that prices increased at an annual rate of 2.9% over the final three months of 2022. This is down sharply from the too-hot pace recorded over the preceding 12 months, when core PCE prices were increasing at an annual rate of 5.2%. Second, wage growth is decelerating. A number of series, including yesterday’s Employment Cost Index, suggest wage growth has declined to a 4% annual pace. This is down from a pace of nearly 6% early last year. The current 4% pace is close to one that would be consistent with annual price inflation of 2%, assuming productivity returns to more normal levels in 2023. Further deceleration in wage growth remains likely in coming quarters, as hiring has slowed and the gap between job openings and workers has started to narrow. Finally, economic activity appears to have stalled at the end of last year. Retail sales ended 2022 with two straight months of nominal declines. Manufacturing activity similarly declined in each of the last three months of 2022. And the contraction in housing activity showed no sign of abating. (The gross domestic product (GDP) data for 4Q22 likely overstated the economy’s momentum, as most of the growth came in inventories and net exports. The quarterly data may also mask some of the deceleration in the last two months of the year.) Taken together, these three things—moderating inflation, decelerating wage growth and stalling economic activity—make a case for the Fed pausing its rate hiking cycle. Chair Powell’s statement today that additional hikes remain “appropriate” puts him, and the rest of the Federal Open Market Committee (FOMC), a bit behind the economic data. Market Pricing Markets have started to anticipate the Fed may cut rates in the not too distant future. This is in contrast to the Fed’s latest projections that rate cuts are unlikely in 2023. Today Chair Powell did not indicate any change to those projections. This divergence between the market and the Fed has received a fair amount of attention, including from multiple reporters at today’s press conference. Generally, we are disinclined to think the divergence is all that significant. After all, following a year when the Fed’s interest-rate forecasts missed by 350 basis points (bps), ending this year within 50 bps of the forecast could be viewed as a respectable result. Nonetheless, to the extent there is something to be learned, we think the divergence is suggestive of two points. First, the current level of short-term interest rates is unlikely to be sustained for too long. The most acute phase of the inflation episode appears to have passed. Should inflation continue to decline throughout 2023, the current level of rates will become increasingly restrictive, thereby putting additional downward pressure on inflation and hastening the start of rate cuts. Relatedly, when interest rates are cut, they will likely be reduced by a significant amount. Just as the hikes in 2022 were steeper and larger than in previous cycles, it follows that rate cuts, when they happen, will likely also be much steeper and larger than in previous cycles. Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM The second point suggested by the divergence is that the risks have shifted. Last year, the primary risk was that inflation would continue to surprise higher. This year, in contrast, investors face a two-way risk with regard to inflation (i.e., inflation could surprise either lower or higher), as well as an increasing risk of a more material economic contraction. As a consequence, investors are now considering a number of scenarios in which short-term yields would be falling, and some scenarios in which yields would be falling very rapidly. These scenarios, which are increasingly plausible even if they are not yet most investors’ base case, have in turn pulled market pricing in the direction of lower yields. Conclusion The Fed may now be behind the disinflation curve. The recent economic data could justify a pause in the hiking cycle after today’s meeting; the market currently anticipates that rate cuts are on the horizon. The Fed, in contrast, continues to assert that further rate hikes will be appropriate and it does not anticipate cutting rates this year. There are, of course, a number of ways that this could play out. On the one hand, if inflation were to reaccelerate, the Fed’s slow response could prove prescient. This risk was likely a focus in the Fed’s deliberations today. On the other hand, if inflation continues to moderate, at some point the Fed will catch up with the data and markets. The timing of that remains uncertain. It’s entirely possible that the market pricing for cuts is a bit premature. Nonetheless, we do think the market pricing has correctly anticipated two points. Interest rates are unlikely to remain at these elevated levels for all that long, and the risks are increasingly tilted toward lower rather than higher yields. Source: The Fed may be behind the disinflation curve | Franklin Templeton

Industry may have been less of a drag on fourth-quarter GDP growth than expected. Positive signals from confidence data in January warrant some optimism, but do not clear the way for a substantial short-term acceleration, given the uncertain external environment Source: Shutterstock Production rebounds, not in energy-intensive sectors In December, industrial production rebounded an unexpectedly strong 1.6% in seasonally-adjusted terms, after three consecutive monthly declines. Production expanded on the month in all of the large aggregate categories, but more markedly in capital goods and energy. The sector breakdown shows that the ongoing improvements in the functioning of supply chains had a positive effect on transport equipment. However, energy-intensive producers of chemicals, plastics and tiles, paper, and metals and metal products continued to suffer, signalling that the impact of the energy shock was still weighing on supply by the turn of the year.   The consequences of the energy crisis weighed heavily on industry in 2022 During 2022 as a whole, industrial production posted a 0.5% increase, driven by consumer and capital goods. Almost inevitably, the consequences of the war in Ukraine on energy prices weighed heavily on the manufacturing sector over the year. The measures put in place by the government provided only partial compensation and manufacturing acted as a drag on economic growth. This put the onus on services to fuel growth. Confidence improvement encouraging, but short-term acceleration unlikely With the December release now in the bag, we now know that the statistical carryover for 2023's industrial production is a modest 0.3%. Business confidence data published after the turn of the year was positive but did not dispel uncertainty. While the PMI entered expansion territory, orders remained soft and the stock of finished goods is relatively high, suggesting that a substantial acceleration in production is unlikely, at least in the short run. To be sure, the consolidation of wholesale gas prices at current levels could help to support businesses, particularly in energy-intensive sectors.  Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM Today’s release does not change the picture for GDP growth in 2023. We are currently forecasting average GDP growth at 0.7% in Italy, with a minor 0.1% quarterly contraction in the first quarter. Should early positive signals be confirmed, a flat or mildly positive first quarter could easily materialise. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

During the American session, the University of Michigan will publish a preliminary consumer sentiment survey for February. The main consumer confidence index is expected to rise to 65 from 64.9 in January. Market participants will keep a close eye on the component of the survey on inflation expectations for the next year, which fell to 4% in January from 4.4% in December. An unexpected increase in this reading could strengthen the US dollar. USD/JPY The yen strengthened on Friday before recovering slightly after Kazuo Ueda, who was reportedly tapped as the next governor of the Bank of Japan (BOJ), said the central bank's monetary policy was the right one. The government is also nominating Ryozo Himino, the former head of Japan's banking regulator, and BOJ director Shinichi Uchida as deputy governors, the Nikkei said. BOJ deputy governor Masayoshi Amamiya was the frontrunner for the role of governor, but the Nikkei reported that he turned down the job. The government is expected to present candidates to parliament on February 14. The BOJ shocked markets in December when it raised the 10-year yield cap to 0.5% from 0.25%, doubling the allowable range above or below zero. USD/JPY managed to rebound towards 131.00 after falling below 130.00 earlier in the day. EUR/USD EUR/USD picked up momentum and climbed to around 1.0800 at the end of Thursday, but lost much of its daily gains and closed below 1.0750. EUR/USD came under slight downward pressure and fell towards 1.0700 during Friday's European session. The US dollar gained strength thanks to rising US Treasury yields. The euro hit a 10-month high against the dollar earlier this month. The prospect of a milder recession thanks to falling energy prices and plentiful natural gas supplies, coupled with China's exit from three years of severe COVID-related restrictions, has generally ignited investors' appetite for European assets. However, this enthusiasm has made the euro look vulnerable, at least in the short term. The Euro is set for a second consecutive week of declines and at the time of writing EUR/USD is trading below 1.07 at 1.6998. Read next: Tesla Will Increase Output For 2023, Deliveroo Are Planning To Cut Jobs| FXMAG.COM GBP/USD The pound weakened on Friday after data showed the UK economy stalled in the final three months of 2022, avoiding a technical recession but recording zero growth. The UK Office for National Statistics said on Friday that the UK economy contracted by 0.5% on a monthly basis in December and came to a standstill in the fourth quarter. On the positive side, industrial production rose 0.3% in December, beating market expectations for a 0.2% decline. The Bank of England forecast last week that the UK would enter a shallow but lengthy recession starting in the first quarter of this year and lasting five quarters. Moreover, Money Markets shows that investors believe that UK interest rates will peak below 4.40% by late summer, from the current 4%. UK consumer inflation data will be released next week and may have a bigger impact on these expectations. The GBP/USD pair previously surged to levels above 1.2130 but lost momentum and is now trading just above 1.2100 and below 1.2110. AUD/USD The Australian dollar held below $0.695, pressured by hawkish signals from Federal Reserve officials who reiterated their commitment to bring down inflation with more rate increases. The Australian Dollar remains supported by expectations that the Reserve Bank of Australia will tighten policy further. The RBA’s latest monetary policy statement showed that the central bank revised its inflation forecasts higher for this year, saying price pressures were spreading into services and wages. AUD/USD is headed towards 0.6900 amid disappointing Chinese CPI and PPI data. The Australian pair is not benefiting from the RBA's hawkish monetary policy statement, currently the Aussie pair holds above 0.6920. Source: finance.yahoo.com, investing.com

Equity markets are ending the week on a flat or slightly downbeat note which has largely reflected the mood all week, really. Central bankers, particularly from the Fed, have been out in force stressing caution over interest rate expectations. And it’s clearly had an impact following that red-hot jobs report last Thursday. Markets are now pricing in two more hikes from the Fed and possibly one cut later in the year. No time for sparkling wine I think it’s safe to say the sparkling wine can remain on ice after data this morning confirmed the UK avoided a recession at the end of 2022 by the narrowest of margins. So much so that there’s every chance that a tiny revision over the next couple of months confirms quite the opposite. Ultimately, this isn’t a story of whether the UK is in recession or not as that’s just a simple technical definition. It’s a story of zero growth – quite literally in the case of the fourth quarter – and the fact that this likely represents the recent past, present, and near-term future prospects for the UK economy. High but falling inflation and basically no growth for some time. It’s all a bit bleak really. Of course, that’s better than where we expected to be at this point so that’s a positive. The data towards the end of the year is actually quite difficult to pick apart due to the impact of one-off or temporary events like the world cup, the loss of premier league football, and most importantly, the many, many public sector strikes that continued into the new year. The negative impact on the pound was brief though as the data doesn’t tell us anything we didn’t already know, nor does it alter the outlook on inflation or interest rates. First big test of the recovery After showing solid resilience over the past few weeks, bitcoin finally appears to have entered into a correction phase after falling almost 5% on Thursday. The community won’t be too dismayed by the move as it was never just going to go from strength to strength and this correction will enable us to see just how quickly money pours back in. It should be an interesting couple of weeks. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.  

The most important piece of data released in Hungary next week will be fourth-quarter GDP. With the cost-of-living crisis reducing domestic consumption, we expect to see a quarter-on-quarter decline of 1.2%. In Poland, we forecast that headline CPI inflation will increase to 18.1% year-on-year in December, due to adjustments to prices In this article Poland: Ongoing economic slowdown Hungary: More proof that Hungary has been in technical recession since mid-2022 Romania: Accelerated cooling in the economy   Shutterstock Poland: Ongoing economic slowdown Current account (December 2022): -€1,418m Our forecasts point to a December 2022 current account deficit of €1,418m amid a sizable trade deficit. We expect a further slowdown in the annual growth of exports and imports to 16.1% YoY and 18.1% YoY, respectively. Our models point to downside risks to trade turnover. At the same time, Poland received a sizable portion of EU funds in December, however, most of this will be recorded under the capital account rather than the current account. If our forecast proves broadly correct, the current account deficit in 2022 would be around 3.1% of GDP vs. 1.4% of GDP in 2021. Flash GDP (4Q22): 2.3% YoY The release of annual 2022 GDP allowed us to estimate that the fourth quarter figure is likely to be slightly higher than 2% YoY. The composition of the headline figure will be unveiled later this month, but annual GDP points to a decline in household consumption in the last three months of 2022, while fixed investment held up surprisingly well. Changes in both inventories and net exports contributed positively to economic growth in the final quarter of last year. All in all, we observe an ongoing economic slowdown and project a weak first half of this year, with a negative annual figure likely in the first quarter. CPI (January 2023): 18.1% YoY Forecasting January CPI was a challenge due to uncertainty linked to price adjustments by enterprises at the beginning of the year and changes to regulated prices. We forecast that headline CPI inflation jumped to 18.1% YoY from 16.6% YoY in December 2022. Although pre-tax prices of natural gas were frozen at the 2022 level and electricity prices for households were also kept unchanged up to a certain threshold of consumption, the anti-inflation shield was withdrawn and VAT rates on energy returned to 23%. Despite an increase of VAT on gasoline and diesel from 8% to 23%, retail prices remained stable as pre-tax (wholesale) prices were lowered. The reading will be less comprehensive than usual (similar to the flash release) and full details will be unveiled in March along with the annual update of CPI basket weights that will also bring a revision of the January figure. We still expect inflation to peak around 20% YoY in February. Hungary: More proof that Hungary has been in technical recession since mid-2022 The only really important data release in Hungary is going to be the fourth-quarter GDP data. We expect the preliminary reading to prove that the Hungarian economy has been in a state of technical recession since mid-2022. After a 0.4% quarterly drop in the third quarter, we see a 1.2% decline in real GDP in the fourth. The cost-of-living crisis impacted domestic demand, thus we see a significant reduction in consumption, while the higher interest rate environment might slow private investment activity. As the government tried to rationalise its own investment activity, postponing some projects into 2023-2024, we also see this as a downward force on economic activity. The only silver lining could be exports, though the extraordinary gas purchases in the last quarter will limit the upside of this positive contribution, in our view. Regarding the production side, the single most important downward pressure will come from agriculture due to a pretty bad performance on the combination of drought, supply and productivity issues. Romania: Accelerated cooling in the economy January inflation should show signs of a consolidation in the downward trend, after the 16.8% peak touched back in November. We estimate the headline CPI around 15.4%, with risks skewed slightly to the upside due to car fuel prices which might have increased above our estimates after the removal of 0.5 lei subsidy starting in January. In any case, the bigger trend remains to the downside and we expect headline inflation to reach single digits around September 2023. The high-frequency data available to date suggest rather resilient GDP growth in 4Q22, consistent with our current estimate of around a 1.0% quarterly advance. This would take the full 2022 GDP to +5.0%, arguably one of the best outcomes one could have hoped for. Much in line with external developments, there are early signs of an accelerated cooling in the economy in January, with the Economic Sentiment Index falling for the third consecutive month, particularly on the back of lower demand in the service sector. Key events in EMEA next week Refinitiv, ING Tags Romania Poland inflation Hungary EMEA and Latam calendar EMEA 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

Next week’s data calendar features inflation readings from India, labour data from Australia, Japan’s latest GDP report and rate decisions from China, Indonesia, and the Philippines In this article India’s inflation number to set the tone for RBI rate decision Unemployment rate key for future RBA policy GDP data from Japan Weak jobs data expected from Korea China to gauge economic reopening before adjusting policy stance Indonesia to see rise in trade surplus Regional central banks look to tighten policy further   Shutterstock India’s inflation number to set the tone for RBI rate decision India's January inflation will probably move higher (6.2%) after the 5.7% year-on-year reading in December. But what will be watched more closely after the latest hawkish central bank statement from the governor, will be the core CPI inflation measure. Any indication that this has moved below 6% could be significant for the Reserve Bank of India's policy, though we think despite a small decline, the ex-food and beverages inflation rate will remain just above 6% YoY. Unemployment rate key for future RBA policy January employment data for Australia will add to the balance of knowledge surrounding future Reserve Bank policy. However, it will have to show a further marked deterioration, following last month’s part-time driven decline in employment and rise in unemployment rate, to offset the RBA’s new-found hawkishness.   After last month’s decline in part-time work, we will probably see that part of the survey moderate, combined with perhaps a smaller increase in full time jobs of about 10K to deliver a total employment change of 15-20,000. If that is broadly right, we may see the unemployment rate edge up to 3.6% - still very low by historical standards. GDP data from Japan Japan’s fourth quarter GDP data will be the highlight of next week. We expect the economy to recover from the previous quarter’s contraction, led mostly by private consumption and investment. The reopening and government travel subsidy programmes should lead to a great improvement in hospitality-related activities. However, due to high inflation, the rebound will likely be limited to 0.6% (quarter-on-quarter, seasonally adjusted).   Meanwhile, core machinery orders are likely to shrink again in December amidst weak global demand conditions. Japan’s export growth is also expected to drop in January as the early trade data has suggested. We believe that Japan’s decision to join the US’s tech export ban to China will probably have a negative impact on Japan’s exports. Weak jobs data expected from Korea Korea’s unemployment rate is expected to continue to rise to 3.6% in January (3.3% previously) on the back of a slowing economy. There have been several news reports on job losses, mostly from the IT and finance sectors. This could also be due to severe weather in January, where agricultural and construction-related employment has been negatively impacted. China to gauge economic reopening before adjusting policy stance The People's Bank of China will announce the 1Y Medium Term Lending Facility (MLF) interest rate next Wednesday. We expect no change to policy as the economy has started to recover. The central bank should take time to observe the pace of recovery and determine if there is a genuine need for further cuts to the policy rate and Required Reserve Ratio. Meanwhile, new home sales should show a stable month-on-month change as we have seen a slight price pick up in the tier one cities like Beijing, Shanghai, Guangzhou, and Shenzhen while home prices of lower tier cities were still sluggish. Indonesia to see rise in trade surplus Recent trends within Indonesia’s trade sector should extend into another month. Exports will likely remain in expansion while imports are expected to contract. This will result in the trade balance remaining in surplus of roughly $4.2Bn. The projected trade surplus however will be lower than the highs recorded in 2022 with the current account possibly slipping back into deficit territory.  Regional central banks look to tighten policy further Bank Indonesia (BI) is scheduled to hold its second policy meeting for the year. BI Governor Perry Warjiyo has hinted that this current rate hike cycle could come to an end if inflation were to slow and the Federal Reserve were to turn more dovish. BI could still opt to hike by 25bp next week given renewed hawkish signals from the Fed while also ensuring core inflation heads much lower before pausing.  The Bangko Sentral ng Pilipinas (BSP) will also meet next week to discuss policy. After the blowout January inflation report, we believe that the central bank has no choice but to hike policy rates to combat above-target inflation. Governor Felipe Medalla has previously hinted at a potential shift in tone, but surging price pressures will likely mean that he doubles down on the hawkish rhetoric by hiking rates 50bp. Key events in Asia next week Refinitiv, ING TagsEmerging Markets Asia week ahead Asia Pacific Asia Markets 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

Next week will be important for investors. US releases inflation data. Also the British economy will share inflation data. What's more, this will be an important week for futna investors as not only inflation data will be released, but also PPI, unemployment rate and retail sales. CPI forecast Each month's inflation data shows how much these prices have increased since the same day last year. The CPI inflation report, one of the most important sets of financial data coming from the UK, will be published on February 15th. Economists suggest that headline inflation recorded a small drop (-0.3%), reaching 10.2% (y/o/y) in January. Inflation in the UK is still close to a 40-year high and five times the BoE's target of 2%. Source: investing.com Bank of England expectations There are several reasons why we expect a rapid drop in inflation this year. First, wholesale energy prices have fallen significantly. In Europe, they have halved in the last three months. You may not have felt the impact of this on your bills yet. But this change will help bring inflation down. Secondly, BoE expect a sharp drop in the prices of imported goods. That's because some of the production difficulties that companies have faced are starting to subside. Third, as people have less money to spend, we expect less demand for goods and services in the UK. All of this should mean that the prices of many things will not rise as fast as they did. Thus, the Bank of England expects that inflation will start to fall from the middle of this year and will amount to around 4% by the end of the year. BoE expect it to continue to decline towards our 2% target after this period. Interest rates The pace of price growth has slowed slightly, but inflation remains close to its 40-year high. In response, the Bank of England raised interest rates to 4%, the highest level in 14 years. Higher interest rates make it more expensive for people to borrow money to buy things. Higher interest rates also encourage people who can save to save instead of spend. Together, these factors mean there will be less spending in the economy overall. When people generally spend less on goods and services, the prices of those things tend to rise more slowly. Slower price growth means a lower rate of inflation. The increase in interest rates means that many people will face higher costs of credit. And some companies will face higher interest rates on loans. We know this will be difficult for many people. Other data Ahead The Office for National Statistics (ONS) is expected to publish its ILO unemployment rate report on Tuesday, February 14th. Analysts suggest that the UK’s unemployment rate remained steady at 3.7% in the three months to December. On Friday February 17th, market analysts will focus on the ONS report regarding January retail sales in the UK. Economists forecast a 1.8% growth on a yearly basis, but zero growth on a month-to-month basis. A better than expected figure could boost the UK pound, whilst a lower than anticipated figure could weaken the currency. UK GDP According to the GDP report published by the ONS on February 10, the UK economy recorded zero growth in the final quarter of 2022, in line with analysts' expectations. Source: investing.com

The dollar-yen pair is showing increased volatility. On Friday, sellers of USD/JPY updated the local low, reaching 129.84, whereas today, buyers are already testing the 132nd figure. Traders cannot determine the vector of price movement, but the pair fluctuates in a wide price range. The nervousness of market participants is quite understandable since tomorrow, February 14, the next Governor of the Bank of Japan will be known. Moreover, key data on the growth of Japanese economy in Q4 will be published on Tuesday. On top of everything else, a crucial inflation report will be released tomorrow in the USA, which will show the dynamics of consumer price index in January. All of these fundamental factors could cause serious price turbulence. Therefore, current price fluctuations of USD/JPY should be treated with great caution. Is Ueda not an ally of the yen? Last week, the Japanese currency strengthened its position throughout the market after Bank of Japan Deputy Governor Masayoshi Amamiya turned down offer to succeed current Governor Haruhiko Kuroda. His candidacy was to be submitted to Parliament for approval on February 10. Amamiya is a supporter of a soft monetary policy, so his decision not to run for the position of the head of the central bank had an impact on USD/JPY: on Friday, the price updated the weekly low, denoting around the 129th figure. Moreover, the Japanese media (Nikkei Asia in particular) announced the name of the new favorite of the election race: according to the insiders, on February 14, the government will nominate Kazuo Ueda, who was a member of the Governing Council of the Bank of Japan. Initially, the market was dominated by the view that he was more hawkish than Kuroda. However, it turned out later on that was not the case. At least in his brief interview to Reuters, Ueda called the Bank of Japan's policy "adequate." In his opinion, Japanese regulator should continue to implement accommodative policy "by making logical decisions and clearly explaining its position." Such comments disappointed sellers of USD/JPY, so it is not surprising that today the pair is already testing the area of the 132nd figure. However, only journalists have "appointed" Ueda so far: government officials have not commented on the information about his candidacy. Moreover, some analysts urge not to make hasty conclusions and treat media reports with great caution. According to them, in the past, the government eventually nominated other candidates amid harsh criticism of the candidate "announced" by journalists or other political reasons. Therefore, the intrigue remains here, which means that the growth in the price of USD/JPY looks unsteady. Note that the last meeting of the Bank of Japan under the leadership of Kuroda will take place on March 10, and the first meeting of the central bank under its new head will be held on April 28. Read next: GBP/USD Started The New Week In A Calm Way, EUR/USD Is Waiting For US CPI Report| FXMAG.COM Important releases on Tuesday Japan's economic growth data for Q4 2022 will be released on February 14. In Q3, Japan's GDP took an unexpected downturn. The drop in the economy was mainly due to higher prices, which had a negative impact on household spending in the country. Also the downward dynamics was due to the weakening of the yen against world currencies. Since fall last year, the yen has appreciated by more than 2,000 points against the dollar. But inflation in Japan still continues to update multi-year records. According to the latest data, the country's overall consumer price index rose to 4.0%, excluding food and energy prices by 3.0%, and corporate goods price index jumped by 10.2%. At the same time, according to the forecasts of most experts, Japanese economy will show growth in the fourth quarter, leaving the negative area (growth by 0.5% is estimated). While the GDP deflator index may jump to 1.1% (the indicator will rise above zero for the first time since 2020). If the above indicators come out at the forecast level, the yen may receive support, as the market will again increase hawkish expectations regarding possible decisions of the Bank of Japan in the second half of the year. Conclusions Tomorrow, the dollar-yen pair will be in a zone of price turbulence. In addition to the Japanese government's personnel decisions and the Japanese GDP growth data, there will be a report on Tuesday on the Consumer Price Index growth in the USA. Such major fundamental factors can trigger a volatility storm, and it is impossible to foresee the price movement vector here. That is why, for the time being, it would be best to maintain a wait-and-see attitude in the USD/JPY pair, as the high-profile events of Tuesday might "redraw" the fundamental picture considerably.   Relevance up to 10:00 2023-02-14 UTC+1 This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here. Read more: https://www.instaforex.eu/forex_analysis/334921

We expect the modest recovery to continue this year, but it is questionable whether it is going to be strong enough for the Bank of Japan to make progress in normalization as rapidly as expect